AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997
REGISTRATION NO. 333-[ ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
HOST MARRIOTT CORPORATION DELAWARE 53-00895950
HOST MARRIOTT FINANCIAL TRUST DELAWARE TO BE APPLIED FOR
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) JURISDICTION OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
10400 FERNWOOD ROAD
BETHESDA, MD 20817-1109
(301) 380-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHRISTOPHER G. TOWNSEND, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
10400 FERNWOOD ROAD
BETHESDA, MD 20817-1109
(301) 380-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
-------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment file pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 433,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------
Convertible Quarterly
Income Preferred
Securities SM of Host
Marriott Financial
Trust.................. 11,000,000 $54.00(1)(2) $594,000,000(1)(2) $180,000
- -----------------------------------------------------------------------------------------
Convertible Debentures
of Host Marriott
Corporation............ (3) (3) (3) --
- -----------------------------------------------------------------------------------------
Common Stock, par value
$1.00 per share, of
Host Marriott
Corporation............ 29,563,600(4) (4) (4) (4)
- -----------------------------------------------------------------------------------------
Preferred Securities
Guarantee of Host
Marriott Corporation... (5) (5) (5) (5)
- -----------------------------------------------------------------------------------------
Preferred Stock Purchase
Right(6)...............
- -----------------------------------------------------------------------------------------
Total................... 11,000,000 100%(1)(2) $594,000,000 $180,000
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) Exclusive of accrued interest and distributions, if any.
(3) $567,000,000 in aggregate principal amount of 6 3/4% Convertible
Debentures due 2026 (the "Convertible Debentures") issued on a joint and
several basis by Host Marriott Corporation ("Host Marriott", or the
"Company"), a Delaware Corporation, were issued and sold to Host Marriott
Financial Trust, a Delaware statutory business trust (the "Issuer"), in
connection with the issuance by the Issuer of $550,000,000 of its 6 3/4%
Convertible Quarterly Income Preferred Securities (the "Preferred
Securities"). The Convertible Debentures may be distributed, under certain
circumstances, to the holders of Preferred Securities for no additional
consideration.
(4) The Preferred Securities are convertible into Convertible Debentures,
which are convertible into common stock, $1.00 par value per share, of the
Company (the "Common Stock"). Each Preferred Security is initially
convertible into 2.6876 Shares of Common Stock, subject to adjustment
under certain circumstances. Shares of Common Stock issued upon conversion
of the Preferred Securities will be issued without the payment of
additional consideration.
(5) Includes the obligations of the Company under the Guarantee (as defined
herein) and certain back-up undertakings under (i) the Indenture (as
defined herein) pursuant to which the Convertible Debentures were issued,
(ii) the Convertible Debentures and (iii) the Amended and Restated
Declaration of Trust of the Issuer, including the Company's obligations
under such Indenture to pay cost, expenses, debts and liabilities of the
trust (other than with respect to the Preferred Securities and the Common
Securities of the Issuer), which in the aggregate provide a full and
unconditional guarantee of amounts due on the Preferred Securities. No
separate consideration will be received for the Guarantee and such back-up
undertakings.
(6) The Company Rights are initially carried and traded with the Company
Common Stock. The value attributable to the Company Rights, if any, is
reflected in the value of the Company Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
REGISTRATION NO. 333-[ ]
11,000,000 PREFERRED SECURITIES
HOST MARRIOTT FINANCIAL TRUST
6 3/4% CONVERTIBLE QUARTERLY INCOME PREFERRED SECURITIES
(CONVERTIBLE QUIPSSM* SECURITIES) (LIQUIDATION PREFERENCE $50 PER PREFERRED
SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK
OF,
HOST MARRIOTT CORPORATION
----------
This Prospectus relates to the 6 3/4% Convertible Quarterly Income Preferred
securities (the "Preferred Securities") which represent preferred undivided
beneficial interests in the assets of Host Marriott Financial Trust, a
statutory business trust created under the laws of the State of Delaware (the
"Issuer"), and the shares of common stock, par value $1.00 per share (the "Host
Marriott Common Stock"), of Host Marriott Corporation, a Delaware corporation
("Host Marriott" or the "Company"), issuable upon conversion of the Preferred
Securities. The Preferred Securities were issued and sold (the "Original
Offering") on December 2, 1996 (the "Original Offering Date") to the Initial
Purchasers (as defined herein) and were simultaneously sold by the Initial
Purchasers in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in the United States
to persons reasonably believed by the Purchasers to be qualified institutional
buyers as defined in Rule 144A under the Securities Act, and outside the United
States to non-U.S. persons in offshore transactions in reliance on Regulation S
under the Securities Act. All of the beneficial interests in the assets of the
Issuer represented by common securities of the Issuer (the "Common Securities"
and, together with the Preferred Securities, the "Trust Securities") are owned
by Host Marriott Corporation. The Issuer exists for the sole purpose of issuing
the Preferred Securities and the Common Securities and investing the proceeds
from the issuance thereof in 6 3/4% Convertible Subordinated Debentures due
December 2, 2026 (the "Debentures") to be issued by Host Marriott. The
Preferred Securities have a preference under certain circumstances with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Common Securities. See "Description of the Preferred
Securities--Subordination of Common Securities."
The Preferred Securities and Host Marriott Common Stock issuable upon
conversion of the Preferred Securities (collectively the "Offered Securities")
may be offered and sold from time to time by the holders named herein or by
their transferees, pledgees, donees or their successors (collectively, the
"Selling Holders") pursuant to this Prospectus. The Offered Securities may be
sold by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Selling Holders" and "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from the
sale of the Offered Securities and will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any such sale. Host
Marriott is responsible for payment of all other expenses incident to the
registration of the Offered Securities. The Selling Holders and any broker-
dealers, agents or underwriters that participate in the distribution of the
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements.
Each Preferred Security is convertible in the manner described herein at the
option of the holder, at any time prior to the Conversion Expiration Date (as
defined herein), into shares of common stock, $1.00 par value per share, of
Host Marriott Common Stock at the rate of 2.6876 shares of Host Marriott Common
Stock for each Preferred Security (equivalent to a conversion price of $18.604
per share of Host Marriott Common Stock), subject to adjustment in certain
circumstances. See "Description of the Preferred Securities--Conversion Rights"
and "Description of Host Marriott Capital Stock." The last reported sale price
of Host Marriott Common Stock, which is listed under the symbol "HMT" on the
New York Stock Exchange, on January 15, 1997 was $16 5/8 per share.
Holders of the Preferred Securities are entitled to receive preferential
cumulative cash distributions from the Issuer at an annual rate of 6 3/4% of
the liquidation preference of $50 per Preferred Security accruing from the date
of original issuance and payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year, commencing March 1, 1997. See
"Description of the Preferred Securities--Distributions". The payment of
distributions out of moneys held by the Trust and payments on liquidation of
the Trust or the redemption of Preferred Securities, as described below, are
guaranteed by Host Marriott (the "Guarantee") to the extent the Trust has funds
available therefor as described under "Description of the Guarantee". The
Guarantee, when taken together with its obligations under the Indenture (as
defined herein) pursuant to which the Debentures were issued, the Debentures
and its obligations under the Trust Agreement (as defined herein), including
its obligations under the Indenture to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. Host Marriott's obligations under the Guarantee rank (i)
subordinate and junior to all other liabilities of Host Marriott except any
liabilities that may be pari passu by their terms, (ii) pari passu with the
most senior preferred stock issued from time to time by Host Marriott and with
any guarantee now or hereafter entered into by Host Marriott in respect of any
preferred or preference stock or any preferred securities of any affiliate of
Host Marriott and (iii) senior to Host Marriott Common Stock. See "Description
of the Guarantee".The distribution rate and the distribution and other payment
dates for the Preferred Securities correspond to the interest rate and interest
and other payment dates in the Debentures, which are the sole assets of the
Issuer. As a result, if principal or interest is not paid on the Debentures, no
amounts will be paid on the Preferred Securities.
Host Marriott has the right to defer payment of interest on the Debentures at
any time or from time to time for a period not exceeding 20 consecutive
quarters with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date (as defined herein), Host
Marriott may elect to begin a new Extension Period subject to the requirements
set forth herein. If interest payments on the Debentures are so deferred,
Distributions on the Preferred Securities will also be deferred and Host
Marriott will not be permitted, subject to certain exceptions set forth herein,
to declare or pay any cash distributions with respect to Host Marriott's
capital stock or debt securities that rank pari passu with or junior to the
Debentures.
(Continued on page 2)
----------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 4.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -----
* QUIPS is a servicemark of Goldman, Sachs & Co.
----------
The date of this Prospectus is January , 1997.
(Continued from page 1)
During an Extension Period, interest on the Debentures will continue to
accrue (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate at 6 3/4% per annum, compounded
quarterly) and holders of Preferred Securities will be required to accrue
interest income for United States federal income tax purposes. See
"Description of the Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Original Issue Discount."
At any time on or after December 2, 1999, Host Marriott may, at its option,
cause the rights of holders of the Preferred Securities to convert the
Preferred Securities into Host Marriott Common Stock to expire. Host Marriott
may exercise this option only if for 20 trading days within any period of
30 consecutive trading days, including the last trading day of such period,
the Current Market Price (as defined herein) of Host Marriott Common Stock
exceeds 120% of the conversion price of the Preferred Securities, subject to
adjustment in certain circumstances. In order to exercise its option to
terminate the conversion rights of the Preferred Securities, Host Marriott
must issue a press release announcing the date upon which conversion rights
will expire prior to the opening of business on the second trading day after
any period in which the condition in the preceding sentence has been met, but
in no event prior to December 2, 1999. The date on which such conversion
rights will expire (the "Conversion Expiration Date") shall be a date not less
than 30 and not more than 60 days following the date of the issuance of the
press release described above. See "Description of the Preferred Securities--
Conversion Rights--Expiration of Conversion Rights."
Except as provided below, the Preferred Securities may not be redeemed by
the Issuer prior to December 2, 1999. The Preferred Securities are subject to
redemption, in whole or in part, on or after such date, at redemption prices
set forth herein, upon any permitted redemption by Host Marriott of
Debentures, in a principal amount not to exceed the amount of the proceeds
derived by Host Marriott or its subsidiaries from the issuance and sale of
common stock within two years preceding the date fixed for redemption. See
"Description of the Preferred Securities--Optional Redemption." In the event
that, at any time after the Conversion Expiration Date, less than 5% of the
Preferred Securities remains outstanding, such Preferred Securities shall be
redeemable at the option of the Issuer, in whole but not in part, at a
redemption price equal to the liquidation preference for such Preferred
Securities and all accrued and unpaid Distributions. See "Description of the
Preferred Securities--Optional Redemption." In addition, the Preferred
Securities are subject to mandatory redemption upon the repayment at maturity
or as a result of acceleration of the Debentures. See "Description of the
Preferred Securities-- Mandatory Redemption."
Under certain circumstances following the occurrence of a Special Event (as
herein defined), the Preferred Securities are also subject to (i) exchange, at
the option of the Issuer in the manner described herein, for Debentures (see
"Description of the Preferred Securities--Special Event Exchange or
Redemption") and (ii) redemption, in whole or in part, on or after December 2,
1999, if such Special Event constitutes a Tax Event (as defined herein). At
any time, Host Marriott has the right to terminate the Issuer and cause the
Debentures to be distributed to the holders of the Preferred Securities in
liquidation of the Issuer. See "Description of the Preferred Securities--
Distribution of Debentures."
The Debentures are subordinate and junior in right of payment to all Senior
Debt of Host Marriott. The terms of the Debentures place no limitation on the
amount of Senior Debt that may be incurred by Host Marriott or the amount of
indebtedness that may be incurred by its subsidiaries. On a pro forma basis as
of September 6, 1996, Host Marriott had indebtedness of $142 million
(excluding various guarantees of debt obligations of certain affiliates on
such date in an aggregate amount of $128 million), all of which comprised
Senior Debt of Host Marriott. Host Marriott has the right from time
2
to time on or after December 2, 1999 to redeem, in whole or in part, the
Debentures at the redemption prices set forth herein, provided that the
principal amount so redeemed may not exceed the amount of proceeds derived from
Host Marriott or its subsidiaries from the issuance and sale of common stock
within two years preceding the date fixed for redemption.
In the event of the termination of the Issuer, after satisfaction of the
creditors of the Issuer as provided by applicable law, the holders of the
Preferred Securities will be entitled to receive a liquidation preference of
$50 per Preferred Security plus accumulated and unpaid Distributions thereon to
the date of payment, which may be in the form of a distribution of such amount
in Debentures, subject to certain exceptions. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination."
Whenever Host Marriott issues shares of Host Marriott Common Stock upon
conversion of Debentures, Host Marriott will, subject to certain conditions,
issue, together with each share of Host Marriott Common Stock, such number
(which number may be a fraction) of Rights (as defined herein) as shall at that
time be issuable with a share of Common Stock pursuant to the Rights Agreement
(as defined herein).
----------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS OF HOST MARRIOTT, INCLUDING, WITHOUT LIMITATION,
STATEMENTS UNDER THE CAPTIONS "RISK FACTORS," AND "THE COMPANY" INCLUDED
HEREIN, AS WELL AS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" IN HOST MARRIOTT'S QUARTERLY AND ANNUAL REPORTS ON
FORMS 10-Q AND 10-K, RESPECTIVELY, "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS" INCLUDED AS EXHIBIT 99 TO HOST
MARRIOTT'S FORM 10-K AND ON FORM 8-K'S FILED ON JANUARY 17, FEBRUARY 29, JULY
2, 1996 AND JANUARY 14, 1997 AND IN HOST MARRIOTT'S FORM S-1 FILED JANUARY 11
AND AMENDMENTS THERETO FILED ON FEBRUARY 28, MARCH 11 AND MARCH 26, 1996. THESE
FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES, AND AS SUCH
MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF HOST MARRIOTT TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS. HOST MARRIOTT
EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY
UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO
REFLECT ANY CHANGE IN ITS EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
FURTHER INFORMATION ON OTHER FACTORS THAT COULD AFFECT THE FINANCIAL RESULTS OF
HOST MARRIOTT AND SUCH FORWARD LOOKING STATEMENTS IS INCLUDED IN THE SECTION
HEREIN ENTITLED "RISK FACTORS."
3
RISK FACTORS
Prospective purchasers of the Offered Securities should carefully review the
information contained elsewhere or incorporated by reference in this Prospectus
and should particularly consider the following matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE DEBENTURES
The obligations of Host Marriott under the Guarantee issued by Host Marriott
for the benefit of the holders of Preferred Securities are unsecured and rank
subordinate and junior in right of payment to all other liabilities of Host
Marriott and pari passu with any guarantee now or hereafter entered into by
Host Marriott in respect of any preferred or preference stock of any affiliate
of Host Marriott. The obligations of Host Marriott under the Debentures are
subordinate and junior in right of payment to all present and future Senior
Debt of Host Marriott. On a pro forma basis as of September 6, 1996 Host
Marriott had indebtedness of $142 million (excluding various guarantees of debt
obligations of certain affiliates on such date in an aggregate amount of $128
million), all of which comprised Senior Debt of Host Marriott. The ability of
the Issuer to pay amounts due on the Preferred Securities is solely dependent
upon Host Marriott making payments on the Debentures as and when required.
Neither the Indenture, the Guarantee nor the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt,
that may be incurred by Host Marriott and its subsidiaries. See "Description of
the Guarantee--Status of the Guarantee" and "Description of the Debentures--
Subordination."
STRUCTURAL SUBORDINATION
The Debentures are obligations of Host Marriott exclusively. Since
substantially all of Host Marriott's operations are conducted through
subsidiaries, substantially all of Host Marriott's cash flow and, consequently,
its ability to service debt, including the Debentures, is dependent upon the
earnings of its subsidiaries and the transfer of funds by those subsidiaries to
Host Marriott in the form of dividends or other transfers, supplemented with
borrowings. The ability of these subsidiaries to pay dividends to Host Marriott
in the future are subject to restrictions contained in indentures and other
financing agreements by which such subsidiaries are bound. See "--Limitations
on Host Marriott from Debt Financing."
In addition, creditors of Host Marriott's subsidiaries are entitled to a
claim on the assets of such subsidiaries prior to any claims by Host Marriott.
Consequently, in the event of a liquidation or reorganization of any
subsidiary, creditors of such subsidiary are likely to be paid in full before
any distribution is made to Host Marriott, except to the extent that Host
Marriott itself is recognized as a creditor of such subsidiary, in which case
the claims of Host Marriott would still be subordinate to any security interest
in the assets of such subsidiary and any indebtedness of such subsidiary senior
to that held by Host Marriott. On a pro forma basis as of September 6, 1996,
the aggregate indebtedness (excluding accounts payable and accrued expenses,
deferred income taxes and other liabilities) of the consolidated subsidiaries
of Host Marriott was approximately $2.7 billion. See "Description of the
Preferred Securities--Distributions" and "Description of the Debentures--Option
to Extend Interest Payment Period."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Host Marriott has the right under the Indenture to defer the payment of
interest on the Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, Host Marriott may select a new Extension Period and terminate
the payments of all amounts then due, subject to the requirements described
herein. As a consequence of any such deferral, quarterly
4
Distributions on the Preferred Securities by the Issuer will be deferred (and
the amount of Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions) during any such Extension
Period.
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount) in respect
of its pro rata share of the deferred interest allocable to the Debentures held
by the Issuer for United States Federal income tax purposes. As a result, a
holder of Preferred Securities will include such income in gross income for
United States Federal income tax purposes in advance of the receipt of cash,
and will not receive the cash related to such income from the Issuer if the
holder disposes of the Preferred Securities prior to the record date for the
payment of Distributions. See "Certain Federal Income Tax Consequences--
Original Issue Discount." Moreover, if a holder of Preferred Securities
converts its Preferred Securities into Host Marriott Common Stock during an
Extension Period, the holder will not receive any cash related to the deferred
distribution. Additionally, during the pendancy of any Extension Period, Host
Marriott will not be permitted, subject to certain exceptions set forth herein,
to declare or pay any cash distribution with respect to Host Marriott capital
stock or debt securities (including guarantees of indebtedness for money
borrowed) that rank pari passu with or junior to the Debentures. See
"Description of the Preferred Securities--Distributions."
Host Marriott has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Debentures. However, should Host Marriott elect to exercise such right in the
future, the market price of the Preferred Securities is likely to be affected.
A holder that disposes of its Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a result of the
existence of Host Marriott's right to defer interest payments, the market price
of the Preferred Securities (which represent preferred undivided beneficial
interests in the Debentures) may be more volatile than the market prices of
other securities on which original issue discount accrues that are not subject
to such deferrals.
EXPIRATION OF CONVERSION RIGHTS
On and after December 2, 1999, Host Marriott may, subject to certain
conditions, at its option, cause the conversion rights of holders of the
Preferred Securities to expire, provided that the Current Market Price of Host
Marriott Common Stock exceeds 120% of the conversion price of the Preferred
Securities for a specified period. See "Description of the Preferred
Securities--Conversion Rights--Expiration of Conversion Rights."
SPECIAL EVENT EXCHANGE OR REDEMPTION
Upon certain circumstances following the occurrence and continuation of a
Special Event (as defined herein), the Preferred Securities are also subject to
(i) exchange in whole or, in the case of a Tax Event (as defined herein), in
whole or in part, in the manner described herein, for the Debentures or (ii)
redemption, in whole or in part, on or after December 2, 1999 in the case of a
Tax Event. See "Description of the Preferred Securities--Special Event Exchange
or Redemption."
There can be no assurance as to the market prices for Preferred Securities or
Debentures that may be distributed in exchange for Preferred Securities if a
liquidation of the Issuer occurs or if the Preferred Securities are exchanged
for Debentures in connection with a Special Event. Accordingly, the Preferred
Securities that an investor may purchase, whether pursuant to the offer made
hereby or in the secondary market, or the Debentures that a holder of Preferred
Securities may receive on liquidation of the Issuer, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Debentures
5
on termination of the Issuer or if the Preferred Securities are exchanged for
Debentures in connection with a Special Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Debentures and should carefully review all the information regarding the
Debentures contained herein. See "Description of the Preferred Securities--
Special Event Exchange or Redemption" and "Description of the Debentures--
General."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Preferred Securities, to
the extent that the Issuer has funds on hand available therefor at such time,
(ii) the redemption price with respect to any Preferred Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up
or liquidation of the Issuer (unless the Debentures are distributed to holders
of the Preferred Securities), the lesser of (a) the aggregate of the
liquidation preference and all accrued and unpaid Distributions to the date of
payment to the extent that the Issuer has funds on hand available therefor at
such time and (b) the amount of assets of the Issuer remaining available for
distribution to holders of the Preferred Securities in liquidation of the
Issuer.
As part of the Guarantee, Host Marriott agreed that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Host Marriott Common Stock or Debentures.
The holders of not less than a majority in aggregate liquidation amount of
the Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of Preferred
Securities may institute a proceeding directly against Host Marriott to enforce
its rights under the Guarantee without first instituting a proceeding against
the Issuer, the Guarantee Trustee or any other person or entity. If Host
Marriott were to default on its obligation to pay amounts payable under the
Debentures, the Issuer would lack funds for the payment of Distributions or
amounts payable on redemption of the Preferred Securities or otherwise, and, in
such event, holders of the Preferred Securities would not be able to rely upon
the Guarantee for payment of such amounts. Instead, in the event a Debenture
Event of Default shall have occurred and be continuing, a holder of Preferred
Securities would be required to rely on its enforcement by the Property Trustee
of its rights as registered holder of the Debenture against Host Marriott
pursuant to the terms of the Debenture. If, however, such event is attributable
to the failure of Host Marriott to pay interest on or principal of the
Debentures on the payment date on which such payment is due and payable, then a
holder of Preferred Securities may directly institute a proceeding against Host
Marriott for enforcement of payment to such holder of the interest on or
principal of such Debentures having a principal amount equal to the aggregate
liquidation preference of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, Host Marriott will be
subrogated to the rights of such holder of Preferred Securities under the Trust
Agreement to the extent of any payment made by Host Marriott to such holder of
Preferred Securities in such Direct Action. Except as set forth herein, holders
of Preferred Securities will not be able to exercise directly any other remedy
available to the holders of Debentures or assert directly any other rights in
respect of the Debentures. See "Description of the Preferred Securities--
Enforcement of Certain Rights by Holders of Preferred Securities," "Description
of the Guarantee" and "Description of the Debentures--Debenture Events of
Default." The Trust Agreement provides that each holder of Preferred Securities
by acceptance thereof agrees to the provisions of the Guarantee and the
Indenture.
6
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as the holder of the
Debentures against Host Marriott. In addition, the holders of a majority in
aggregate liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Trust Agreement, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of the Debentures. If the Property Trustee fails to enforce its
rights as holder of the Debentures after a request therefor by a holder of
Preferred Securities, such holder may proceed to enforce such rights directly
against Host Marriott. Notwithstanding the following, if a Declaration Event of
Default occurs that results from the failure of Host Marriott to pay principal
of or interest on the Debentures when due (or in the case of a redemption, on
the redemption date), during the continuance of such an event of default a
holder of Preferred Securities may institute a legal proceeding directly
against Host Marriott to obtain payment to such holder (a "Direct Action") of
such principal or interest on Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities owned of record by
such holder. See "Description of the Preferred Securities--Declaration Events
of Default; Notice" and "--Voting Rights; Amendment of the Trust Agreement."
LIMITED VOTING RIGHTS
Holders of Preferred Securities generally have limited voting rights
primarily in connection with directing the activities of the Property Trustee
as the holder of the Debentures. Holders of Preferred Securities are not
entitled to vote to appoint, remove or replace the Issuer Trustees (as
defined), which voting rights are vested exclusively in the holder of the
Common Securities. The Issuer Trustees and Host Marriott may amend the Trust
Agreement without the consent of holders of Preferred Securities to ensure that
the Issuer will be classified for United States federal income tax purposes as
a grantor trust even if such action adversely affects the interests of such
holders. See "Description of the Preferred Securities--Voting Rights; Amendment
of the Trust Agreement."
PROPOSED TAX LEGISLATION
As a part of President Clinton's Fiscal 1997 Budget Proposal, the Treasury
Department proposed legislation (the "Proposed Legislation") that, among other
things, would have treated as equity for United States federal income tax
purposes certain debt instruments with a maximum term of more than 20 years
that are not shown as indebtedness on the consolidated balance sheet of the
Issuer. The proposed legislation was to be effective for debt instruments
issued on or after December 7, 1995. Although this legislation was not enacted
as part of the Fiscal 1997 Budget, there can be no assurance that a similar
proposal would not be enacted in the future, that such future legislation would
not have a retroactive effective date and that such future legislation would
not prevent Host Marriott from deducting interest on the Debentures. This would
constitute a Tax Event and would permit the Issuer to exchange the Preferred
Securities, in whole or in part, for the Debentures or redeem, in whole or in
part, the Preferred Securities and corresponding Debentures.
POTENTIAL REDUCTION OF PAYMENTS TO NON-UNITED STATES HOLDERS FOR UNITED STATES
TAX WITHHOLDING REQUIREMENTS
In the event that any United States taxes, duties or other governmental
charges are required to be deducted or withheld from any payments by Host
Marriott to holders of Preferred Securities that are not United States persons
(as defined herein), neither Host Marriott nor the Issuer would be required to
pay any additional amounts to such holders and, therefore, any such taxes,
duties or
7
charges would reduce the amounts received by such holders. See "Certain Federal
Income Tax Consequences--Certain United States Tax Consequences to Non-United
States Holders."
ABSENCE OF PUBLIC MARKET FOR THE PREFERRED SECURITIES AND RESTRICTIONS ON
RESALE
Although the Preferred Securities are approved for trading in the PORTAL
market, there can be no assurance that any market for the Preferred Securities
will develop or, if one does develop, that it will be maintained. If an active
market for the Preferred Securities fails to develop or be sustained, the
trading price of the Preferred Securities could be adversely affected. The
Preferred Securities could trade at prices that may be higher or lower than the
offering price hereunder depending on many factors, including prevailing
interest rates, the price of the Common Stock, the Company's operating results,
any election by the Company to extend interest payment periods and the market
for similar securities. However, there can be no assurance as to the liquidity
of any trading market for the Preferred Securities or that an active public
market for the Preferred Securities will develop.
TRADING PRICE OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Debentures.
A holder disposing of Preferred Securities between record dates for payments of
distributions thereon will be required for United States Federal income tax
purposes to include accrued but unpaid interest on the Debentures through the
date of disposition in income as ordinary income (i.e., original issue
discount), and to add such amount to the adjusted tax basis in the holder's
Preferred Securities. To the extent the selling price is less than the holder's
adjusted tax basis (which will include, in the form of original issue discount,
all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States Federal income tax purposes. See
"Certain Federal Income Tax Consequences--Sales of Preferred Securities."
SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY
Host Marriott and its subsidiaries have substantial indebtedness. As of
September 6, 1996, on a pro forma basis, Host Marriott and its subsidiaries had
consolidated debt of $2.7 billion, representing 62% of its total
capitalization. Host Marriott's business is capital intensive, and Host
Marriott will have significant capital requirements in the future. Host
Marriott's leverage could affect its ability to obtain financing in the future
or to undertake refinancings on terms and subject to conditions deemed
acceptable by Host Marriott.
In the event that Host Marriott's cash flow and working capital are not
sufficient to fund its expenditures or to service its indebtedness, Host
Marriott would be required to raise additional funds through the sale of
additional equity securities, the refinancing of all or part of its
indebtedness, the incurrence of additional permitted indebtedness (including
the Debentures), or the sale of assets. There can be no assurance that any of
these sources of funds would be available in amounts sufficient for Host
Marriott to meet its obligations. Moreover, even if Host Marriott were able to
meet its obligations, its leveraged capital structure could significantly limit
its ability to finance its acquisition program and other capital expenditures,
to compete effectively or to operate successfully under adverse economic
conditions.
LIMITATIONS ON HOST MARRIOTT FROM DEBT FINANCING
The indentures relating to senior notes issued by certain of Host Marriott's
subsidiaries contain financial and operating covenants, including, but not
limited to, restrictions on the ability of such
8
subsidiaries to incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions to Host Marriott, create liens, sell
assets, enter into certain transactions with affiliates, and enter into certain
mergers and consolidations. In addition, the $225 million revolving line of
credit with Marriott International (the "MI Line of Credit") imposes certain
restrictions on the ability of Host Marriott and certain of its subsidiaries to
incur additional debt, create liens or mortgages on their properties (other
than various types of liens arising in the ordinary course of business), extend
new guarantees (other than replacement guarantees), pay dividends and
repurchase their common stock. The above restrictions may limit Host Marriott's
ability to secure additional financing, and may prevent Host Marriott from
engaging in transactions that might otherwise be beneficial to Host Marriott
and to holders of Host Marriott Common Stock.
RISKS OF ACQUISITION STRATEGY
Host Marriott intends to continue pursuing a strategy of growth through the
opportunistic acquisition of full-service urban, convention and resort hotels
primarily in the United States. There can be no assurance that Host Marriott
will find suitable properties for acquisition. Host Marriott incurs certain
costs in connection with the acquisition of new properties and may be required
to provide significant capital expenditures for conversions and upgrades when
acquiring a property operating as other than a Marriott-brand property. There
can be no assurance that any of the properties Host Marriott may acquire will
be profitable following such acquisition. The acquisition of a property that is
not profitable, or the acquisition of a property that results in significant
unanticipated conversion costs, could adversely affect Host Marriott's
profitability. Host Marriott expects to finance new acquisitions from a
combination of the proceeds from the Original Offering and, to the extent
available, operating cash flow, indebtedness and proceeds from the sale of
limited-service properties. Depending on the number, size and timing of such
transactions, Host Marriott may in the future require additional financing in
order to continue to make acquisitions. There is no assurance that such
additional financing, if any, will be available to Host Marriott on acceptable
terms.
COMPETITION AND RISKS OF THE LODGING INDUSTRY
Host Marriott's hotels generally operate in areas that contain numerous other
competitors. There can be no assurance that demographic, geographic or other
changes in markets will not adversely affect the convenience or desirability of
the location of Host Marriott's hotels. Furthermore, there can be no assurance
that, in the markets in which Host Marriott's hotels operate, competing hotels
will not pose greater competition for guests than presently exists, or that new
hotels will not enter such markets.
During the 1980s, construction of lodging facilities in the United States
resulted in an excess supply of available rooms. This over-supply had an
adverse effect on occupancy levels and room rates in the industry. Although the
current outlook for the industry has improved, there can be no assurance that
in the future the lodging industry, including Host Marriott and its hotels,
will not be adversely affected by (i) national and regional economic
conditions, (ii) changes in travel patterns, (iii) seasonality of the hotel
business, (iv) taxes and government regulations which influence or determine
wages, prices, interest rates, construction procedures and costs, and (v) the
availability of credit. Hotel investments are relatively illiquid. Such
illiquidity will tend to limit the ability of Host Marriott to respond to
changes in economic or other conditions.
POTENTIAL CONFLICTS WITH MARRIOTT INTERNATIONAL
The interests of Host Marriott and Marriott International may conflict due to
the ongoing relationships between the companies. In addition, Host Marriott and
Marriott International share two common directors--J.W. Marriott, Jr. serves as
Chairman of the Board of Directors and President of
9
Marriott International and also serves as a director of Host Marriott, and
Richard E. Marriott serves as Chairman of the Board of Directors of Host
Marriott and also serves as a director of Marriott International. Messrs. J.W.
Marriott, Jr. and Richard E. Marriott, as well as certain other officers and
directors of Marriott International and Host Marriott, also own shares (and/or
options or other rights to acquire shares) in both companies. With respect to
the various contractual arrangements between the two companies, the potential
exists for disagreement as to the quality of services provided by Marriott
International and as to contract compliance. Any such disagreements between
Host Marriott and Marriott International could adversely affect the performance
of one or more of Host Marriott's hotels. Additionally, the possible desire of
Host Marriott, from time to time, to finance, refinance or effect a sale of any
of the properties managed by Marriott International may, depending upon the
structure of such transactions, result in a need to modify the management
agreement with Marriott International with respect to such property. Any such
modification proposed by Host Marriott may not be acceptable to Marriott
International, and the lack of consent from Marriott International could
adversely affect Host Marriott's ability to consummate such financing or sale.
In addition, certain situations could arise where actions taken by Marriott
International in its capacity as manager of competing lodging properties would
not necessarily be in the best interests of Host Marriott. Any such actions by
Marriott International could adversely impact one or more of Host Marriott's
hotels. Nevertheless, Host Marriott believes that there is sufficient mutuality
of interest between Host Marriott and Marriott International to result in a
mutually productive relationship. Moreover, appropriate policies and procedures
are followed by the Board of Directors of each of the companies to limit the
involvement of Messrs. J.W. Marriott, Jr. and Richard E. Marriott (and, if
appropriate, other officers and directors of such companies) in conflict
situations, including requiring them to abstain from voting as directors of
either Host Marriott or Marriott International (or as directors of any of their
subsidiaries) on certain matters which present a conflict between the
companies.
RISKS INVOLVED IN INVESTMENTS THROUGH PARTNERSHIPS OR JOINT VENTURES
Historically, Host Marriott has served as a general or limited partner in
hotel partnerships, which typically owned a number of hotel properties and
involved numerous limited partners. More recently, Host Marriott's joint
venture arrangements have been focused on one or a small number of properties,
and have involved only a few partners, which could include the manager or
former owners of such hotels. In the future, Host Marriott intends selectively
to use joint venture arrangements to acquire properties and may consider
acquiring full or controlling interests in partnerships in which it currently
holds general or limited partner interests. Joint venturers may have certain
rights over the operation of the joint venture assets. Therefore, such
investments may, under certain circumstances, involve risks such as the
possibility that the co-venturer in an investment might become bankrupt, or
have economic or business interests or goals that are inconsistent with the
business interests or goals of Host Marriott, or be in a position to take
action contrary to the instructions or the requests of Host Marriott or
contrary to Host Marriott's policies or objectives. Consequently, actions by a
co-venturer might result in subjecting hotel properties owned by the joint
venture to additional risk. Although Host Marriott will seek to maintain
sufficient control of any joint venture to permit Host Marriott's objectives to
be achieved, it may be unable to take action without the approval of its joint
venture partners or its joint venture partners could take actions binding on
the joint venture without Host Marriott's consent. Additionally, should a joint
venture partner become bankrupt, Host Marriott could, in certain circumstances,
become liable for such partner's share of joint venture liabilities.
POTENTIAL ANTITAKEOVER EFFECT OF PROVISIONS IN HOST MARRIOTT'S CERTIFICATE OF
INCORPORATION AND BYLAWS
Host Marriott's Restated Certificate of Incorporation and Bylaws each contain
provisions that will make difficult an acquisition of control of Host Marriott
by means of a tender offer, open market
10
purchases, proxy fight, or otherwise, that is not approved by the Board of
Directors. Provisions that may have an antitakeover effect include (i) a
staggered board of directors with three separate classes, (ii) a super-majority
vote requirement for removal or filling of vacancies on the Board of Directors
and for amendment to Host Marriott's Restated Certificate of Incorporation (the
"Company Certificate") and Bylaws, (iii) a prohibition on shareholder action by
written consent and (iv) super-majority voting requirements for approval of
mergers and other business combinations involving Host Marriott and interested
shareholders. In addition, Host Marriott is subject to Section 203 of the
Delaware General Corporation Law requiring super-majority approval for certain
business combinations. Host Marriott has also adopted a shareholder rights plan
which may discourage or delay a change in control of Host Marriott. Certain
indebtedness issued by subsidiaries of Host Marriott also have change of
control provisions that would require such indebtedness to be repurchased in
the event of a change of control which also may have the effect of discouraging
or delaying a change in control of Host Marriott. Finally, Host Marriott has
granted Marriott International, for a period expiring in October 2003, the
right to purchase up to 20% of each class of the then outstanding voting stock
of Host Marriott at the fair market value thereof upon the occurrence of
certain specified events, generally involving changes in control of Host
Marriott (the "Marriott International Purchase Right"). The Marriott
International Purchase Right may have certain antitakeover effects with respect
to Host Marriott. Any person considering acquiring a substantial or controlling
block of Common Stock would face the possibility that its ability to exercise
control would be impaired by Marriott International's 20% ownership resulting
from exercise of the Marriott International Purchase Right. It is also possible
that the exercise price of the Marriott International Purchase Right would be
lower than the price at which a potential acquirer might be willing to purchase
a 20% block of shares of Common Stock because the purchase price for the
Marriott International Purchase Right is based on the average trading price
during a 30-day period which may be prior to the announcement of the takeover
event. This potential price difference may have a further antitakeover effect
of discouraging potential acquirers of Host Marriott. See "Purposes and
Antitakeover Effects of Certain Provisions of the Company Certificate and
Bylaws and the Marriott International Purchase Right" and "Description of Host
Marriott Capital Stock--Rights and Junior Preferred Stock."
HISTORY OF LOSSES
Host Marriott has sustained losses from continuing operations of $7 million
and $62 million for the First Three Quarters 1996 and fiscal year 1995,
respectively. Host Marriott's losses have resulted principally from
depreciation and write downs of the carrying values of certain assets to their
estimated sales values. There can be no assurance that Host Marriott will not
continue to experience losses from operations in the future.
11
Note: Unless the context otherwise requires, the term "Company" refers to
Host Marriott Corporation and its subsidiaries and their combined operations.
References herein to "Smith Travel Research" are to industry data provided by
Smith Travel Research. References herein to "Coopers & Lybrand" refer to the
January 1996 Hospitality Directions Quarterly Research Journal published by
Coopers & Lybrand LLP.
THE COMPANY
The Company is one of the largest owners of hotels in the world with 81
upscale and luxury full-service lodging properties as of January 15, 1997,
primarily located in the United States. These properties generally are
operated under the Marriott brand and are managed by Marriott International,
Inc. ("Marriott International"), formerly a wholly owned subsidiary of the
Company. Three of the Company's properties are operated under the Ritz-Carlton
brand in which Marriott International acquired a 49% interest in April 1995.
The Marriott and Ritz-Carlton brand names are among the most respected and
widely recognized brand names in the lodging industry. The Company's primary
focus is the acquisition of full-service lodging properties. Since 1994, the
Company has added 52 full-service hotels with 24,298 rooms for an aggregate
purchase price of almost $2.5 billion. Based on data provided by Smith Travel
Research, the Company believes that its full-service hotels consistently
outperform the industry's average occupancy rate by a significant margin and
averaged 78.6% occupancy for the First Three Quarters 1996 (as defined herein)
compared to 70.1% average occupancy for the upscale full-service segment of
the lodging industry (the segment which is most representative of the majority
of the Company's full-service hotels).
The lodging industry as a whole, and the upscale and luxury full-service
hotel segments in particular, are benefiting from an improved supply and
demand relationship in the United States. Management believes that demand
increases have resulted primarily from an improved economic environment and a
corresponding increase in business travel. In spite of increased demand for
rooms, the room supply growth rate in the full-service segment has diminished.
Management believes that this decrease in the supply growth rate in the full-
service segment is attributable to many factors including the limited
availability of attractive building sites for full-service hotels, the lack of
available financing for new full-service hotel construction and the
availability of existing full-service properties for sale at a discount to
their replacement value. The relatively high occupancy rates of the Company's
hotels along with increased demand for full-service hotel rooms have allowed
the managers of the Company's hotels to increase average daily room rates by
primarily replacing certain discounted group business with higher-rated group
and transient business and by selectively raising room rates. As a result, on
a comparable basis, room revenues per available room ("REVPAR") for full-
service properties increased approximately 12% for the First Three Quarters
1996 over the comparable period for the prior year. Furthermore, because
lodging property operations have a high fixed cost component, increases in
REVPAR generally yield greater percentage increases in the Company's
consolidated Earnings Before Interest Expense, Taxes, Depreciation,
Amortization and other non-cash items (principally non-cash writedowns of
lodging properties and equity in earnings of an affiliate, net of
distributions received). ("EBITDA"). Accordingly, the approximately 12%
increase in REVPAR resulted in an approximately 18% increase in comparable
full-service EBITDA for the First Three Quarters 1996. The Company expects
this supply/demand imbalance, particularly in the upscale and luxury full-
service segments, to continue, which should result in improved REVPAR and
EBITDA at its hotel properties in the near term.
BUSINESS STRATEGY. The Company's business strategy is to continue to focus
on opportunistic acquisitions of full-service urban, convention and resort
hotels primarily in the United States. The Company believes that the upscale
and luxury full-service segments of the market offer numerous opportunities to
acquire assets at attractive multiples of cash flow and at substantial
discounts to
12
replacement value, including underperforming hotels which can be improved by
conversion to the Marriott or Ritz-Carlton brands.
Many desirable hotel properties are currently held by inadvertent owners
such as banks, insurance companies and other financial institutions, which are
motivated and willing sellers. The Company has acquired a number of properties
from these inadvertent owners at significant discounts to replacement cost,
including luxury hotels operating under the Ritz-Carlton brand. In the
Company's experience to date, these sellers have been primarily United States
financial organizations. The Company believes that numerous international
financial institutions are also inadvertent owners of lodging properties and
have only recently begun to dispose of such properties. The Company expects
that there will be increased opportunities to acquire lodging properties from
these international financial institutions.
The Company holds minority interests and serves as general partner in
various partnerships that own, as of January 15, 1997, an aggregate of 251
additional properties, 31 of which are full-service properties, all managed by
Marriott International. Fourteen of the properties added by the Company to its
portfolio since 1994 were held by partnerships in which the Company held a
minority interest. Nine of those properties were added through investments
that increased the Company's partnership interest. The Company is actively
considering the acquisition of additional full-service properties currently
held by such partnerships and/or additional interests in such partnerships. On
January 14, 1997, the Company successfully completed the tender offer for
46.4% of the limited partnership units of the Marriott Hotel Properties
Limited Partnership ("MHP"), an affiliated partnership of the Company in which
the Company owned a 1% general partner interest and an approximate 1% limited
partner interest, by purchasing 464 limited partnership units for
approximately $37 million, or $80,000 per unit. MHP owns the 1,503-room
Marriott Orlando World Center and a 50.5% partnership interest in the 624-room
Marriott Harbor Beach Resort. As a result of this transaction, a wholly-owned
subsidiary of the Company became the largest limited partner in MHP which the
Company will consolidate in the first quarter of 1997.
In addition to investments in partnerships in which it already held minority
interests, the Company has been successful in adding properties to its
portfolio through partnership arrangements with either the seller of the
property or the incoming manager (typically Marriott International or a
Marriott franchisee). The Company has the financial flexibility and, due to
its existing partnership investment portfolio, the administrative
infrastructure in place to accommodate such arrangements. The Company views
this ability as a competitive advantage and expects to enter into similar
arrangements in the future. The Company also believes that it has significant
opportunities to acquire additional Ritz-Carlton hotels through the Company's
relationship with Marriott International.
While the Company's portfolio of lodging properties consists almost entirely
of upscale and luxury full-service hotels, management continually considers
the merits of diversifying into other compatible lodging-related real estate
assets that offer strong current economic benefits and growth prospects. The
Company is currently considering investments in senior living communities,
including portfolio transactions, which may offer attractive yields and stable
cash flows. The Company intends to finance its acquisition program through the
use of internally generated funds, additional equity and moderate levels of
indebtedness.
13
1996 ACQUISITIONS. In 1996, through the date hereof, the Company has
acquired six full-service hotels (1,964 rooms) for an aggregate purchase price
of $189 million and controlling interests in 17 additional properties (8,922
rooms) for an aggregate purchase price of approximately $1.1 billion
(including the assumption of $696 million of debt). In addition, the Company
purchased the mortgage loan secured by the 504-room New York Financial Center
Marriott for approximately $101 million. In 1996, the Company acquired or
gained control of the following properties:
NUMBER OF
PROPERTY ROOMS
- -------- ---------
FIRST QUARTER
San Diego Marriott Hotel and
Marina 1,355
Mexico City Aeropuerto 600
JW Marriott Hotel, Mexico
City(1) 314
Toronto Delta Meadowvale Hotel
and Conference Center 374
SECOND QUARTER
Dulles Airport Marriott Suites 254
Pittsburgh Hyatt Regency 400
Oklahoma City Marriott 354
Jacksonville Marriott 256
NUMBER OF
PROPERTY ROOMS
- -------- ---------
THIRD QUARTER
New Orleans Marriott 1,290
San Antonio Marriott Rivercenter 999
San Ramon Marriott 368
Newport Beach Marriott Suites 250
FOURTH QUARTER
Ritz-Carlton, Naples 463
Ritz-Carlton, Buckhead 553
Ritz-Carlton, Atlanta 447
Marriott Suites Scottsdale 251
Marriott Suites Downers Grove 254
Marriott Suites Costa Mesa 253
Marriott Suites Atlanta Midtown 254
Palm Beach Gardens Marriott 279
Toronto Airport Marriott 423
Salt Lake City Marriott 515
Calgary Radisson 380
- --------
(1) Construction of this property was recently completed and the hotel opened
in August 1996.
1997 TRANSACTION. On January 14, 1997, the Company successfully completed
the tender offer for 46.4% of the limited partnership units of MHP, an
affiliated partnership of the Company in which the Company owned a 1% general
partner interest and an approximate 1% limited partner interest, by purchasing
464 limited partnership units for approximately $37 million, or $80,000 per
unit. MHP owns the 1,503-room Marriott Orlando World Center and a 50.5%
partnership interest in the 624-room Marriott Harbor Beach Resort. As a result
of this transaction, a wholly-owned subsidiary of the Company became the
largest limited partner in MHP which the Company will consolidate in the first
quarter of 1997.
The Company is also actively engaged in negotiations for a number of
additional full-service properties.
SPECIAL DIVIDEND. Host Marriott previously operated food, beverage and
merchandise concessions at airports, on tollroads and at stadiums and arenas
and other tourist attractions (the "Operating Group Business"). On December
29, 1995, Host Marriott distributed the Operating Group Business to its
stockholders through a special dividend (the "Special Dividend") of all of the
outstanding shares of common stock of Host Marriott Services Corporation ("HM
Services").
HOST MARRIOTT FINANCIAL TRUST
Host Marriott Financial Trust (the "Issuer") is a statutory business trust
created under Delaware law pursuant to (i) a trust agreement executed by Host
Marriott, as Depositor, and the Property Trustee, the Delaware Trustee and the
Administrative Trustees (each as defined herein) and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on November 25,
1996. In connection with the Original Offering such trust agreement was
amended and restated in its entirety (as so amended and restated, the "Trust
Agreement"). The Issuer exists for the exclusive purposes of (i) issuing and
selling the Preferred Securities and Common Securities, (ii) using the
proceeds from
14
the sale of such Preferred Securities and Common Securities to acquire the
Debentures issued by Host Marriott and (iii) engaging in only those other
activities necessary or incidental thereto. Accordingly, the Debentures will
be the sole assets of the Issuer, and payments under the Debentures will be
the sole revenue of the Issuer. The Issuer has a term of 45 years, but may
terminate earlier as provided in the Trust Agreement.
All of the Common Securities are owned by Host Marriott. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon the occurrence and continuance
of a Declaration Event of Default resulting from an Event of Default under the
Indenture, the rights of Host Marriott as holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
or otherwise are subordinated to the rights of the holders of the Preferred
Securities. See "Description of the Preferred Securities--Subordination of
Common Securities." Host Marriott has acquired Common Securities in an
aggregate liquidation amount equal to not less than 3% of the total capital of
the Issuer.
The Issuer's business and affairs are conducted by its trustees, which were
appointed by Host Marriott as holder of the Common Securities. Pursuant to the
Trust Agreement, the number of trustees initially is five. Three of the
trustees (the "Administrative Trustees") are persons who are employees of
officers of, or affiliated with, Host Marriott. A fourth trustee is a
financial institution unaffiliated with Host Marriott that will serve as
property trustee (the "Property Trustee") under the Trust Agreement. IBJ
Schroder Bank & Trust Company is acting as the Property Trustee until removed
or replaced by the holder of the Common Securities. See "Description of the
Debentures." The fifth trustee is a financial institution or an affiliate
thereof which maintains a principal place of business or residence in the
State of Delaware (the "Delaware Trustee"). Delaware Trust Capital Management,
Inc. is acting as Delaware Trustee until removed or replaced by the holder of
the Common Securities. The Administrative Trustees, the Property Trustee and
the Delaware Trustee are referred to herein as the "Issuer Trustees." IBJ
Schroder Bank & Trust Company is also acting as indenture trustee under the
Guarantee (the "Guarantee Trustee"). See "Description of the Guarantee."
The Property Trustee holds the title to the Debentures for the benefit of
the Issuer and holders of the Preferred Securities and the Common Securities
and has the power to exercise all rights, powers and privileges as holder of
the Debentures. In addition, the Property Trustee maintains exclusive control
of a segregated non-interest bearing bank account (the "Property Account") to
hold all payments made in respect of the Debentures for the benefit of the
Issuer and holders of the Preferred Securities and the Common Securities. The
Property Trustee will make payments of Distributions and payments on
liquidation, redemption and otherwise to the holders of the Preferred
Securities and the Common Securities out of funds from the Property Account.
The Guarantee Trustee holds the Guarantee for the benefit of the holders of
the Preferred Securities. Host Marriott, as the holder of all the Common
Securities, has the right to appoint, remove or replace any Issuer Trustee and
to increase or decrease the number of Issuer Trustees, provided that the
number of Issuer Trustees shall be at least three, a majority of which will be
Administrative Trustees. The duties and obligations of the Issuer Trustees are
governed by the Trust Agreement. The rights of the holders of the Preferred
Securities, including economic rights, right to information and voting rights,
are as set forth in the Trust Agreement and the Delaware Business Trust Act,
as amended (the "Trust Act").
Host Marriott will pay all fees and expenses related to the Issuer and the
offering of the Preferred Securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Issuer. See "Description of the
Debentures--Expenses of Issuer." The principal executive office of the Issuer
is 10400 Fernwood Road, Bethesda, Maryland, 20817, Attention: Corporate
Secretary. The telephone number is (301) 380-9000.
15
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. Neither the Company, nor the Trust will receive any
proceeds from the sale of Offered Securities.
ACCOUNTING TREATMENT
The financial statements of the Issuer are consolidated with the
consolidated financial statements of Host Marriott with the Preferred
Securities shown on such consolidated financial statements as "Company-
Obligated Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust". The sole assets of the Issuer will be the 6 3/4%
Convertible Subordinated Debentures due 2026.
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five fiscal years in the period
ended December 29, 1995 and for the thirty-six weeks ended September 6, 1996
("First Three Quarters 1996").
FIRST THREE
QUARTERS FISCAL YEAR
----------- ------------------------
1996 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
Ratio of earnings to fixed
charges(1)................. 1.0x -- -- -- -- 1.2x
Deficiency of earnings to
fixed charges(2)........... $-- $ 70 $ 12 $ 45 $ 66 $--
- --------
(1) The ratio of earnings to fixed charges is computed by dividing income
before taxes, interest expense and other fixed charges by total fixed
charges, including interest expense, amortization of debt issuance costs
and the portion of rent expense that is deemed to represent interest.
(2) The deficiency of earnings to fixed charges is largely the result of
depreciation and amortization of $122 million for fiscal year 1995, $113
million for fiscal year 1994, $196 million for fiscal year 1993 and $175
million for fiscal year 1992.
16
DESCRIPTION OF THE PREFERRED SECURITIES
This summary of certain provisions of the Preferred Securities and the Trust
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Trust Agreement (a
copy of which will be available for inspection at the corporate trust office
of the Property Trustee in New York, New York) and the Trust Act. The
Preferred Securities were issued in the Original Offering pursuant to the
terms of the Trust Agreement. Wherever particular defined terms of the Trust
Agreement are referred to herein, such defined terms are incorporated herein
or therein by reference.
GENERAL
The Preferred Securities were issued in the Original Offering in fully
registered form without interest coupons. Bearer Preferred Securities were not
issued. The Trust Agreement authorizes the Issuer Trustees, on behalf of the
Issuer to issue the Preferred Securities and the Common Securities. The
Preferred Securities represent preferred undivided beneficial interests in the
assets of the Issuer and the Common Securities represent common undivided
beneficial interests in the assets of the Issuer. All of the Common Securities
are owned by Host Marriott. The Preferred Securities rank pari passu, and
payments are made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." Legal title to the
Debentures is held by the Property Trustee in trust for the benefit of the
holders of the Preferred Securities and Common Securities. The Trust Agreement
does not permit the issuance by the Issuer of any securities other than the
Preferred Securities and the Common Securities or the incurrence of any
indebtedness by the Issuer. The payment of Distributions out of money held by
the Issuer, and payments upon redemption of the Preferred Securities or
liquidation of the Issuer, are guaranteed by Host Marriott to the extent
described under "Description of the Guarantee." The Guarantee is held by the
Guarantee Trustee for the benefit of the holders of the Preferred Securities.
The Guarantee does not cover payment of Distributions when the Issuer does not
have sufficient available funds to pay such Distributions. The remedy of a
holder of Preferred Securities in such an event is as described herein in "--
Voting Rights; Amendment of the Trust Agreement."
DISTRIBUTIONS
Distributions on each Preferred Security are fixed at a rate per annum of 6
3/4% of the liquidation preference of $50 per Preferred Security.
Distributions accumulate from the date of original issuance and are payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each
year on the applicable record date, commencing March 1, 1997 when, as and if
available for payment by the Property Trustee, except as otherwise described
below. The amount of Distributions payable for any period is computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Preferred Securities is not a Business
Day (as defined below), then payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day and without any
additional Distributions or other payment in respect of any such delay (each
date on which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in the City of
New York are authorized or required by law or executive order to remain closed
or a day on which the corporate trust office of the Property Trustee or the
Debenture Trustee is closed for business.
So long as no Debenture Event of Default has occurred and is continuing,
Host Marriott has the right under the Indenture to defer the payment of
interest (including any Liquidated Damages) on the Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each an "Extension Period"), provided that no
Extension Period may extend beyond the stated maturity of the Debentures. As a
consequence of any such election,
17
quarterly Distributions on the Preferred Securities would be deferred by the
Issuer during any such Extension Period. Distributions to which holders of the
Preferred Securities are entitled would accumulate additional Distributions
thereon at the rate per annum set forth herein, compounded quarterly from the
relevant payment date for such Distributions. The term "Distributions" as used
herein includes any such additional Distributions. During any such Extension
Period, Host Marriott may not, and may not cause any of its subsidiaries to,
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Host Marriott's
capital stock, or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees of indebtedness for money borrowed) of Host Marriott that rank pari
passu with or junior to the Debentures (other than (a) any dividend,
redemption, liquidation, interest, principal or guarantee payment by Host
Marriott where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) redemptions or purchases of any Rights pursuant to Host Marriott's Rights
Agreement, or any successor to such Rights Agreement, and the declaration of a
dividend of such Rights or the issuance of preferred stock under such plans in
the future, (c) payments under the Guarantee, (d) purchases of Host Marriott
Common Stock related to the issuance of Host Marriott Common Stock under any
of Host Marriott's benefit plans for its directors, officers or employees, (e)
as a result of a reclassification of Host Marriott's capital stock or the
exchange or conversion of one series or class of Host Marriott's capital stock
for another series or class of Host Marriott's capital stock, and (f) the
purchase of fractional interests in shares of Host Marriott's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged). Prior to the termination of any such
Extension Period, Host Marriott may further extend the interest payment
period, provided that no Extension Period may exceed 20 consecutive quarters
or extend beyond the stated maturity of the Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due on any
Interest Payment Date, Host Marriott may elect to begin a new Extension
Period. See "Description of the Debentures--Option to Extend Interest Payment
Period" and "Certain Federal Income Tax Consequences--Original Issue
Discount."
Host Marriott has no current intention to exercise its right to defer
payments of interest by extending the interest payment period on the
Debentures.
Distributions with respect to the Preferred Securities are made on the dates
payable to the extent that the Issuer has funds available for the payment of
such Distributions in the Property Account. The funds of the Issuer available
for distribution to holders of the Preferred Securities are limited to
payments under the Debentures in which the Issuer has invested the proceeds
from the issuance and sale of the Preferred Securities and the Common
Securities. See "Description of the Debentures." If Host Marriott does not
make interest payments on such Debentures, the Property Trustee would not have
funds available to pay Distributions on the Preferred Securities. The payment
of Distributions (if and to the extent the Issuer has funds on hand available
for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by Host Marriott on a limited basis as set forth
herein under "Description of the Guarantee."
Distributions on the Preferred Securities are payable to the holders thereof
as they appear on the register of the Issuer on the relevant record dates,
which are the fifteenth day (whether or not a Business Day) next preceding the
relevant distribution date. As long as the Preferred Securities remain in
book-entry form, subject to any applicable laws and regulations and the
provisions of the Trust Agreement, each such payment will be made as described
under "--Form, Transfer, Exchange and Book-Entry Procedures."
18
CONVERSION RIGHTS
GENERAL
The Preferred Securities are convertible at any time prior to the Conversion
Expiration Date (as defined herein), at the option of the holder thereof and in
the manner described below, into shares of Host Marriott Common Stock at an
initial conversion rate of 2.6876 shares of Host Marriott Common Stock for each
Preferred Security (equivalent to a purchase price of $18.604 per share of Host
Marriott Common Stock), subject to adjustment as described under "--Conversion
Price Adjustments" below. Whenever Host Marriott issues shares of Host Marriott
Common Stock upon conversion of Preferred Securities and Host Marriott has in
effect at such time a share purchase rights agreement under which holders of
Host Marriott Common Stock are issued rights entitling the holders under
certain circumstances to purchase an additional share or shares of Host
Marriott Common Stock, Host Marriott will issue, together with each such share
of Host Marriott Common Stock, an appropriate number of rights. For a
description of Host Marriott's existing shareholder rights agreement, see
"Description of Host Marriott Capital Stock--Rights and Junior Preferred
Stock."
A holder of Preferred Securities wishing to exercise its conversion right
shall surrender such Preferred Securities, together with an irrevocable
conversion notice to the Property Trustee, as conversion agent or to such other
agent appointed for such purpose (the "Conversion Agent"), which shall, on
behalf of such holder, exchange the Preferred Securities for a portion of the
Debentures and immediately convert such Debentures into Host Marriott Common
Stock. So long as a book-entry system for the Preferred Securities is in
effect, however, the procedures for converting the Preferred Stock that are in
the form of Global Certificates into shares of Common Stock will be as
described under "--Form, Transfer, Exchange and Book-Entry Procedures." Host
Marriott's delivery upon conversion of the fixed number of shares of Host
Marriott Common Stock into which the Debentures are convertible (together with
the cash payment, if any, in lieu of any fractional share) shall be deemed to
satisfy Host Marriott's obligation to pay the principal amount at maturity of
the portion of the Debentures so converted and any unpaid interest accrued on
such Debentures at the time of such conversion. For a discussion of the
taxation of such an exchange to holders, including the possibility that holders
who exchange their Preferred Securities for Host Marriott Common Stock may be
subject to additional income tax to the extent accrued but unpaid interest on
the Debentures is converted into Host Marriott Common Stock, see "Certain
Federal Income Tax Consequences--Conversion of Preferred Securities into Host
Marriott Common Stock." Holders may obtain copies of the required form of the
conversion notice from the Conversion Agent.
Accrued Distributions will not be paid on Preferred Securities that are
converted, provided however, that holders of Preferred Securities at the close
of business on a Distribution payment record date will be entitled to receive
the Distribution payable on such Preferred Securities on the corresponding
Distribution payment date notwithstanding the conversion of such Preferred
Securities on or subsequent to such Distribution record date but prior to such
Distribution payment date. Except as provided in the immediately preceding
sentence, the Issuer will make no payment or allowance for accumulated and
unpaid Distributions, whether or not in arrears, on converted Preferred
Securities. Host Marriott will make no payment or allowance for dividends on
the shares of Host Marriott Common Stock issued upon such conversion. Each
conversion will be deemed to have been effected immediately prior to the close
of business on the day on which proper notice was received by the Conversion
Agent.
Shares of Host Marriott Common Stock issued upon conversion of Preferred
Securities are validly issued, fully paid and non-assessable. No fractional
shares of Host Marriott Common Stock will be issued as a result of conversion,
but in lieu thereof such fractional interest will be paid in cash.
EXPIRATION OF CONVERSION RIGHTS
On and after December 2, 1999 Host Marriott may, at its option, cause the
conversion rights of holders of the Preferred Securities to expire. Host
Marriott may exercise this option only if for 20
19
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the Current Market Price of Host Marriott
Common Stock exceeds 120% of the conversion price of the Preferred Securities,
subject to adjustment in certain circumstances. In order to exercise its option
to terminate the conversion rights of the Preferred Securities, Host Marriott
must issue a press release for publication on the Dow Jones News Service
announcing the Conversion Expiration Date prior to the opening of business on
the second trading day after any period in which the condition in the preceding
sentence has been met, but in no event prior to December 2, 1999. The press
release shall announce the Conversion Expiration Date and provide the current
conversion price and Current Market Price of Host Marriott Common Stock, in
each case as of the close of business on the trading day next preceding the
date of the press release. Conversion rights will terminate at the close of
business on the Conversion Expiration Date.
Notice of the expiration of conversion rights will be given by Host Marriott
by first-class mail to the holders of the Preferred Securities not more than
four Business Days after Host Marriott issues the press release. The Conversion
Expiration Date will be a date selected by Host Marriott not less than 30 nor
more than 60 days after the date on which Host Marriott issues the press
release announcing its intention to terminate the conversion rights of the
Preferred Securities. In the event that Host Marriott does not exercise its
option to terminate the conversion rights of the Preferred Securities, the
Conversion Expiration Date with respect to the Preferred Securities will be two
Business Days preceding the date set for redemption of the Preferred
Securities.
The term "Current Market Price" of Host Marriott Common Stock for any day
means the last reported sale price, regular way, on such day, or, if no sale
takes place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the NYSE
Composite Transactions Tape, or, if the Host Marriott Common Stock is not
listed or admitted to trading on the NYSE on such day, on the principal
national securities exchange on which the Host Marriott Common Stock is listed
or admitted to trading, if the Host Marriott Common Stock is listed on a
national securities exchange, or the Nasdaq National Market, or, if the Host
Marriott Common Stock is not quoted or admitted to trading on such quotation
system, on the principal quotation system on which the Host Marriott Common
Stock may be listed or admitted to trading or quoted, or, if not listed or
admitted to trading or quoted on any national securities exchange or quotation
system, the average of the closing bid and asked prices of the Host Marriott
Common Stock in the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or, if not so available in such manner, as furnished by any
NYSE member firm selected from time to time by the Board of Directors of Host
Marriott for that purpose or, if not so available in such manner, as otherwise
determined in good faith by the Board of Directors of Host Marriott.
CONVERSION PRICE ADJUSTMENTS
GENERAL. The conversion price is subject to adjustment in certain events
including, without duplication: (i) the payment of dividends (and other
distributions) payable exclusively in Host Marriott Common Stock on Host
Marriott Common Stock; (ii) the issuance to all holders of Host Marriott Common
Stock of rights or warrants entitling holders of such rights or warrants (for a
period not exceeding 45 days) to subscribe for or purchase Host Marriott Common
Stock at less than the then Current Market Price; (iii) subdivisions and
combinations of Host Marriott Common Stock; (iv) the payment of dividends (and
other distributions) to all holders of Host Marriott Common Stock consisting of
evidences of indebtedness of Host Marriott, securities or capital stock, cash,
or assets (including securities, but excluding those rights or warrants
referred to above in clause (ii) and dividends and distributions paid
exclusively in cash); (v) the payment of dividends (and other distributions) on
Host Marriott Common Stock paid exclusively in cash, excluding (A) cash
dividends that do not exceed the per share amount of the immediately preceding
regular cash dividend (as adjusted to reflect any of the events referred to in
clauses (i) through (vi) of this sentence), and (B) cash dividends if the
annualized per share amount thereof does not exceed 12.5% of the last sale
price of Host Marriott Common
20
Stock, as reported on the NYSE Consolidated Transactions Tape, on the trading
day immediately preceding the date of declaration of such dividend (such
adjustment being limited to the amount in excess of 12.5% of such Current
Market Price); and (vi) payment in respect of a tender or exchange offer (other
than an odd-lot offer) by Host Marriott or any subsidiary of Host Marriott for
Host Marriott Common Stock in excess of 110% of the Current Market Price of
Host Marriott Common Stock on the trading day next succeeding the last date
tenders or exchanges may be made pursuant to such tender or exchange offer.
If the distribution date for the Rights of Host Marriott provided in the
Rights Agreement, as presently constituted or under any similar plan (see
"Description of Host Marriott Capital Stock-- Rights and Junior Preferred
Stock"), occurs prior to the date a Preferred Security is converted, holders of
the Preferred Securities who convert such Preferred Securities after the
distribution date are not entitled to receive the Rights that would otherwise
be attached (but for the date of conversion) to the shares of Host Marriott
Common Stock received upon such conversion. However, adjustment of the
conversion price shall be made under clause (ii) of the preceding paragraph as
if the Rights were being distributed to the common stockholders of Host
Marriott immediately prior to such conversion. If such an adjustment is made
and the Rights are later redeemed, invalidated or terminated, then a
corresponding reversing adjustment shall be made to the conversion price, on an
equitable basis, to take account of such event.
Host Marriott from time to time may reduce the conversion price of the
Debentures (and thus the conversion price of the Preferred Securities) by any
amount selected by Host Marriott for any period of at least 30 days, in which
case Host Marriott shall give at least 15 days' notice of such reduction. Host
Marriott may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors of Host Marriott
deems advisable to avoid or diminish any income tax to holders of Host Marriott
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"Certain Federal Income Tax Consequences--Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Host Marriott Common Stock pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on securities
of Host Marriott and the investment of additional optional amounts in shares of
Host Marriott Common Stock under any such plan, or the issuance of any shares
of Host Marriott Common Stock or options or rights to purchase such shares
pursuant to any present or future employee benefit plan or program of Host
Marriott or pursuant to any option, warrant, right, or exercisable,
exchangeable or convertible security which does not constitute an issuance to
all holders of Host Marriott Common Stock of rights or warrants entitling
holders of such rights or warrants to subscribe for or purchase Host Marriott
Common Stock at less than the Current Market Price. There shall also be no
adjustment of the conversion price in case of the issuance of any Host Marriott
Common Stock (or securities convertible into or exchangeable for Host Marriott
Common Stock), except as specifically described above. If any action would
require adjustment of the conversion price pursuant to more than one of the
anti-dilution provisions, only one adjustment shall be made and such adjustment
shall be the amount of adjustment that has the highest absolute value to
holders of the Preferred Securities. No adjustment in the conversion price will
be required unless such adjustment would require an increase or decrease of at
least 1% of the conversion price, but any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
MERGER, CONSOLIDATION OR SALE OF ASSETS OF HOST MARRIOTT. In the event that
Host Marriott is a party to any transaction (including, without limitation, a
merger other than a merger that does not result in a reclassification,
conversion, exchange or cancellation of Host Marriott Common Stock),
consolidation, sale of all or substantially all of the assets of Host Marriott,
recapitalization or
21
reclassification of Host Marriott Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination of Host Marriott Common Stock) or
any compulsory share exchange (each of the foregoing being referred to as a
"Transaction"), in each case, as a result of which shares of Host Marriott
Common Stock shall be converted into the right to receive, or shall be
exchanged for, (i) in the case of any Transaction other than a Transaction
involving a Common Stock Fundamental Change (as defined below) (and subject to
funds being legally available for such purpose under applicable law at the time
of such conversion), securities, cash or other property, each Preferred
Security shall thereafter be convertible into the kind and, in the case of a
Transaction which does not involve a Fundamental Change (as defined below),
amount of securities, cash and other property receivable upon the consummation
of such Transaction by a holder of that number of shares of Host Marriott
Common Stock into which a Preferred Security was convertible immediately prior
to such Transaction, or (ii) in the case of a Transaction involving a Common
Stock Fundamental Change, common stock, each Preferred Security shall
thereafter be convertible (in the manner described herein) into common stock of
the kind received by holders of Host Marriott Common Stock (but in each case
after giving effect to any adjustment discussed below relating to a Fundamental
Change if such Transaction constitutes a Fundamental Change. The holders of
Preferred Securities will have no voting rights with respect to any Transaction
described in this section.
If any Fundamental Change occurs, then the conversion price in effect will be
adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Preferred
Security shall be convertible solely into common stock of the kind received by
holders of Host Marriott Common Stock as a result of such Common Stock
Fundamental Change.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below), the
conversion price of the Preferred Securities will thereupon become the
lower of (A) the conversion price in effect immediately prior to such Non-
Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the
result obtained by multiplying the greater of the Applicable Price (as
defined below) or the then applicable Reference Market Price (as defined
below) by a fraction, the numerator of which is $50 and the denominator of
which is (x) the amount of the redemption price for Preferred Security if
the redemption date were the date of such Non-Stock Fundamental Change (or,
for the period commencing on the first date of original issuance of the
Preferred Securities and through December 1, 1997, and the twelve-month
periods commencing December 2, 1997 and December 2, 1998, the product of
106.75, 106.075 and 105.400, respectively, multiplied by $50) plus (y) any
then-accrued and unpaid distributions on one Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Securities in effect immediately prior to such
Common Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceeding paragraphs, will thereupon
be adjusted by multiplying such conversion price by a fraction of which the
numerator will be the Purchaser Stock Price (as defined below) and the
denominator will be the Applicable Price; provided, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% of the value
of the consideration received by a holder of Host Marriott Common Stock is
common stock of the successor, acquiror, or other third party (and cash, if
any, is paid only with respect to any fractional interests in such common
stock resulting from such Common Stock Fundamental Change) and (B) all Host
Marriott Common Stock will have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional interests)
of the successor, acquiror, or other third party, the conversion price of
the Preferred Securities in
22
effect immediately prior to such Common Stock Fundamental Change will
thereupon be adjusted by multiplying such conversion price by a fraction of
which the numerator will be one and the denominator will be the number of
shares of common stock of the successor, acquiror, or other third party
received by a holder of one share of Host Marriott Common Stock as a result
of such Common Stock Fundamental Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Preferred Security would become convertible into the
securities, cash, or property receivable by a holder of the number of shares of
Host Marriott Common Stock into which such Preferred Security was convertible
immediately prior to such Transaction. A failure to apply the Fundamental
Change conversion price adjustments described above could substantially lessen
or eliminate the value of the conversion privilege associated with the
Preferred Securities. For example, if Host Marriott were acquired in a cash
merger, each Preferred Security would become convertible solely into cash and
would no longer be convertible into securities whose value would vary depending
on the future prospects of Host Marriott and other factors.
The foregoing conversion price adjustments are designed, in certain
circumstances, to reduce the conversion price that would be applicable in
"Fundamental Change" Transactions where all or substantially all the Host
Marriott Common Stock is converted into securities, cash, or property and not
more than 50% of the value received by the holders of Host Marriott Common
Stock consists of stock listed or admitted for listing subject to notice of
issuance on the NYSE or a national securities exchange or quoted on the Nasdaq
National Market (a Non-Stock Fundamental Change, as defined below). Such
reduction would result in an increase in the amount of the securities, cash, or
property into which each Preferred Security is convertible over that which
would have been obtained in the absence of such conversion price adjustments.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Host Marriott Common Stock (measured as described in the
definition of Applicable Price below) is lower than the then applicable
conversion price of a Preferred Security but greater than or equal to the
"Reference Market Price", the conversion price will be adjusted as described
above with the effect that each Preferred Security will be convertible into
securities, cash or property of the same type received by the holders of Host
Marriott Common Stock in the Transaction but in an amount per Preferred
Security that would at the time of the Transaction have had a value equal to
the then applicable redemption price per Preferred Security set forth below
under "--Optional Redemption" (or, for periods prior to the date on and after
which Host Marriott may cause the conversion rights of holders of Preferred
Securities to expire.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Host Marriott Common Stock (measured as described in the
definition of Applicable Price) is lower than both the conversion price of a
Preferred Security in effect prior to any adjustment described above and the
Reference Market Price, the conversion price will be adjusted as described
above but calculated as though such initial value had been the Reference Market
Price.
In a Fundamental Change Transaction where all or substantially all the Host
Marriott Common Stock is converted into securities, cash, or property and more
than 50% of the value received by the holders of Host Marriott Common Stock
consists of listed or Nasdaq National Market traded common stock (a Common
Stock Fundamental Change, as defined below), the foregoing adjustments are
designed to provide in effect that (a) where Host Marriott Common Stock is
converted partly into such common stock and partly into other securities, cash,
or property, each Preferred Security will be convertible solely into a number
of shares of such common stock determined so that the initial value of such
shares (measured as described in the definition of "Purchaser Stock Price"
below) equals the value of the shares of Host Marriott Common Stock into which
such Preferred Security was convertible
23
immediately before the Transaction (measured as aforesaid) and (b) where Host
Marriott Common Stock is converted solely into such common stock, each
Preferred Security will be convertible into the same number of shares of such
common stock receivable by a holder of the number of shares of Host Marriott
Common Stock into which such Preferred Security was convertible immediately
before such Transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of the Host Marriott Common Stock receive only
cash, the amount of cash received by the holder of one share of Host Marriott
Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or
any Common Stock Fundamental Change, the average of the Closing Prices (as
defined below) for the Host Marriott Common Stock during the ten trading days
prior to the record date for the determination of the holders of Host Marriott
Common Stock entitled to receive such securities, cash, or other property in
connection with such Non-Stock Fundamental Change or Common Stock Fundamental
Change or, if there is no such record date, the date upon which the holders of
the Host Marriott Common Stock shall have the right to receive such securities,
cash, or other property (such record date or distribution date being
hereinafter referred to as the "Entitlement Date"), in each case as adjusted in
good faith by Host Marriott to appropriately reflect any of the events referred
to in clauses (i) through (vi) of the first paragraph under "--Conversion Price
Adjustments--General."
The term "Closing Price" means on any day the reported last sale price on
such day or in case no sale takes place on such day, the average of the
reported closing bid and asked prices in each case on the NYSE Consolidated
Transactions Tape or, if the stock is not listed or admitted to trading on the
NYSE, on the principal national securities exchange on which such stock is
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the closing bid and asked prices
as furnished by any NYSE member firm, selected by the Debenture Trustee for
that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of Host Marriott) of the consideration received by holders of Host
Marriott Common Stock consists of common stock that for each of the ten
consecutive trading days prior to the Entitlement Date has been admitted for
listing or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the Nasdaq National Market; provided, however,
that a Fundamental Change shall not be a Common Stock Fundamental Change unless
either (i) Host Marriott continues to exist after the occurrence of such
Fundamental Change and the outstanding Preferred Securities continue to exist
as outstanding Preferred Securities or (ii) not later than the occurrence of
such Fundamental Change, the outstanding Preferred Securities are converted
into or exchanged for shares of convertible preferred stock of an entity
succeeding to the business of Host Marriott or a subsidiary thereof, which
convertible preferred stock has powers, preferences, and relative,
participating, optional, or other rights, and qualifications, limitations, and
restrictions, substantially similar to those of the Preferred Securities.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all of
the Host Marriott Common Stock shall be exchanged for, converted into, acquired
for, or constitute solely the right to receive securities, cash, or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one such
Transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all of
the Host Marriott Common Stock shall be exchanged for, converted into, or
acquired for or constitute solely the right to receive securities, cash, or
other property, but the adjustment shall be based upon the consideration that a
holder of Host Marriott Common Stock received in such Transaction or event as a
result of which more than 50% of the Host Marriott Common Stock shall have been
exchanged for,
24
converted into, or acquired for or constitute solely the right to receive
securities, cash, or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive
trading days prior to and including the Entitlement Date, as adjusted in good
faith by Host Marriott to appropriately reflect any of the events referred to
in clauses (i) through (vi) of the first paragraph under "--Conversion Price
Adjustments--General."
The term "Reference Market Price" shall initially mean $10.083 (which is an
amount equal to 66 2/3% of the reported last sales price for Host Marriott
Common Stock on the NYSE Corporate Tape on November 25, 1996) and in the event
of any adjustment of the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of the
initial Reference Market Price to the initial conversion price of the Preferred
Securities.
SPECIAL EVENT EXCHANGE OR REDEMPTION
At any time following the occurrence and the continuation of a Tax Event or
an Investment Company Event, the Issuer Trustees shall direct the Conversion
Agent to exchange all outstanding Preferred Securities for Debentures, provided
that, in the case of a Tax Event, Host Marriott shall have the right to (a)
direct that less than all, or none, of the Preferred Securities be so exchanged
if and for so long as Host Marriott shall have elected to pay any Additional
Sums (as defined below) such that the net amounts received by the holders of
Preferred Securities not so exchanged in respect of Distributions and other
distributions are not reduced as a result of such Tax Event, and shall not have
revoked any such election or failed to make such payments or (b) redeem the
Preferred Securities in the manner set forth below.
If, a Tax Event shall occur or be continuing, Host Marriott shall have the
right, upon not less than 30 nor more than 60 days' notice, to redeem the
Debentures, in whole or in part, for cash upon the later of (i) 90 days
following the occurrence of such Tax Event or (ii) December 2, 1999. Promptly
following such redemption, Preferred Securities and Common Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Debentures so redeemed will be redeemed by the Issuer at the liquidation amount
thereof plus accrued and unpaid Distributions thereon to the redemption date on
a pro rata basis. The Common Securities will be redeemed on a pro rata basis
with the Preferred Securities, except that if a Declaration Event of Default
has occurred and is continuing, the Preferred Securities will have a priority
over the Common Securities with respect to the Redemption Price.
A "Special Event" means a Tax Event or an Investment Company Event. A "Tax
Event" means the receipt by the Property Trustee, on behalf of the Issuer, of
an opinion of counsel, rendered by a law firm having a national tax and
securities practice (which opinion shall not have been rescinded by such law
firm), to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk in each case after the date hereof that (i) the Issuer is,
or will be within 90 days of
25
the date thereof, subject to United States Federal income tax with respect to
income received or accrued on the Debentures, (ii) interest payable by Host
Marriott on such Debentures is not, or within 90 days of the date thereof will
not be, deductible by Host Marriott, in whole or in part, for United States
Federal income tax purposes; or (iii) the Issuer is, or will be within 90 days
of the date thereof, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. "Investment Company Event" means the
receipt by the Property Trustee, on behalf of the Issuer, of an opinion of
counsel, rendered by a law firm having a recognized national tax and securities
practice (which opinion shall not have been rescinded by such law firm), to the
effect that, as a result of the occurrence of a change in law or regulation or
a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), that there is more than an insubstantial risk that the
Issuer is or will be considered an "investment company" that is required to be
registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which Change in 1940 Act Law becomes effective on or
after the date of original issuance of the Preferred Securities.
As a part of President Clinton's Fiscal 1997 Budget Proposal, the Treasury
Department proposed legislation that, among other things, would have treated as
equity for United States Federal income tax purposes certain debt instruments
with a maximum term of more than 20 years that are not shown as indebtedness on
the consolidated balance sheet of the Issuer. The proposed legislation was to
be effective for debt instruments issued on or after December 7, 1995. Although
this legislation was not enacted as part of the Fiscal 1997 Budget, there can
be no assurance that a similar proposal would not be enacted in the future,
that such future legislation would not have a retroactive effective date and
that such future legislation would not prevent Host Marriott from deducting
interest on the Debentures. This would constitute a Tax Event and would permit
the Issuer to exchange the Preferred Securities, in whole or in part, for the
Debentures or redeem, in whole or in part, the Preferred Securities and
corresponding Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer on the
outstanding Preferred Securities and Common Securities of the Issuer shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which the Issuer has become subject as a result of a Tax Event.
Holders of Preferred Securities, by purchasing such Preferred Securities,
will be deemed to have agreed to be bound by these exchange provisions in
regard to the exchange of such Preferred Securities for Debentures on the terms
described above.
DISTRIBUTION OF DEBENTURES
At any time, Host Marriott will have the right to terminate the Issuer and,
after satisfaction of the liabilities of creditors of the Issuer as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer. Under current United States
Federal income tax law and interpretations and assuming, as expected, the
Issuer is treated as a grantor trust, a distribution of the Debentures should
not be a taxable event to the Issuer and holders of the Preferred Securities.
Should there be a change in law, a change in legal interpretation, a Special
Event or other circumstances, however, the distribution could be a taxable
event to holders of the Preferred Securities. See "Certain Federal Income Tax
Consequences--Redemption of Preferred Securities for Debentures or Cash."
After the liquidation date fixed for any distribution of Debentures for
Preferred Securities (i) such Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the record holder of such Preferred
Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution and (iii)
any certificates representing such Preferred Securities not held by DTC or its
nominee will be deemed to represent
26
the Debentures having a principal amount equal to the liquidation amount of
such Preferred Securities, and bearing accrued and unpaid interest in an amount
equal to the accrued and unpaid Distributions on such Preferred Securities
until such certificates are presented to the Property Trustee for transfer or
reissuance.
OPTIONAL REDEMPTION
Except as provided under "--Mandatory Redemption" below, the Preferred
Securities may not be redeemed by the Issuer prior to December 2, 1999.
On and after such date, upon any permitted redemption by Host Marriott of
Debentures, the Preferred Securities are subject to redemption, in whole or in
part, at the following percentages of the liquidation preference thereof plus
accrued and unpaid Distributions, if any, to the date fixed for redemption if
redeemed during the twelve-month period commencing December 2 in each of the
following years indicated:
REDEMPTION
YEAR PRICE
- ---- ----------
1999................... 104.725%
2000................... 104.050%
2001................... 103.375%
2002................... 102.700%
REDEMPTION
YEAR PRICE
- ---- ----------
2003................... 102.025%
2004................... 101.350%
2005................... 100.675%
2006 and thereafter.... 100.000%
The aggregate liquidation preference of the Preferred Securities and Common
Securities so redeemed will equal the aggregate principal amount of Debentures
redeemed by Host Marriott, which may not exceed the amount of the proceeds
derived, directly or indirectly, by Host Marriott or its subsidiaries from the
issuance and sale of common stock within two years preceding the date fixed for
redemption. The Issuer may not redeem the Preferred Securities in part unless
all accrued and unpaid Distributions have been paid in full on all outstanding
Preferred Securities. If fewer than all the outstanding Preferred Securities
are to be redeemed, the Preferred Securities to be so redeemed will be selected
as described under "--Form, Transfer, Exchange and Book-Entry Procedures."
In the event Host Marriott redeems the Debentures in certain circumstances
upon the occurrence of a Tax Event as described under "--Special Event Exchange
or Redemption," the appropriate amount of the Preferred Securities will be
redeemed at 100% of the principal amount thereof together with accrued and
unpaid Distributions to the redemption date.
If at any time following the Conversion Expiration Date, less than 5% of the
Preferred Securities offered hereby remain outstanding, such Preferred
Securities shall be redeemable at the option of the Issuer, in whole but not in
part, at a redemption price of $50 per Preferred Security, and all accrued and
unpaid Distributions.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of the acceleration of the
Debentures upon the occurrence of a "Debenture Event of Default" described
under "Description of the Debentures--Debenture Events of Default," the
Debentures shall be subject to mandatory redemption, in whole but not in part,
by Host Marriott, and the proceeds from such repayment will be applied to
redeem Preferred Securities and Common Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Debentures so
repaid or redeemed at a redemption price equal to the respective liquidation
amount of the Preferred Securities and Common Securities or, in the case of a
redemption of the Debentures, at the redemption price paid with respect to the
Debentures, as described below, together with accrued and unpaid distributions
on the Preferred Securities and Common Securities to the date of redemption. In
the case of acceleration of the Debentures, the Preferred Securities will be
redeemed only when repayment of the Debentures has actually been received by
the Issuer. In addition, as described above under "--Special Event Exchange or
27
Redemption," upon the occurrence of a Special Event, Preferred Securities shall
be exchanged for Debentures unless, in the case of a Tax Event, Host Marriott
shall have elected to (a) pay any Additional Sums such that the net amounts of
Distributions received by the holders of any Preferred Securities not so
exchanged are not reduced as a result of such Tax Event and shall not have
revoked any such election or failed to make such payments or (b) redeem the
Preferred Securities as further set forth in "Special Event Exchange or
Redemption."
REDEMPTION PROCEDURES
Preferred Securities redeemed on the date fixed for redemption shall be
redeemed at the redemption price with the applicable proceeds from the
contemporaneous redemption of the Debentures. Redemptions of the Preferred
Securities shall be made and the redemption price shall be payable on the
redemption date only to the extent that the Issuer has funds on hand available
for the payment of such redemption price. See also "--Subordination of Common
Securities."
Notice of any redemption (optional or mandatory) of Preferred Securities
(which notice will be irrevocable) will be given by the Property Trustee to
each record holder of Preferred Securities that are being redeemed not fewer
than 30 nor more than 60 days prior to the redemption date. If the Property
Trustee gives a notice of redemption in respect of the Preferred Securities,
then, by 12:00 noon, New York City time, on the redemption date, to the extent
funds are available, the Property Trustee will deposit irrevocably with DTC or
the Conversion Agent, as the case may be, funds sufficient to pay the
applicable redemption price and will give DTC or the Conversion Agent, as the
case may be, irrevocable instructions and authority to pay the redemption price
to the holders of such Preferred Securities. See "--Form, Transfer, Exchange
and Book-Entry Procedures." If such Preferred Securities are no longer in book-
entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the Paying Agent funds sufficient to pay the
applicable redemption price and will give the Paying Agent irrevocable
instructions and authority to pay the redemption price to the holders thereof
upon surrender of their certificates evidencing such Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
redemption date for any Preferred Securities called for redemption shall be
payable to the holders of such Preferred Securities as of the relevant record
dates for the related distribution dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such deposit,
all rights of the holders of such Preferred Securities so called for redemption
will cease, except the right of the holders of such Preferred Securities to
receive the redemption price, but without interest on such redemption price,
and such Preferred Securities will cease to be outstanding. In the event that
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the redemption price on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the redemption price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer or by Host Marriott pursuant to the
Guarantee as described under "Description of the Guarantee," Distributions on
such Preferred Securities will continue to accrue at the then applicable rate,
from the redemption date originally established by the Issuer to the date such
redemption price is actually paid, in which case the actual payment date will
be the date fixed for redemption for purposes of calculating the redemption
price.
Subject to applicable law (including, without limitation, United States
Federal securities law), Host Marriott or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the redemption price on the Preferred Securities and any
distribution or exchange of Debentures to holders of Preferred Securities shall
be made to the applicable record holders thereof as they
28
appear on the register for such Preferred Securities on the relevant record
date, which shall be the fifteenth day (whether or not a Business Day) prior to
the redemption date or liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities listed by
the Issuer are to be redeemed on a redemption date, then the aggregate
liquidation amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata among the Preferred Securities and the
Common Securities. The particular Preferred Securities to be redeemed shall be
selected not more than 60 days prior to the redemption date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by lot or by such method as the Property Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $50 or an integral multiple of $50 in excess thereof) of the
liquidation amount of the Preferred Securities. The Property Trustee shall
promptly notify the Conversion Agent in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the liquidation amount thereof to be redeemed; it being
understood that, in the case of Preferred Securities held by DTC (or any
successor) or its nominee, the distribution of the proceeds of such redemption
will be made in accordance with the procedures of DTC or its nominee. For all
purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Preferred Securities shall relate, in
the case of any Preferred Securities redeemed or to be redeemed only in part,
to the portion of the aggregate liquidation amount of Preferred Securities
which has been or is to be redeemed.
Notice of any redemption of Debentures will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of Debentures
to be redeemed at its registered address. Unless Host Marriott defaults in
payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Debentures or portions thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the redemption price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based
on the liquidation amount of such Preferred Securities and Common Securities;
provided, however, that if on any distribution date or redemption date a
Declaration Event of Default shall have occurred and be continuing, no payment
of any Distribution on, or redemption price of, any of the Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of such Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions on all of the outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or in the case of payment of the redemption price the full amount of
such redemption price on all of the outstanding Preferred Securities then
called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or redemption price of, the Preferred
Securities then due and payable.
In the case of any Declaration Event of Default, Host Marriott as holder of
the Common Securities will be deemed to have waived any right to act with
respect to any such Declaration Event of Default until all such Declaration
Events of Default with respect to the Preferred Securities have been cured,
waived or otherwise eliminated. Until any such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Preferred Securities and not on behalf of Host Marriott as
holder of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
In the event of any voluntary or involuntary liquidation, termination,
dissolution or winding up of the Issuer (each, a "Liquidation"), the holders of
the Preferred Securities at that time will be entitled to
29
receive out of the assets of the Issuer, after satisfaction of liabilities to
creditors, distributions in an amount equal to the aggregate of the stated
liquidation amount of $50 per Preferred Security plus accrued and unpaid
Distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid Distributions on, the Preferred
Securities, have been distributed on a pro rata basis to the holders of
Preferred Securities in exchange for such Preferred Securities. See "--
Distribution of Debentures."
If such Liquidation Distribution can be paid only in part because the Issuer
has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer on the Preferred
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
Pursuant to the Trust Agreement, the Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of Host Marriott; (ii)
the distribution of Debentures to the holders of the Preferred Securities and
Common Securities, if Host Marriott, as Depositor, has given written direction
to the Property Trustee to terminate the Issuer (which direction is optional
and wholly within the discretion of Host Marriott, as Depositor); (iii) the
redemption, conversion, or exchange of all of the Preferred Securities and
Common Securities; (iv) the entry by a court of competent jurisdiction of an
order for the dissolution of the Issuer; and (v) the occurrence of a Special
Event except in the case of a Tax Event following which Host Marriott has
elected to pay any Additional Sums such that the net amount received by holders
of Preferred Securities in respect of Distributions is not reduced as a result
of such Tax Event and Host Marriott has not revoked any such election or failed
to make such payment.
DECLARATION EVENTS OF DEFAULT; NOTICE
An event of default under the Indenture (a "Debenture Event of Default")
constitutes an event of default under the Trust Agreement with respect to the
Preferred Securities and the Common Securities (a "Declaration Event of
Default"), whatever the reason for such Debenture Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body.
Within ten days after the occurrence of any Declaration Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Declaration Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and Host Marriott, as Depositor, unless
such Declaration Event of Default shall have been cured or waived. Host
Marriott, as Depositor, and the Administrative Trustees, on behalf of the
Issuer, are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under the Trust Agreement.
If a Declaration Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities upon
termination of the Issuer as described above. See "--Liquidation Distribution
Upon Termination." The existence of a Declaration Event of Default does not
entitle the holders of Preferred Securities to accelerate the maturity thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default has occurred and is continuing, then the
holders of Preferred Securities would rely on the enforcement by the Property
Trustee of its rights as a holder of the
30
Debentures against Host Marriott. In addition, the holders of a majority in
aggregate liquidation amount of the Preferred Securities will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Trust Agreement, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of the Debentures. If the Property Trustee fails to enforce its
rights as holder of the Debentures after a request therefor by a holder of
Preferred Securities, such holder may proceed to enforce such rights directly
against Host Marriott. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of Host Marriott to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
directly institute a Direct Action against Host Marriott for enforcement of
payment to such holder of the principal of or interest on the Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Debentures. In connection with such Direct Action, Host Marriott will be
subrogated to the rights of such holder of Preferred Securities under the Trust
Agreement to the extent of any payment made by Host Marriott to such holder of
Preferred Securities in such Direct Action. The holders of Preferred Securities
will not be able to exercise directly against Host Marriott any other remedy
available to the Property Trustee unless the Property Trustee first fails to do
so.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Issuer Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Issuer Trustee, shall be the successor of such Issuer
Trustee under the Declaration, provided such corporation shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. The Issuer may, at the request of Host Marriott, with the
consent of the Administrative Trustees and without the consent of the Property
Trustee, the Delaware Trustee or the holders of the Preferred Securities, merge
with or into, consolidate, amalgamate, be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided that (i) such successor
entity either (a) expressly assumes all of the obligations of the Issuer with
respect to the Preferred Securities or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority with
respect to Distributions and payments upon liquidation, redemption and
otherwise, (ii) Host Marriott expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose identical to that of the
31
Issuer, (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Host Marriott has received an opinion from
independent counsel to the Issuer experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders interest in the new entity) and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (viii) Host Marriott
or any permitted successor or assignee owns all of the Common Securities of
such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the
Guarantee. Notwithstanding the foregoing, the Issuer shall not, except with the
consent of holders of 100% in aggregate liquidation amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Issuer or the successor entity to be classified as other than a grantor
trust for United States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities have no voting rights.
The Trust Agreement may be amended from time to time by Host Marriott and the
Issuer Trustees, without the consent of the holders of the Preferred Securities
(i) to cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision, or to make any
other provisions with respect to matters or questions arising under the Trust
Agreement that shall not be inconsistent with the other provisions of the Trust
Agreement, (ii) to modify, eliminate or add to any provision of the Trust
Agreement to such extent as shall be necessary to ensure that the Issuer will
be classified for United States Federal income tax purposes as a grantor trust
at all times that any Preferred Securities and Common Securities are
outstanding or to ensure that the Issuer will not be required to register as an
"investment company" under the Investment Company Act or be classified as other
than a grantor trust for United States Federal income tax purposes or (iii) to
qualify or maintain the qualification of the Trust Agreement under the Trust
Indenture Act; provided, however, that in the case of clause (i), such action
shall not adversely affect in any material respect the interests of any holder
of Preferred Securities or Common Securities, and any amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders of
Preferred Securities and Common Securities. The Trust Agreement may be amended
by the Issuer Trustees and Host Marriott with (i) the consent of holders
representing not less than a majority (based upon liquidation amounts) of the
outstanding Preferred Securities and Common Securities, acting as a single
class, and (ii) receipt by the Issuer Trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power granted to the Issuer
Trustees in accordance with such amendment will not affect the Issuer's status
as a grantor trust for United States Federal income tax purposes or the
Issuer's exemption from the status of an "investment company" under the
Investment Company Act; provided further that (a) without the consent of each
holder of Preferred Securities and Common Securities, the Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Preferred Securities and Common Securities or otherwise adversely affect the
amount of any Distribution required to be made in respect of the Preferred
Securities and Common Securities as of a specified date or (ii) restrict the
right of a holder of Preferred Securities and Common Securities to institute
suit for the enforcement of any such payment on or after such date.
If any proposed amendment of the Trust Agreement provides for, or the Issuer
Trustees otherwise propose to effect, the dissolution, winding-up or
termination of the Issuer, other than pursuant to the
32
terms of the Trust Agreement, then the holders of the then outstanding
Preferred Securities, as a class, will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the holders of the majority in aggregate liquidation amount of the
Preferred Securities.
The holders of a majority in aggregate liquidation amount of Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee or to direct
the exercise of any trust or power conferred upon the Property Trustee under
the Trust Agreement, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Debentures. So long as
any Debentures are held by the Property Trustee, the Issuer Trustees may not
(i) direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee or executing any trust or power
conferred on the Debenture Trustee with respect to such Debentures, (ii) waive
any past default that is waivable under Section 5.13 of the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable, or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures where such
consent shall be required, without in each case, obtaining the prior approval
of the holders of a majority in aggregate liquidation amount of all outstanding
Preferred Securities (except in the case of clause (iv), which consent, in the
event that no Declaration Event of Default shall occur and be continuing, shall
be of the holders of Preferred Securities and Common Securities, voting
together as a single class); provided, however, that where a consent under the
Indenture would require the consent of each holder of Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each holder of the Preferred Securities. The Issuer
Trustees may not revoke any action previously authorized or approved by a vote
of the holders of the Preferred Securities except by subsequent vote of the
holders of the Preferred Securities. The Property Trustee shall notify each
holder of record of the Preferred Securities of any notice of default with
respect to the Debentures.
A waiver of a Debenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of the Preferred Securities
and the Common Securities or pursuant to written consent. The Property Trustee
will cause a notice of any meeting at which holders of Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be given to each holder of record of Preferred
Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities is required for the
Issuer to redeem and cancel the Preferred Securities in accordance with the
Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by Host Marriott, the Issuer Trustees or
any affiliate of any Issuer Trustee shall, for purposes of such vote or
consent, be treated as if such Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Form, Transfer, Exchange and Book-
Entry Procedures."
Holders of the Preferred Securities have no rights to appoint or remove the
Issuer Trustees, who may be appointed, removed or replaced solely by Host
Marriott, as the direct or indirect holder of all the Common Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities represented by the Global
Certificates shall be made to DTC, which shall credit the relevant accounts at
DTC on the applicable distribution dates or,
33
in the case of Certificated Securities, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Securities Register. The paying agent (the "Paying Agent")
initially is the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and Host
Marriott. The Paying Agent is permitted to resign as Paying Agent upon 30 days'
written notice to the Property Trustee and Host Marriott. In the event that the
Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees and Host Marriott) to act as Paying
Agent.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL CERTIFICATES
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect
transfers of interests in the global certificate or certificates issued in
connection with sales of Preferred Securities made pursuant to this Prospectus.
Substantially all of the Preferred Securities were issued as fully registered
securities registered in the name of Cede & Co. (as nominee for DTC). Fully
registered global Preferred Security certificates (the "Global Certificates")
were issued, representing such Preferred Securities and were deposited with
DTC.
DTC has advised the Issuer and the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants ("participants") and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Issuer and the Company that its current practice, upon
the issuance of the Restricted Global Certificate and the Regulation S Global
Certificate, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by such Global
Certificates to the accounts with DTC of the participants through which such
interests are to be held. Ownership of beneficial interests in the Global
Certificates will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominees (with respect
to interests of participants) and the records of participants and indirect
participants (with respect to interests of persons other than participants).
[DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to
whose accounts such Preferred Securities are credited, which may or may not be
the Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.]
As long as DTC, or its nominee, is the registered holder of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Preferred Securities represented by such Global
Certificate for all purposes under the Trust Agreement and the Preferred
Securities. [No beneficial owner of an interest in a Global Certificate will be
able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Trust Agreement.]
Except in certain limited circumstances, owners of beneficial interests in a
Global Certificate will not be entitled to have any portions of such Global
Certificate registered in their names, will not receive
34
or be entitled to receive physical delivery of Preferred Securities in
definitive form and will not be considered the owners or holders of the Global
Certificate (or any Preferred Securities represented thereby) under the Trust
Agreement or the Preferred Securities.
Investors may hold their interests in the Restricted Global Certificate
directly through DTC, if they are participants in such system, or indirectly
through organizations (including Euroclear and CEDEL) which are participants in
such system. Investors may hold their interests in the Regulation S Global
Certificate through CEDEL or Euroclear, if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold their interests in the Regulation S Global Certificate
through organizations other than CEDEL and Euroclear that are participants in
the DTC system. CEDEL and Euroclear will hold interests in the Regulation S
Global Certificate on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories. The depositories, in turn, will hold such interests in the
Regulation S Global Certificate in customers' securities accounts in the
depositories' names on the books of DTC. All interests in a Global Certificate,
including those held through Euroclear or CEDEL, will be subject to the
procedures and requirements of DTC. Those interests held through Euroclear and
CEDEL will also be subject to the procedures and requirements of such system.
Transfers and exchanges of interests in a Global Certificate will also be
subject to the procedures described above under "--Exchanges between the
Restricted Global Certificate and the Regulation S Global Certificate," if
applicable.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Certificate to such persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of indirect participants and certain banks, the
ability of a person having beneficial interests in a Global Certificate to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Payments of Distributions on Global Certificates will be made to DTC or its
nominee as the registered owner thereof. Neither the Issuer, the Company, the
Property Trustee nor any of their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Certificates or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Issuer and the Company expect that DTC or its nominee, upon receipt of
any payment of Distributions in respect of a Global Certificate representing
any Preferred Securities held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Certificate for such Preferred Securities as shown on the records of DTC or its
nominee. The Issuer and the Company also expects that payments by participants
to owners of beneficial interests in such Global Certificate held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants.
Except for trades involving only Euroclear and CEDEL participants, interests
in the Global Certificates will trade in DTC's Same-Day Funds Settlement System
and secondary market trading activity in such interests will therefore settle
in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds. Transfers between participants in Euroclear and CEDEL will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
35
Subject to compliance with the transfer and exchange restrictions applicable
to the Preferred Securities described elsewhere herein, cross-market transfers
between DTC participants, on the one hand, and Euroclear or CEDEL participants,
on the other hand, will be effected by DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or CEDEL, as the case may be, by the counterparts in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may
be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Certificate in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. Euroclear
participants and CEDEL participants may not deliver instructions directly to
the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Certificate from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Certificate by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Issuer and the Company that it will take any action
permitted to be taken by a holder of Certificates (including the presentation
of Preferred Securities for exchange as described below and the conversion of
Preferred Securities) only at the direction of one or more participants to
whose account with DTC interests in the Global Certificates are credited and
only in respect of such portion of the aggregate liquidation amount of the
Preferred Securities as to which such participant or participants has or have
given such direction. However, if there is a Declaration Event of Default, DTC
reserves the right to exchange the Global Certificates for legended Preferred
Securities in certificated form, and to distribute such Preferred Securities to
its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures in
order to facilitate transfers of beneficial ownership interests in the Global
Certificates among participants of DTC, Euroclear and CEDEL, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuer, the Company,
the Property Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear and CEDEL, their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in Global Certificates.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of the Preferred Securities are
being redeemed, DTC's current practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Preferred Securities. Under its usual procedures, DTC would mail an
omnibus proxy (the "Omnibus Proxy") to the Property Trustee as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts such Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
36
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants, and by participants and indirect
participants to beneficial owners of the Preferred Securities and the voting
rights of participants, indirect participants and beneficial owners of
Preferred Securities will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Property Trustee and Host Marriott. In the event that a successor
securities depositary is not obtained, definitive Preferred Securities
certificates representing such Preferred Securities are required to be printed
and delivered. Host Marriott, at its option, may decide to discontinue use of
the system of book-entry transfers through DTC (or a successor depositary).
After a Debenture Event of Default, the holders of a majority in liquidation
amount of Preferred Securities may determine to discontinue the system of book-
entry transfers through DTC. In any such event, definitive certificates for the
Preferred Securities will be printed and delivered.
TRANSFER AGENT, REGISTRAR AND PAYING, CONVERSION AND EXCHANGE AGENT
The Property Trustee presently acts as transfer agent, registrar, paying
agent, conversion agent and exchange agent for the Preferred Securities.
Registration of transfers or exchanges of Preferred Securities will be
effected without charge by or on behalf of the Issuer, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer will not be required to register or cause to
be registered the transfer of the Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
Host Marriott and certain of its subsidiaries may maintain deposit accounts
and conduct other banking and corporate securities transactions and
relationships with the Property Trustee in the ordinary course of their
businesses. The Property Trustee, other than during the occurrence and
continuance of a Declaration Event of Default, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after such
Declaration Event of Default, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Trust Agreement at the
request of any holder of Preferred Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby. If no Declaration Event of Default has occurred and is continuing and
the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Trust Agreement or is unsure of
the application of any provision of the Trust Agreement, and the matter is not
one on which holders of Preferred Securities are entitled under the Trust
Agreement to vote, then the Property Trustee shall take such action as is
directed by Host Marriott and, if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the Preferred
Securities and the Common Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States Federal income tax purposes and so that the Debentures will
be treated as indebtedness of Host Marriott for United States Federal income
tax purposes. In this connection,
37
Host Marriott and the Administrative Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of the
Issuer or the Trust Agreement, that Host Marriott and the Administrative
Trustees determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
REGISTRATION RIGHTS
In connection with the Original Offering, the Company and the Trust entered
into registration rights agreement with the Purchasers, dated December 2, 1996
(the "Registration Rights Agreement") pursuant to which the Company and the
Trust agreed, at the Company's expense, for the benefit of the holders of the
Preferred Securities, the Debentures issuable in respect of the Preferred
Securities, Host Marriott Common Stock issuable upon conversion of the
Preferred Securities and the Debentures and the Guarantee (together, the
"Registrable Securities"), to file with the Commission on or prior to the date
120 days after the Original Offering Date a shelf registration statement (the
"Shelf Registration Statement") on such form as Host Marriott deems appropriate
covering resale by holders of the Registrable Securities. The Company has
agreed to use its best efforts (i) to cause the Shelf Registration Statement to
be declared effective as promptly as practicable and in no event later than 180
days after the Original Offering Date and (ii) to keep effective the Shelf
Registration Statement until three years after the latest date of original
issuance of the Preferred Securities (or such earlier date as the holders of
Registrable Securities are able to sell all Registrable Securities immediately
without restriction pursuant to Rule 144(k) under the Securities Act or any
successor rule thereto or otherwise) (such period the "Effectiveness Period").
The Issuer and Host Marriott are permitted to suspend the use of the prospectus
(which is a part of the Shelf Registration Statement) in connection with sales
of Registrable Securities by holders during certain periods of time under
certain circumstances relating to pending corporate developments relating to
the Company and public filings with the Commission and similar events. Pursuant
to the Registration Rights Agreement, the Issuer and Host Marriott agreed to
provide to each registered holder copies of such prospectus, notify each
registered holder when the Shelf Registration Statement has become effective,
and take certain other actions as are required to permit unrestricted sales of
the Registrable Securities.
In the Registration Rights Agreement, the Issuer and Host Marriott agreed to
indemnify the holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act, subject to certain customary
limitations, and each holder of Registrable Securities included in the Shelf
Registration Statement will be obligated to indemnify the Issuer and the
Company, any other holder and any underwriters participating in the offering of
Registrable Securities against any liability with respect to information
furnished by such holder in writing to the Issuer and the Company (including
the information in a Selling Securityholder's Questionnaire) expressly for use
in the Shelf Registration Statement.
If (i) on or prior to the date 120 days after the Closing Date a Shelf
Registration Statement has not been filed with the Commission or (ii) on or
prior to the date 180 days after the Original Offering Date such Shelf
Registration Statement has not been declared effective (each such event, a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Debentures, and, accordingly, additional distributions will accrue on
the Preferred Securities, from and including the day following such
Registration Default until such date as the Shelf Registration Statement is
declared effective. Liquidated Damages will be paid quarterly in arrears, with
the first quarterly payment due on the first interest or distribution payment
date, as applicable, following the date on which such Liquidated Damages begin
to accrue, and will accrue at a rate per annum equal to an additional one-
38
quarter of one percent (0.25%) of the principal amount or liquidation amount,
as applicable, to and including the 90th day following such Registration
Default and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. In the event that the Shelf Registration
Statement ceases to be effective during the Effectiveness Period for more than
90 days, whether or not consecutive, during any 12-month period then the
interest rate borne by the Debentures and the distribution rate borne by the
Preferred Securities will each increase by an additional one-half of one
percent (0.50%) per annum from the 91st day of the applicable 12-month period
such Shelf Registration Statement ceases to be effective until such time as the
Shelf Registration Statement again becomes effective.
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Registration Rights Agreement, a copy
of the form of which is incorporated by reference herein as an exhibit to the
Registration Statement.
GOVERNING LAW
The Trust Agreement and the Preferred Securities are governed by, and
construed in accordance with, the internal laws of the State of Delaware
without regard to its conflict of laws principles and excluding sections 3540
and 3561 of Title 12 of the Delaware General Corporate Laws.
39
DESCRIPTION OF THE GUARANTEE
The Guarantee was executed and delivered by Host Marriott concurrently with
the issuance by the Issuer of the Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. IBJ Schroder Bank &
Trust Company is the trustee ("Guarantee Trustee") under the Guarantee. This
summary of certain provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee. The Guarantee Trustee will hold the Guarantee for
the benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Host Marriott
irrevocably agreed to pay in full on a subordinated basis, to the extent set
forth herein, the Guarantee Payments (as defined below) to the holders of the
Preferred Securities, as and when due, regardless of any defense, right of set-
off or counterclaim that the Issuer may have or assert other than the defense
of payment. The following payments with respect to the Preferred Securities, to
the extent not paid by or on behalf of the Issuer (the "Guarantee Payments"),
are subject to the Guarantee: (i) any accumulated and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that the Issuer
has funds on hand available therefor at such time, (ii) the redemption price
with respect to any Preferred Securities called for redemption to the extent
that the Issuer has funds on hand available therefor at such time, or (iii)
upon a voluntary or involuntary dissolution, winding up or liquidation of the
Issuer (unless the Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution, to the extent that
the Issuer has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer remaining available for distribution to holders
of Preferred Securities. Host Marriott's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by Host Marriott to
the holders of the Preferred Securities or by causing the Issuer to pay such
amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Issuer's obligations under the Preferred Securities, but it applies only to the
extent that the Issuer has funds sufficient to make such payments, and is not a
guarantee of collection. If Host Marriott does not make interest payments on
the Debentures held by the Issuer, the Issuer will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor.
Host Marriott has, through the Guarantee, the Trust Agreement, the
Debentures, the Indenture and the Expense Agreement, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer's obligations
under the Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations under the Preferred Securities. See "Relationship Among
the Preferred Securities, the Debentures and the Guarantee."
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Issuer with respect to the Common Securities
to the same extent as the Guarantee, except that upon the occurrence and during
the continuation of a Declaration Event of Default, holders of Preferred
Securities shall have priority over holders of Common Securities with respect
to distributions and payments on liquidation, redemption or otherwise.
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of Host Marriott and ranks
subordinate and junior in right of payment to all other liabilities of Host
Marriott and ranks pari passu with any guarantee
40
now or hereafter entered into by Host Marriott in respect of any preferred or
preference stock of any affiliate of Host Marriott.
The Guarantee constitutes a guarantee of payment and not of collection (i.e.,
the guaranteed party may institute a legal proceeding directly against the
Guarantor to enforce its rights under the Guarantee without first instituting a
legal proceeding against any other person or entity). The Guarantee is held for
the benefit of the holders of the Preferred Securities. The Guarantee will not
be discharged except by payment of the Guarantee Payments in full to the extent
not paid by the Issuer or upon distribution of the Debentures to the holders of
the Preferred Securities. The Guarantee does not place a limitation on the
amount of additional indebtedness that may be incurred by Host Marriott or any
of its subsidiaries.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will
be required), the Guarantee may not be amended without the prior approval of
the holders of not less than a majority in aggregate liquidation amount of such
outstanding Preferred Securities. The manner of obtaining any such approval
will be set forth under "Description of the Preferred Securities--Voting
Rights; Amendment of the Trust Agreement." All guarantees and agreements
contained in the Guarantee bind the successors, assigns, receivers, trustees
and representatives of Host Marriott and inure to the benefit of the holders of
the Preferred Securities then outstanding.
CERTAIN COVENANTS OF HOST MARRIOTT
Host Marriott covenants in the Guarantee that if and so long as (i) the
Issuer is the holder of all the Debentures, (ii) a Tax Event in respect of the
Issuer has occurred and is continuing and (iii) Host Marriott has elected, and
has not revoked such election, to pay Additional Sums in respect of the
Preferred Securities and Common Securities, Host Marriott will pay to the
Issuer such Additional Sums. Host Marriott also covenants that it will not, and
it will not cause any of its subsidiaries to, (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of Host Marriott's capital stock or (ii) make any
payment of principal, interest or premium, if any, on or repay or repurchase or
redeem any debt securities (including guarantees of indebtedness for money
borrowed) of Host Marriott that rank pari passu with or junior to the
Debentures (other than (a) any dividend, redemption, liquidation, interest,
principal or guarantee payment by Host Marriott where the payment is made by
way of securities (including capital stock) that rank pari passu with or junior
to the securities on which such dividend, redemption, interest, principal or
guarantee payment is being made, (b) redemptions or purchases of any Rights
pursuant to Host Marriott's Rights Agreement, or any successor to such Rights
Agreement and the declaration of a dividend of such Rights or the issuance of
preferred stock under such plans in the future, (c) payments under the
Guarantee, (d) purchases of Host Marriott Common Stock related to the issuance
of Host Marriott Common Stock under any of Host Marriott's benefit plans for
its directors, officers or employees, (e) as a result of a reclassification of
Host Marriott's capital stock or the exchange or conversion of one series or
class of Host Marriott's capital stock for another series or class of Host
Marriott's capital stock and (f) the purchase of fractional interests in shares
of Host Marriott's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged)
if at such time (i) there shall have occurred any event of which Host Marriott
has actual knowledge that (a) with the giving of notice or the lapse of time,
or both, would constitute a Debenture Event of Default and (b) in respect of
which Host Marriott shall not have taken reasonable steps to cure, (ii) Host
Marriott shall be in default with respect to its payment of any obligations
under the Guarantee or (iii) Host Marriott shall have given notice of its
selection of an Extension Period as provided in the Indenture with respect to
the Debentures and shall not have rescinded such notice, or such Extension
Period, or any extension thereof, shall be continuing. Host Marriott also
covenants
41
(i) for so long as Preferred Securities are outstanding, not to convert
Debentures except pursuant to a notice of conversion delivered to the
Conversion Agent by a holder of Preferred Securities, (ii) to maintain directly
or indirectly 100% ownership of the Common Securities, provided that certain
successors which are permitted pursuant to the Indenture may succeed to Host
Marriott's ownership of the Common Securities, (iii) not to voluntarily
terminate, wind-up or liquidate the Issuer, except (a) in connection with a
distribution of the Debentures to the holders of the Preferred Securities in
liquidation of the Issuer or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, (iv) to
maintain the reservation for issuance of the number of shares of Host Marriott
Common Stock that would be required from time to time upon the conversion of
all the Debentures then outstanding, (v) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Issuer to remain classified as a grantor trust and not as an association
taxable as a corporation for United States Federal income tax purposes and (vi)
to deliver shares of Host Marriott Common Stock upon an election by the holders
of the Preferred Securities to convert such Preferred Securities into Host
Marriott Common Stock.
As part of the Guarantee, Host Marriott agrees that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Host Marriott Common Stock or Debentures.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of Host
Marriott to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Preferred Securities may institute a legal proceeding directly against Host
Marriott to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. In addition, any record holder of Preferred Securities shall have
the right, which is absolute and unconditional, to proceed directly against
Host Marriott to obtain Guarantee Payments, without first waiting to determine
if the Guarantee Trustee has enforced the Guarantee or instituting a legal
proceeding against the Issuer, the Guarantee Trustee or any other person or
entity. Host Marriott has waived any right or remedy to require that any action
be brought just against the Issuer, or any other person or entity before
proceeding directly against Host Marriott.
Host Marriott, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not Host Marriott is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Host Marriott in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by
the Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
42
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the redemption price of the Preferred Securities, upon full payment
of the amounts payable upon liquidation of the Issuer, upon the distribution,
if any, of Host Marriott Common Stock to the holders of Preferred Securities in
respect of the conversion of all such holders' Preferred Securities into Host
Marriott Common Stock or upon distribution of Debentures to the holders of the
Preferred Securities in exchange for all of the Preferred Securities. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must restore payment of
any sums paid under such Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
DESCRIPTION OF THE DEBENTURES
Set forth below is a description of a the specific terms of the Debentures in
which the Trust invested the proceeds from the issuance and sale of the Trust
Securities. The Debentures are issued under a Junior Subordinated Indenture
(the "Indenture") between Host Marriott and IBJ Schroder Bank & Trust Company
as trustee (the "Debenture Trustee"), copies of which will be available for
inspection at the corporate trust office of the Debenture Trustee in New York,
New York. This summary of certain terms and provisions of the Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture, attached to this
Registration Statement as an Exhibit. Whenever particular defined terms of the
Indenture are referred to herein, such defined terms are incorporated herein or
therein by reference.
GENERAL
The Debentures are unsecured and rank junior and subordinate in right of
payment to all Senior Debt of Host Marriott. The Debentures are limited in
aggregate principal amount to $567.05 million, such amount being the sum of the
aggregate stated liquidation amount of the Preferred Securities and capital
contributed by Host Marriott in exchange for the Common Securities. The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Host Marriott, whether under the Indenture or any existing or
other indenture that Host Marriott may enter into in the future or otherwise.
See "--Subordination."
Concurrently with the issuance of the Preferred Securities, the Issuer has
invested the proceeds thereof and the consideration paid by Host Marriott for
the Common Securities in the Debentures. The Debentures are in the principal
amount equal to the aggregate stated liquidation amount of the Preferred
Securities plus Host Marriott's concurrent investment in the Common Securities.
The Debentures are not subject to any sinking fund provision. The entire
principal amount of the Debentures will mature, and become due and payable,
together with any accrued and unpaid interest thereon, on December 2, 2026.
INTEREST
The Debentures bear interest at the annual rate of 6 3/4% per annum, payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each
year, commencing on March 1, 1997 (each, an "Interest Payment Date"), to the
person in whose name each Debenture is registered at the close of business on
the Business Day next preceding such Interest Payment Date, subject to certain
43
exceptions. It is anticipated that, until the liquidation, if any, of the
Issuer, each Debenture will be held in the name of the Property Trustee in
trust for the benefit of the holders of the Preferred Securities and the Common
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay). Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the stated rate per annum,
compounded quarterly. The term "interest" as used herein shall include
quarterly interest payments, interest on quarterly interest payments not paid
on the applicable Interest Payment Date and Additional Sums (as defined below),
as applicable.
GLOBAL SECURITIES
If distributed to holders of the Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Issuer
as a result of the occurrence of a Special Event, the Debentures will be issued
in the same form as the Preferred Securities which such Debentures replace. Any
Global Certificate will be replaced by one or more global certificates (each a
"Global Security") registered in the name of the depository or its nominee.
Except under the limited circumstances described below, the Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Debentures in definitive form. The Global Securities
described above may not be transferred except by the depository to a nominee of
the depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in
definitive form and will not be considered the holders thereof for any purpose
under the Indenture, and no Global Security representing Debentures shall be
exchangeable, except for another Global Security of like denomination and tenor
to be registered in the name of the depository or its nominee or to a successor
depository or its nominee. Accordingly, each beneficial owner of Preferred
Securities must rely on the procedures of DTC or if such person is not a
participant, on the procedures of the participant through which such person
owns its interest to exercise any rights of a holder under the Indenture.
If Debentures are distributed to holders of Preferred Securities in
liquidation of such holders' interests in the Issuer and a Global Security is
issued, DTC will act as securities depository for the Debentures represented by
such Global Security. For a description of DTC and the specific terms of the
depository arrangements, see "Description of the Preferred Securities--Form,
Transfer, Exchange and Book-Entry Procedures." As of the date of this
Prospectus, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. Host
Marriott may appoint a successor to DTC or any successor depository in the
event DTC or such depository is unable or unwilling to continue as a depository
for the Global Securities.
None of Host Marriott, the Debenture Trustee, any Paying Agent or the
Securities Registrar have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Security representing such Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
44
A Global Security shall be exchangeable for Debentures registered in the
names of persons other than DTC or its nominee only if (i) DTC notifies Host
Marriott that it is unwilling or unable to continue as a depository for such
Global Debenture and no successor depositary shall have been appointed by Host
Marriott within 90 days, or if at any time DTC ceases to be a clearing agency
registered under the Exchange Act at a time when DTC is required to be so
registered to act as such depository, (ii) Host Marriott in its sole discretion
determines that such Global Security shall be so exchangeable, or (iii) there
shall have occurred and be continuing an Event of Default with respect to such
Global Security. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in such names as DTC shall direct. It is expected that such instructions will
be based upon directions received by DTC from its Participants with respect to
ownership of beneficial interests in such Global Security. In the event that
Debentures are issued in definitive form, such Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described in "--Payment and Paying Agents" below.
PAYMENT AND PAYING AGENTS
Payments on Debentures represented by a Global Security will be made to DTC,
as the depositary for the Debentures. In the event Debentures are issued in
definitive form, principal of and premium, if any, and any interest on
Debentures will be payable, the transfer of the Debentures will be registrable,
and the Debentures will be exchangeable for Debentures of other denominations
of a like aggregate principal amount at the corporate office of the Debenture
Trustee in the City of New York or at the office of such Paying Agent or Paying
Agents as Host Marriott may designate, except that at the option of Host
Marriott payment of any interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the Securities
Register or (ii) by wire transfer to an account maintained by the Person
entitled thereto as specified in the Securities Register, provided that proper
transfer instructions have been received by the Regular Record Date. Payment of
any interest on Debentures will be made to the Person in whose name such
Debentures are registered at the close of business on the Regular Record Date
for such interest, except in the case of Defaulted Interest. The Regular Record
Date for the interest payable on any Interest Payment Date shall be the
fifteenth day (whether or not a Business Day) next preceding such Interest
Payment Date. Host Marriott may at any time designate additional Paying Agents
or rescind the designation of any Paying Agent.
Any monies deposited with the Debenture Trustee or any Paying Agent, or then
held by Host Marriott in trust, for the payment of the principal of and
premium, if any, or interest on any Debentures and remaining unclaimed for two
years after such principal and premium, if any, or interest has become due and
payable shall, at the request of Host Marriott, be repaid to Host Marriott and
the holder of such Debentures shall thereafter look, as a general unsecured
creditor, only to Host Marriott for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, Host Marriott has the right under the Indenture to defer the
payment of interest (including any Liquidated Damages) on the Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarters
with respect to each Extension Period, provided that no Extension Period may
extend beyond the stated maturity of the Debentures. At the end of such
Extension Period, Host Marriott must pay all interest then accrued and unpaid
(together with interest thereon at the stated annual rate, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Debentures (or holders
of Preferred Securities while the Preferred Securities are outstanding) will be
required to accrue interest income for United States Federal income tax
purposes. See "Certain Federal Income Tax Consequences--Original Issue
Discount."
45
During any such Extension Period, Host Marriott may not, and may not cause
any subsidiary to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of Host Marriott's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees of indebtedness for money borrowed) of Host
Marriott that rank pari passu with or junior to the Debentures (other than (a)
any dividend, redemption, liquidation, interest, principal or guarantee payment
by Host Marriott where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) redemptions or purchases of any Rights pursuant to Host Marriott's
Rights Agreement, or any successor to such Rights Agreement, and the
declaration of a dividend of such Rights or the issuance of preferred stock
under such plans in the future, (c) payments under the Guarantee, (d) purchases
of Host Marriott Common Stock related to the issuance of Host Marriott Common
Stock under any of Host Marriott's benefit plans for its directors, officers or
employees, (e) as a result of a reclassification of Host Marriott's capital
stock or the exchange or conversion of one series or class of Host Marriott's
capital stock for another series or class of Host Marriott's capital stock, and
(f) the purchase of fractional interests in shares of Host Marriott's capital
stock pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged). Prior to the termination of any
such Extension Period, Host Marriott may further extend the interest payment
period, provided that no Extension Period may exceed 20 consecutive quarters or
extend beyond the stated maturity of the Debentures. Upon the termination of
any such Extension Period and the payment of all amounts then due on any
Interest Payment Date, Host Marriott may elect to begin a new Extension Period
subject to the above requirements. No interest shall be due and payable during
an Extension Period, except at the end thereof. Host Marriott shall give the
Property Trustee, the Administrative Trustees and the Debenture Trustee notice
of its election to begin any Extension Period at least one Business Day prior
to the earlier of (i) the record date for the date Distributions on the
Preferred Securities (or, if no Preferred Securities are outstanding, for the
date interest on the Debentures) would have been payable except for the
election to begin such Extension Period and (ii) the date the Property Trustee
is (or, if no Preferred Securities are outstanding, the Debenture Trustee is)
required to give notice to the NYSE or other applicable self-regulatory
organization or to holders of such Preferred Securities (or, if no Preferred
Securities are outstanding, to the holders of such Debentures) of such record
date. The Debenture Trustee and the Property Trustee shall give notice of Host
Marriott's election to begin an Extension Period to the holders of the
Debentures and the Preferred Securities, respectively.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of acceleration upon the occurrence
of a Debenture Event of Default, Host Marriott will redeem the Debentures, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof, together with any accrued and unpaid interest thereon. Any
payment pursuant to this provision shall be made prior to 12:00 noon, New York
City time, on the date of such repayment or acceleration or at such other time
on such earlier date as the parties thereto shall agree. The Debentures are not
entitled to the benefit of any sinking fund or, except as set forth above or as
a result of acceleration, any other provision for mandatory prepayment.
46
OPTIONAL REDEMPTION
On and after December 2, 1999, and subject to the next succeeding sentence,
Host Marriott has the right, at any time and from time to time, to redeem the
Debentures, in whole or in part, upon notice given as provided below, during
the twelve month periods beginning on December 2 in each of the following years
and at the indicated redemption prices (expressed as a percentage of the
principal amount of the Debentures being redeemed), together with any accrued
but unpaid interest on the portion being redeemed.
REDEMPTION
YEAR PRICE
- ---- ----------
1999................... 104.725%
2000................... 104.050%
2001................... 103.375%
2002................... 102.700%
REDEMPTION
YEAR PRICE
- ---- ----------
2003................... 102.025%
2004................... 101.350%
2005................... 100.675%
2006 and thereafter.... 100.000%
The principal amount of the Debentures so redeemed may not, however, exceed
the amount of the proceeds derived, directly or indirectly, by Host Marriott or
its subsidiaries from the issuance and sale of common stock within two years
preceding the date fixed for redemption. For so long as the Issuer is the
holder of all the outstanding Debentures, the proceeds of any such redemption
will be used by the Issuer to redeem Preferred Securities and Common Securities
in accordance with their terms. Host Marriott may not redeem the Debentures in
part unless all accrued and unpaid interest has been paid in full on all
outstanding Debentures. See "Description of the Preferred Securities--Optional
Redemption."
Host Marriott also has the right to redeem the Debentures at any time after
December 2, 1999 upon the occurrence of a Tax Event as described in
"Description of the Preferred Securities--Special Event Exchange or
Redemption."
If at any time following the Conversion Expiration Date, less than 5% of the
original aggregate principal amount of the Debentures remains outstanding, such
Debentures shall be redeemable at the option of Host Marriott, in whole but not
in part, at a redemption price equal to the principal amount thereof, plus any
accrued and unpaid interest.
REDEMPTION PROCEDURES
Notices of any redemption of the Debentures and the procedures for such
redemption shall be as provided with respect to the Preferred Securities under
"Description of the Preferred Securities-- Redemption Procedures." Notice of
any redemption will be mailed at least 30 days but not more than 60 days before
the redemption date to each holder of Debentures to be redeemed at its
registered address. Unless Host Marriott defaults in payment of the redemption
price, on and after the redemption date interest ceases to accrue on such
Debentures or portions thereof called for redemption.
DISTRIBUTION OF DEBENTURES
At any time, Host Marriott has the right to terminate the Issuer and cause
the Debentures to be distributed to the holders of the Preferred Securities in
liquidation of the Issuer after satisfaction of liabilities to creditors of the
Issuer as provided by applicable law. If distributed to holders of Preferred
Securities in liquidation, the Debentures will initially be issued in the form
of one or more global securities and DTC, or any successor depositary for the
Preferred Securities, will act as depositary for the Debentures. It is
anticipated that the depositary arrangements for the Debentures would be
substantially identical to those in effect for the Preferred Securities. There
can be no assurance as to the market price of any Debentures that may be
distributed to the holders of Preferred Securities. For a description of DTC
and the terms of the depositary matters, see "Description of the Preferred
Securities--Form, Transfer, Exchange and Book-Entry Procedures."
47
CONVERSION OF THE DEBENTURES
The Debentures are convertible at the option of the holders of the Debentures
into Host Marriott Common Stock, at any time prior to redemption, maturity or
the Conversion Expiration Date, initially at the rate of 2.6876 shares of Host
Marriott Common Stock for each $50 in principal amount of Debentures
(equivalent to a conversion price of $18.604 per share of Host Marriott Common
Stock), subject to the conversion price adjustments described under
"Description of the Preferred Securities-- Conversion Rights." The Issuer
covenants for so long as the Preferred Securities are outstanding not to
convert Debentures except pursuant to a notice of conversion delivered to the
Conversion Agent by a holder of Preferred Securities. Upon surrender of such
Preferred Securities to the Conversion Agent for conversion, the Issuer will
distribute the commensurate principal amount of the Debentures to the
Conversion Agent on behalf of the holder of every Preferred Security so
converted, whereupon the Conversion Agent will convert such Debentures into
Host Marriott Common Stock on behalf of such holder. Host Marriott's delivery
to the holders of the Debentures (through the Conversion Agent) of the fixed
number of shares of Host Marriott Common Stock into which the Debentures are
convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy Host Marriott's obligation to pay the
principal amount of the Debentures, and the accrued and unpaid interest
attributable to the period from the last date to which interest has been paid
or duly provided for.
EXPIRATION OF CONVERSION RIGHTS
The conversion rights of any Debentures held by the Issuer expire upon the
expiration of the conversion rights of the Preferred Securities on the terms
described above under "Description of the Preferred Securities--Expiration of
Conversion Rights." In the case of any Debentures that have been exchanged for
Preferred Securities under the conditions described under "Description of the
Preferred Securities--Special Event Exchange or Redemption," on and after
December 2, 1999 Host Marriott may, at its option, cause the conversion rights
of holders of such Debentures to expire. Host Marriott may exercise this option
only if for 20 trading days within any period of 30 consecutive trading days,
including the last trading day of such period, the Current Market Price of Host
Marriott Common Stock exceeds 120% of the conversion price of the Debentures,
subject to adjustment in certain circumstances. In order to exercise its
conversion expiration option, Host Marriott must issue a press release for
publication on the Dow Jones News Service announcing the Conversion Expiration
Date prior to the opening of business on the second trading day after any
period in which the condition in the preceding sentence has been met, but in no
event prior to December 2, 1999. The press release shall announce the
Conversion Expiration Date and provide the current conversion price and Current
Market Price of Host Marriott Common Stock, in each case as of the close of
business on the trading day next preceding the date of the press release.
Notice of the expiration of conversion rights will be given by first-class
mail to the holders of the Debentures not more than four Business Days after
Host Marriott issues the press release. The Conversion Expiration Date will be
a date selected by Host Marriott not less than 30 nor more than 60 days after
the date on which Host Marriott issues the press release announcing its
intention to terminate the conversion rights of Debenture holders. In the event
that Host Marriott does not exercise its conversion expiration option, the
Conversion Expiration Date with respect to the Debentures will be two Business
Days preceding the date set for mandatory redemption of the Debentures.
MODIFICATION OF INDENTURE
From time to time, Host Marriott and the Debenture Trustee may, without the
consent of the holders of Debentures, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interest of the holders of the Debentures, or the holders
of the Preferred Securities so long as they remain outstanding) and qualifying,
or maintaining the qualification
48
of, the Indenture under the Trust Indenture Act. The Indenture contains
provisions permitting Host Marriott and the Debenture Trustee, with the consent
of the holders of not less than a majority in principal amount of the
outstanding Debentures, to modify the Indenture in a manner affecting the
rights of the holders of the Debentures; provided that no such modification
may, without the consent of the holder of each outstanding Debentures so
affected, (i) change the stated maturity of the Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon (other than deferrals of the payments of interest as described
under "--Option to Extend Interest Payment Period") or impair any right to
institute suit for the enforcement of any such payment, or adversely affect the
subordination provisions of the Indenture or any right to convert any
Debentures or (ii) reduce the percentage of principal amount of Debentures, the
holders of which are required to consent to any such modification of the
Indenture, provided that, so long as any of the Preferred Securities remain
outstanding, no such modification may be made that adversely affects the
holders of such Preferred Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Indenture may be effective,
without the prior consent of the holders of at least a majority in aggregate
liquidation amount of the Preferred Securities then outstanding unless and
until the principal of the Debentures and all accrued and unpaid interest
thereon has been paid in full.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described events
that has occurred and is continuing constitutes a "Debenture Event of Default"
with respect to such Debentures:
(i) failure for 30 days to pay any interest on the Debentures, when due
(subject to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal or premium, if any, on the Debentures
when due whether at maturity, upon redemption by declaration or otherwise;
or
(iii) failure by Host Marriott to deliver shares of Host Marriott Common
Stock upon an appropriate election by holders of Debentures to convert such
Debentures; or
(iv) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
Host Marriott from the Debenture Trustee or to the Debenture Trustee and
Host Marriott from the holders of at least 25% in aggregate outstanding
principal amount of such Debentures; or
(v) certain events in bankruptcy, insolvency or reorganization of Host
Marriott.
The holders of a majority in aggregate outstanding principal amount of the
Debentures have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee. The Debenture
Trustee or the holders of not less than 25% in aggregate principal amount of
the Debentures then outstanding may declare the principal due and payable
immediately upon a Debenture Event of Default, and, should the Debenture
Trustee or the holders of the Debentures fail to make such declaration, the
holders of at least 25% in aggregate liquidation amount of the Preferred
Securities then outstanding shall have such right. The holders of a majority in
aggregate outstanding principal amount of the Debentures may annul and rescind
such declaration if the default (other than the non-payment of the principal of
the Debentures which has become due solely by such acceleration) has been cured
and a sum sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the Debenture
Trustee and, should the holders of the Debentures fail to annul and rescind
such declaration, the holders of a majority in aggregate liquidation amount of
the Preferred Securities then outstanding shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Debentures affected thereby may, on behalf of the holders of all the
Debentures, waive any past default, except a default
49
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Debenture and, should the holders of the Debentures fail to annul
such declaration and waive such default, the holders of a majority in aggregate
liquidation amount of the Preferred Securities shall have such right. Host
Marriott is required to file annually with the Debenture Trustee a certificate
as to whether or not Host Marriott is in compliance with all the conditions and
covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing as to the
Debentures, the Property Trustee has the right to declare the principal of and
the interest on the Debentures and any other amounts payable under the
Indenture to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such event
is attributable to the failure of Host Marriott to pay interest or principal on
the Debentures on the date such interest or principal is otherwise payable, a
holder of Preferred Securities may institute a Direct Action for payment after
the respective due date specified in the Debentures. Host Marriott may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. Notwithstanding any payment made to such holder of Preferred
Securities by Host Marriott in connection with a Direct Action, Host Marriott
shall remain obligated to pay the principal of or interest on the Debentures
held by the Issuer or the Property Trustee and Host Marriott shall be
subrogated to the rights of the holder of such Preferred Securities with
respect to payments on the Preferred Securities to the extent of any payments
made by Host Marriott to such holder in any Direct Action.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Host Marriott shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into Host Marriott or convey, transfer or lease its properties
and assets substantially or as an entirety to Host Marriott, unless (i) in case
Host Marriott consolidates with or merges into another Person or conveys,
transfers or leases its properties and assets substantially as an entirety to
any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia, and such successor Person
expressly assumes Host Marriott's obligations on the Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would become a Debenture
Event of Default, shall have happened and be continuing; (iii) in the case of
the Debentures, such transaction is permitted under the Trust Agreement and
Guarantee and does not give rise to any breach or violation of the Trust
Agreement or Guarantee; and (iv) certain other conditions as prescribed in the
Indenture are met.
The general provisions of the Indenture do not afford holders of the
Debentures protection in the event of a highly leveraged or other transaction
involving Host Marriott that may adversely affect holders of the Debentures.
EXPENSES OF ISSUER
Pursuant to the Indenture, Host Marriott will pay all of the costs, expenses
or liabilities of the Issuer, other than obligations of the Issuer to pay to
the holders of any Preferred Securities or Common Securities the amounts due
such holders pursuant to the terms of the Preferred Securities or Common
Securities.
50
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable at their stated maturity
within one year, and Host Marriott deposits or causes to be deposited with the
Debenture Trustee trust funds, in trust, for the purpose and in an amount in
the currency or currencies in which the Debentures are payable sufficient to
pay and discharge the entire indebtedness on the Debentures not previously
delivered to the Debenture Trustee for cancellation, for the principal and
premium, if any, and interest to the date of the deposit or to the stated
maturity, as the case may be, then the Indenture will cease to be of further
effect (except as to Host Marriott's obligations to pay all other sums due
pursuant to the Indenture and to provide the officers' certificates and
opinions of counsel described therein), and Host Marriott will be deemed to
have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, Host Marriott has covenanted and agreed that any Debentures
issued thereunder is subordinate and junior in right of payment to all Senior
Debt of Host Marriott whether now existing or hereinafter incurred. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of Host Marriott, the holders of Senior Debt are first
entitled to receive payment in full of principal of and premium, if any, and
interest, if any, on such Senior Debt before the Property Trustee, on behalf of
the holders of the Debentures, are entitled to receive or retain any payment in
respect of the principal of and premium, if any, or interest, if any, on the
Debentures.
In the event of the acceleration of the maturity of any Debentures, the
holders of all Senior Debt outstanding at the time of such acceleration are
first entitled to receive payment in full of all amounts due thereon (including
any amounts due upon acceleration) before the holders of Debentures are
entitled to receive or retain any payment in respect of the principal of or
premium, if any, or interest, if any, on the Debentures.
No payments on account of principal (or premium, if any) or interest, if any,
in respect of the Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, or an event of
default with respect to any Senior Debt resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect
to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another person the payment of which, in either case, such
Person has guaranteed or for which such Person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Host Marriott whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt of
Host
51
Marriott, whether incurred on or prior to the date of the Indenture or
thereafter incurred, unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Debentures or to other
Debt which is pari passu with, or subordinated to, the Debentures; provided,
however, that Senior Debt does not include:
(i) any Debt of Host Marriott which, when incurred and without respect to
any election under Section 1111 (b) of the Bankruptcy Code, was without
recourse to Host Marriott,
(ii) any Debt of Host Marriott to any of its subsidiaries,
(iii) Debt to any employee of Host Marriott,
(iv) any liability for taxes, and
(v) Debt or other monetary obligations to trade creditors or assumed by
Host Marriott or any of its subsidiaries in the ordinary course of business
in connection with the obtaining of goods, materials or services.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by Host Marriott.
GOVERNING LAW
The Indenture and the Debentures are governed by and construed in accordance
with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE DEBENTURE AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by Host Marriott as and to the extent
set forth under "Description of the Guarantee." Taken together, Host Marriott's
obligations under the Debentures, the Indenture, the Trust Agreement and the
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of Distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Issuer's obligations under
the Preferred Securities. If and to the extent that Host Marriott does not make
payments on the Debentures, the Issuer will not pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment
of Distributions when the Issuer does not have sufficient funds to pay such
Distributions. In such event, a holder of Preferred Securities may institute a
Direct Action directly against Host Marriott to enforce payment of such
Distributions to such holder after the respective due dates. The obligations of
Host Marriott under the Guarantee are subordinate and junior in right of
payment to all other liabilities of Host Marriott; and pari passu with any
guarantee now or hereafter entered into by Host Marriott in respect of any
preferred or preference stock of any affiliate of Host Marriott.
52
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover Distributions and other
payments due on the Preferred Securities, primarily because (i) the aggregate
principal amount of the Debentures will be equal to the sum of the aggregate
stated liquidation amount of the Preferred Securities and Common Securities;
(ii) the interest rate and interest and other payment dates on the Debentures
will match the Distribution rate and Distribution and other payment dates for
the Preferred Securities; (iii) Host Marriott shall pay for all and any costs,
expenses and liabilities of the Issuer except the Issuer's obligations to
holders of the Preferred Securities under such Preferred Securities; and (iv)
the Trust Agreement further provides that the Issuer will not engage in any
activity that is not consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, Host Marriott has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent Host Marriott has theretofore made, or is concurrently
on the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Securities may institute a legal proceeding
directly against Host Marriott to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Issuer or any other person or entity.
A default or event of default under any Senior Debt of Host Marriott will not
constitute a default under the Indenture or a Debenture Event of Default.
However, in the event of payment defaults under, or acceleration of, Senior
Debt of Host Marriott, the subordination provisions of the Indenture provide
that no payments may be made in respect of the Debentures until such Senior
Debt has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Debentures would constitute a
Debenture Event of Default.
LIMITED PURPOSE OF ISSUER
The Preferred Securities evidence a beneficial interest in the Issuer, and
the Issuer exists for the sole purpose of issuing the Preferred Securities and
Common Securities and investing the proceeds thereof in the Debentures. A
principal difference between the rights of a holder of Preferred Securities and
a holder of Debentures is that a holder of Debentures is entitled to receive
from Host Marriott the principal amount of and interest accrued on Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions from the Issuer (or from Host Marriott under the applicable
Guarantee) if and to the extent the Issuer has funds available for the payment
of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Issuer involving the liquidation of the Debentures, the holders of the
Preferred Securities will be entitled to receive, out of assets held by the
Issuer, the Liquidation Distribution in cash. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination." Upon any voluntary or
involuntary liquidation or bankruptcy of Host Marriott, the Property Trustee,
as holder of the Debentures, would be a subordinated creditor of Host Marriott,
subordinated in right of payment to all Senior Debt, but entitled to receive
payment in full of principal and interest before any stockholders of Host
Marriott receive payments or distributions. Since Host Marriott is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer (other than the Issuer's obligations to the holders
of the Preferred Securities), the positions of a holder of such Preferred
Securities and a holder
53
of such Debentures relative to other creditors and to stockholders of Host
Marriott in the event of liquidation or bankruptcy of Host Marriott would be
substantially the same.
DESCRIPTION OF HOST MARRIOTT CAPITAL STOCK
The following description of Host Marriott's capital stock is a summary and
is subject in all respects to applicable Delaware law and to the provisions of
the Company's Restated Certificate of Incorporation and shareholder's rights
plan.
GENERAL
Host Marriott's Restated Certificate of Incorporation (the "Company
Certificate") authorizes the issuance of a total of 301 million shares of all
classes of stock, of which one million may be shares of preferred stock,
without par value, and 300 million may be shares of Common Stock. At January 3,
1997, approximately 202.1 million shares of Common Stock were outstanding. The
Company Certificate provides that the 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.
COMMON STOCK
VOTING RIGHTS
Each holder of Common Stock is entitled to one vote for each share registered
in his name on the books of Host Marriott on all matters submitted to a vote of
shareholders. Except as otherwise provided by law, the holders of Common Stock
vote as one class. The shares of Common Stock do not have cumulative voting
rights. As a result, subject to the voting rights, if any, of the holders of
any shares of Host Marriott's preferred stock which may at the time be
outstanding, the holders of Common Stock entitled to exercise more than 50% of
the voting rights in an election of directors will be able to elect 100% of the
directors to be elected if they choose to do so. In such event, the holders of
the remaining Common Stock voting for the election of directors will not be
able to elect any persons to the Board. The Company Certificate provides that
the Board is classified into three classes, each serving a three-year term,
with one class to be elected in each of three consecutive years.
DIVIDEND RIGHTS
Subject to the rights of the holders of any shares of the Company's preferred
stock which may at the time be outstanding, holders of Common Stock are
entitled to such dividends as the Board of Directors may declare out of funds
legally available therefor. Host Marriott intends to retain future earnings for
use in its business and does not currently intend to pay regular cash
dividends. In addition, the MI Line of Credit contains restrictions on the
payment of dividends on the Common Stock. See "Dividend Policy."
LIQUIDATION RIGHTS AND OTHER PROVISIONS
Subject to the prior rights of creditors and the holders of any of Host
Marriott's preferred stock which may be outstanding from time to time, the
holders of Common Stock are entitled in the event of liquidation, dissolution
or winding up to share pro rata in the distribution of all remaining assets.
The Common Stock is not liable for any calls or assessments and is not
convertible into any other securities. The Company Certificate provides that
the private property of the shareholders shall not be subject to the payment of
corporate debts. There are no redemption or sinking fund provisions
54
applicable to the Common Stock, and the Company Certificate provides that there
shall be no preemptive rights.
The transfer agent and registrar for the Common Stock is First Chicago Trust
of New York.
RIGHTS AND JUNIOR PREFERRED STOCK
Host Marriott has adopted a shareholder rights plan as set forth in a Rights
Agreement dated February 3, 1989, as amended, between the Company and the Bank
of New York, as rights agent (the "Rights Agreement"). The following is a
summary of the terms of the Rights Agreement.
RIGHTS
Following the occurrence of certain events (the "Occurrence Date") and except
as described below, each right (a "Right," and, collectively, the "Rights")
will entitle the registered holder thereof to purchase from the Company one
one-thousandth of a share (a "Unit") of Host Marriott's Series A Junior
Participating Preferred Stock ("Junior Preferred Stock") at a price (the
"Purchase Price") of $150 per Unit, subject to adjustment. The Rights are not
exercisable until the Occurrence Date. The Rights expire on the tenth
anniversary of the adoption of the Rights Agreement, unless exercised in
connection with a transaction of the type described below or unless earlier
redeemed by Host Marriott.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a Host Marriott shareholder, including, without limitation, the right to
vote or to receive dividends.
Initially, ownership of the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate certificates
representing the Rights (the "Rights Certificates") will be distributed. Until
the Occurrence Date (or earlier redemption or expiration of the Rights), the
Rights will be transferable only with the Common Stock, and the surrender or
transfer of any certificate of Common Stock will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
The Rights will separate from the Common Stock and an Occurrence Date will
occur upon the earlier of (i) 10 days following the date (a "Stock Acquisition
Date") of a public announcement that a person or group of affiliates or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding 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 Acquiring Person becoming the beneficial owner of 30% or
more of such outstanding Common Stock (such date being called the Occurrence
Date).
For purposes of the Rights Agreement, a person shall not be deemed to
beneficially own "Exempt Shares" which include (i) shares of Common Stock
acquired by such person by gift, bequest and certain other transfers, which
shares were Exempt Shares immediately prior to such transfer and were held by
such person continuously thereafter and (ii) shares acquired by such person in
connection with certain distributions of Common Stock with respect to Exempt
Shares which were held by such person continuously thereafter. In connection
with the Marriott International Distribution, the Board amended the Rights
Agreement to provide that the shares of Common Stock acquired by Marriott
International upon exercise of the Marriott International Purchase Right will
be deemed "Exempt Shares" under the Rights Agreement, such that the exercise of
such right by Marriott International will not cause Marriott International to
be deemed an "Acquiring Person" under the Rights Agreement and thus trigger a
distribution of the Rights. See "Relationship Between the Company and Marriott
International--Marriott International Purchase Right."
As soon as practicable following an Occurrence Date, Rights Certificates will
be mailed to holders of record of Common Stock as of the close of business on
the Occurrence Date. After such time, such
55
separate Rights Certificates alone will evidence the Rights and could trade
independently from the Common Stock.
In the event (i) Host Marriott is the surviving corporation in a merger with
an Acquiring Person and the Common Stock is not changed or exchanged, or (ii)
an Acquiring Person becomes the beneficial owner of 30% or more of the then
outstanding shares of Common Stock (except pursuant to an offer for all
outstanding shares of Common Stock which the Board determines to be fair to and
otherwise in the best interests of the Company and its shareholders), each
holder of a Right will, in lieu of the right to receive one one-thousandth of a
share of Junior Preferred Stock, thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of Host Marriott) having a value equal to two times the exercise
price of the Right. Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph, all Rights that
are (or, under certain circumstances specified in the Rights Agreement, were)
beneficially owned by any Acquiring Person will be null and void. However, the
Rights are not exercisable following the occurrence of either of the events set
forth above until such time as the Rights are no longer redeemable by Host
Marriott as set forth below.
For example, at an exercise price of $150 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $300
worth of Common Stock (or other consideration, as noted above) for $150.
Assuming that the Common Stock had a per share value of $30 at such time, the
holder of each valid Right would be entitled to purchase 10 shares of Common
Stock for $150.
In the event that, at any time following the Stock Acquisition Date, (i) Host
Marriott is acquired in a merger or other business combination transaction in
which Host 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% or more of Host
Marriott's assets or earning power is sold or transferred, each holder of a
Right (except Rights which previously have been voided as set forth above)
shall thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
In general, the Board may redeem the Rights in whole, but not in part, at any
time until 10 days following the Stock Acquisition Date, at a price of $.01 per
Right. After the redemption period has expired, the Company's right of
redemption may be reinstated if an Acquiring Person reduces its beneficial
ownership to 10% or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Board ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.01 per Right redemption price.
The purchase price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment upon the occurrence of certain events with respect to the
Company, including stock dividends, subdivisions, combinations,
reclassifications, rights or warrants offerings of Junior Preferred Stock at
less than the then current market price and certain distributions of property
or evidences of indebtedness of Host Marriott to holders of Junior Preferred
Stock, all as set forth in the Rights Agreement.
The Rights have certain antitakeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Host
Marriott on terms not approved by the Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board since the Rights may be redeemed by Host Marriott as set forth above. See
"Purposes and Antitakeover Effects of Certain Provisions of Host Marriott
Certificate and Bylaws and the Marriott International Purchase Right."
56
JUNIOR PREFERRED STOCK
In connection with the Rights Agreement, 300,000 shares of Junior Preferred
Stock are authorized and reserved for issuance by the Board. No shares of
Junior Preferred Stock are currently outstanding. The material terms of the
Junior Preferred Stock are summarized herein; however, such summary is subject
to the terms of the Company Certificate and the certificate of designation
relating to the Junior Preferred Stock (the "Junior Preferred Stock Certificate
of Designation").
Subject to the prior payment of cumulative dividends on any class of
preferred stock ranking senior to the Junior Preferred Stock, a holder of
Junior Preferred Stock will be entitled to cumulative dividends out of funds
legally available therefor, when, as and if declared by the Board, at a
quarterly rate per share of 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 Common Stock or a sub-division of the outstanding shares
of Common Stock) declared on Common Stock, since the immediately preceding
quarterly dividend payment date for the Junior Preferred Stock (or since the
date of issuance of the Junior Preferred Stock if no such dividend payment date
has occurred).
A holder of Junior Preferred Stock will be entitled to 1000 votes (subject to
adjustment upon certain dilutive events) per share of Junior Preferred Stock on
all matters submitted to a vote of Host Marriott shareholders. Such holders
will vote together with the holders of the Common Stock as a single class on
all matters submitted to a vote of Host Marriott shareholders.
In the event of a merger or consolidation of Host Marriott which results in
Common Stock being exchanged or changed for other stock, securities, cash
and/or other property, the shares of Junior Preferred Stock shall 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 and/or other property, as the case may be, into which each
share of Common Stock has been exchanged or changed.
In the event of liquidation, dissolution or winding up of Host Marriott, a
holder of 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 Host Marriott ranking
junior to the Junior Preferred Stock, and the holders of 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 Common Stock.
In the event that dividends on the Junior Preferred Stock are in arrears in
an amount equal to six quarterly dividends thereon, all holders of Junior
Preferred Stock, voting separately as a class with the holders of any other
series of preferred stock of Host Marriott with dividends in arrears, will be
entitled to elect two directors pursuant to provisions of the Company
Certificate. Such right to elect two additional directors shall continue at
each annual meeting until all dividends in arrears (including the then-current
quarterly dividend payment) have been paid or declared and set apart for
payment. Upon payment or declaration and reservation of funds for payment of
all such dividends, the term of office of each director elected shall
immediately terminate and the number of directors shall be such number as may
be provided for in the Company Certificate or Bylaws.
The Junior Preferred Stock is not subject to redemption. The terms of the
Junior Preferred Stock provide that the Company is subject to certain
restrictions with respect to dividends and distributions on and redemptions and
purchases of shares of stock of Host Marriott ranking junior to or on a parity
with the Junior Preferred Stock in the event that payments of dividends or
other distributions payable on the Junior Preferred Stock are in arrears.
57
WARRANTS
Host Marriott agreed to issue warrants (the "Warrants") to acquire 7,700,000
shares of the Company's Common Stock in connection with the settlement of class
action lawsuits instituted against Host Marriott and certain individual
defendants by certain holders and purchasers of senior notes and debentures of
Host Marriott. As adjusted to reflect the Special Dividend, each Warrant
entitles the holder, at any time prior to 5:00 p.m. on October 8, 1998 (the
"Expiration Time"), to purchase one share of Common Stock from the Company and
one-fifth share of HM Services common stock at a price (the "Exercise Price")
of $10.00. The portion of the Exercise Price attributable to the HM Services
common stock is payable to HM Services. Both the Exercise Price and the number
of shares subject to the Warrants are subject to certain adjustments. Warrants
that are not exercised prior to the Expiration Time expire and become void.
Host Marriott did not receive any proceeds from the issuance of the Warrants.
Warrantholders will not be entitled to vote or to consent or to receive
notice as shareholders in respect of the meeting of shareholders or the
election of directors of Host Marriott or any other matter, or possess any
rights whatsoever as Host Marriott.
Host Marriott has also agreed to use its reasonable best efforts to obtain
any required approvals or registration under state securities laws for the
issuance of the Common Stock upon exercise of the Warrants. Under the Warrant
Agreement, however, Warrants may not be exercised by or, shares of Common Stock
issued to, any Warrant holder in any state where such exercise or issuance
would be unlawful. The Warrants have no established trading market and no
assurance can be given that any such markets will develop.
As of January 3, 1997, approximately 600,000 Warrants were outstanding or
reserved for issuance.
58
PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY
CERTIFICATE AND BYLAWS AND THE MARRIOTT INTERNATIONAL PURCHASE RIGHT
COMPANY CERTIFICATE AND BYLAWS
The Company Certificate contains several provisions that will make difficult
an acquisition of control of the Company by means of a tender offer, open
market purchases, a proxy fight or otherwise, that is not approved by the
Board. The Company's Bylaws (the "Bylaws") also contain provisions that could
have an antitakeover effect.
The purposes of the relevant provisions of the Company Certificate and Bylaws
are to discourage certain types of transactions, described below, which may
involve an actual or threatened change of control of the Company and to
encourage persons seeking to acquire control of the Company to consult first
with the Board to negotiate the terms of any proposed business combination or
offer. The provisions are designed to reduce the vulnerability of Host Marriott
to an unsolicited proposal for a takeover that does not contemplate the
acquisition of all outstanding shares or is otherwise unfair to shareholders of
Host Marriott or an unsolicited proposal for the restructuring or sale of all
or part of Host Marriott. Host Marriott believes that, as a general rule, such
proposals would not be in the best interests of the Company and its
shareholders.
There has been a history of the accumulation of substantial stock positions
in public companies by third parties as a prelude to proposing a takeover or a
restructuring or sale of all or part of the 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.
Host Marriott believes that the imminent threat of removal of Host Marriott's
management or Board in such situations would severely curtail the ability of
management or the Board to negotiate effectively with such purchasers. The
management or the 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 the Company
which may ultimately be undertaken. If the real purpose of a takeover bid were
to force the Company to repurchase an accumulated stock interest at a premium
price, management or the Board would face the risk that, if it did not
repurchase the purchaser's stock interest, Host Marriott's business and
management would be disrupted, perhaps irreparably.
Certain provisions of the Company Certificate and Bylaws, Host Marriott
believes, will help ensure that the Board, if confronted by a surprise proposal
from a third party which has acquired 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 shareholders. In
addition, certain other provisions of the Company 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 Host 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 interests of the shareholders, and may delay
or frustrate the assumption of control by a holder of a large block of stock of
Host Marriott and the removal of incumbent management, even if such removal
might be
59
beneficial to the shareholders. Furthermore, these provisions may deter or
could be utilized to frustrate a future takeover attempt which is not approved
by the incumbent Board, but which the holders of a majority of the shares may
deem to be in their best interests or in which shareholders 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. Set forth below is a
description of such provisions in the Company Certificate and Bylaws. Such
description is intended as a summary only and is qualified in its entirety by
reference to the Company Certificate and Bylaws.
CLASSIFIED BOARD OF DIRECTORS
The Company Certificate provides for the Board to be divided into three
classes serving staggered terms so that directors' current terms will expire at
the 1997, 1998 or 1999 annual meeting of shareholders.
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the Board in a
relatively short period of time. At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board. Such a delay may help ensure that the Board, if confronted by a
holder attempting to force a stock repurchase at a premium above market 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 interests of the shareholders.
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
Host Marriott, even though such an attempt might be beneficial to the Company
and its shareholders. 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 Host Marriott's stock by purchasers whose objective is to have
such stock repurchased by the Company at a premium, the classified board
provision could tend to reduce the temporary fluctuations in the market price
of Host Marriott's stock that could be caused by accumulations of large blocks
of such stock. Accordingly, shareholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
Host Marriott believes that a classified board of directors helps to assure
the continuity and stability of the Board and 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 Host Marriott.
The classified board provision also helps assure that the Board, if confronted
with an unsolicited proposal from a third party that has acquired a block of
the voting stock of Host Marriott, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result for
all shareholders.
REMOVAL; FILLING VACANCIES
The Company Certificate provides that, subject to any rights of the holders
of preferred stock, only a majority of the Board then in office shall have the
authority to fill any vacancies on the Board, including vacancies created by an
increase in the number of directors. In addition, the Company Certificate
provides that a new director elected to fill a vacancy on the Board will serve
for the remainder of the full term of his or her class and that no decrease in
the number of directors shall shorten the term of an incumbent. Moreover, the
Company Certificate provides that directors may be removed with or without
cause only by the affirmative vote of holders of at least 66 2/3% of the voting
60
power of the shares entitled to vote at the election of directors, voting
together as a single class. These provisions relating to removal and filling of
vacancies on the Board will preclude shareholders from enlarging the Board or
removing incumbent directors and filling the vacancies with their own nominees.
LIMITATIONS ON SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Company Certificate and Bylaws provide that shareholder action can be
taken only at an annual or special meeting of shareholders and prohibit
shareholder action by written consent in lieu of a meeting. The Company
Certificate and Bylaws provide that, subject to the rights of holders of any
series of preferred stock, special meetings of shareholders can be called only
by a majority of the entire Board. Shareholders are not permitted to call a
special meeting or to require that the Board call a special meeting of
shareholders. Moreover, the business permitted to be conducted at any special
meeting of shareholders is limited to the business brought before the meeting
by or at the direction of the Board.
The provisions of the Company Certificate and Bylaws restricting shareholder
action by written consent may have the effect of delaying consideration of a
shareholder proposal until the next annual meeting unless a special meeting is
called by a majority of the entire 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 shareholder action and from taking action
by consent without giving all the shareholders entitled to vote on a proposed
action the opportunity to participate in determining such proposed action.
Moreover, a shareholder could not force shareholder consideration of a proposal
over the opposition of the Board by calling a special meeting of shareholders
prior to the time the Board believed such consideration to be appropriate.
Host Marriott believes that such limitations on shareholder action will help
to assure the continuity and stability of the Board and Host Marriott's
business strategies and policies as determined by the Board, to the benefit of
all of the Company's shareholders. If confronted with an unsolicited proposal
from Company shareholders, the Board will have sufficient time to review such
proposal and to seek the best available result for all shareholders, before
such proposal is approved by such shareholders by written consent in lieu of a
meeting or through a special meeting of shareholders.
NOMINATIONS OF DIRECTORS AND SHAREHOLDER PROPOSALS
The Bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as directors (the "Nomination Procedure") and with regard to
shareholder proposals to be brought before an annual or special meeting of
shareholders (the "Business Procedure").
The Nomination Procedure provides that only persons who are nominated by or
at the direction of the Board, or by a shareholder who has given timely prior
written notice to the Corporate Secretary of Host Marriott prior to the meeting
at which directors are to be elected, will be eligible for election as
directors. The Business Procedure provides that shareholder 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 Host Marriott (i)
in the case of an annual meeting, not less than 90 days prior to the annual
meeting for a director nomination, and not less than 120 days prior to the
annual meeting for a shareholder proposal 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 shareholders for both a director nomination and
a shareholder proposal.
Under the Nomination Procedure, notice to Host Marriott from a shareholder
who proposes to nominate a person at a meeting for election as a director must
contain certain information about that person, including age, business and
residence addresses, principal occupation, the class and number
61
of shares of Common 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 shareholder proposing to nominate that person. Under the
Business Procedure, notice relating to a shareholder proposal must contain
certain information about such proposal and about the shareholder who proposes
to bring the proposal before the meeting, including the class and number of
shares of Common Stock beneficially owned by such shareholder. 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 determines that the shareholder
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 shareholder 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 shareholders, to afford the Board a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform shareholders about such
qualifications. The purpose of the Business Procedure is, by requiring advance
notice of shareholder proposals, to provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Board, to provide the Board with a meaningful opportunity
to inform shareholders, prior to such meetings, of any proposal to be
introduced at such meetings, together with any recommendation as to the Board's
position or belief as to action to be taken with respect to such proposal, so
as to enable shareholders better to determine whether they desire to attend
such meeting or grant a proxy to the Board as to the disposition of any such
proposal. Although the Bylaws do not give the Board any power to approve or
disapprove shareholder nominations for the election of directors or of any
other proposal submitted by shareholders, the Bylaws may have the effect of
precluding a nomination for the election of directors or precluding the
conducting of business at a particular shareholder 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 the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company and its
shareholders.
FAIR PRICE PROVISION
Article Fifteen of the Company Certificate (the "Fair Price Provision")
requires approval by the holders of 66 2/3% of the voting power of the
outstanding capital stock of the Company entitled to vote generally in the
election of directors (the "Voting Stock") as a condition for mergers and
certain other business combinations ("Business Combinations") involving the
Company and any holder of more than 25% of such voting power (an "Interested
Shareholder") unless the transaction is either (i) approved by a majority of
the members of the Board who are not affiliated with the Interested Shareholder
and who were directors before the Interested Shareholder became an Interested
Shareholder (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 offers for
the Company. It does not impede an offer for at least 66 2/3% of the Voting
Stock in which each shareholder receives substantially the same price for his
or her shares as each other shareholder or which the 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 Voting Stock without
proposing a Business Combination in which the remaining shares of Voting Stock
are purchased. Except for the restrictions on Business Combinations, the Fair
Price Provision will not prevent an Interested Shareholder having a controlling
interest of the Voting Stock from exercising control over Host Marriott or
increasing its interest in Host Marriott. Moreover, an Interested
62
Shareholder could increase its ownership to 66 2/3% and avoid application of
the Fair Price Provision. However, the separate provisions contained in the
Company Certificate and the Bylaws relating to "Classified Boards of Directors"
discussed above will, as therein indicated, curtail an Interested Shareholder's
ability to exercise control in several respects, including such shareholder's
ability to change incumbent directors who may oppose a Business Combination or
to implement a Business Combination by written consent without a shareholder
meeting. The Fair Price Provision would, however, discourage some takeover
attempts by persons intending to acquire the Company in two steps and to
eliminate remaining shareholder interests by means of a business combination
involving less consideration per share than the acquiring person would propose
to pay for its initial interest in the Company. In addition, acquisitions of
stock by persons 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 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 shareholders vis-a-vis other shareholders in the event of a takeover, it
is not the purpose of the Fair Price Provision to assure that shareholders will
receive a premium price for their shares in a takeover. Accordingly, the Board
is of the view that the adoption of the Fair Price Provision does not preclude
the Board's opposition to any future takeover proposal which it believes would
not be in the best interests of the Company and its shareholders, whether or
not such a proposal satisfies the minimum price criteria and procedural
requirements of the Fair Price Provision.
In addition, under Section 203 of the Delaware General Corporation Law as
applicable to Host Marriott, certain "business combinations" (defined generally
to include (i) mergers or consolidations between a Delaware corporation and an
interested shareholder (as defined below) and (ii) transactions between a
Delaware corporation and an interested shareholder involving the assets or
stock of such corporation or its majority-owned subsidiaries, including
transactions which increase the interested shareholder's percentage ownership
of stock) between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 shareholders, and an interested
shareholder (defined generally as those shareholders, who, on or after December
23, 1987, become beneficial owners of 15% or more of a Delaware corporation's
voting stock) are prohibited for a three-year period following the date that
such shareholder became an interested shareholder, unless (i) prior to the date
such shareholder became an interested shareholder, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the shareholder becoming an interested shareholder, (ii) upon
consummation of the transaction that made such shareholder an interested
shareholder, the interested shareholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
voting stock owned by officers who also are 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 shareholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested shareholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had been an interested shareholder during the previous three
years or who became an interested shareholder with the approval of a majority
of the corporation's directors.
SHAREHOLDER RIGHTS PLAN
Host Marriott has adopted a shareholder rights plan which may have anti-
takeover effects. See "Description of Host Marriott Capital Stock--Rights and
Junior Preferred Stock."
AMENDMENT OF THE COMPANY CERTIFICATE AND BYLAWS
The Company Certificate contains provisions requiring the affirmative vote of
the holders of at least 66 2/3% the voting power of the stock entitled to vote
generally in the election of directors to
63
amend certain provisions of the Company Certificate and Bylaws (including the
provisions discussed above). These provisions make it more difficult for
shareholders to make changes in the Company Certificate or Bylaws, including
changes designed to facilitate the exercise of control over the Company. In
addition, the requirement for approval by at least a 66 2/3% shareholder vote
will enable the holders of a minority of the Company's capital stock to prevent
holders of a less-than-66 2/3% majority from amending such provisions of the
Company's Certificate or Bylaws.
MARRIOTT INTERNATIONAL PURCHASE RIGHT
Host Marriott granted to Marriott International, for a period of ten years
following the Marriott International Distribution (i.e., until October 2003),
the right to purchase a number of shares equal in amount of up to 20% of each
class of Host Marriott's outstanding voting stock at the then fair market value
upon the occurrence of certain change of control events involving the Company.
The Marriott International Purchase Right may be exercised for a 30-day period
following the date a person or group of affiliated persons has (i) become the
beneficial owner of 20% or more of the total voting power of the then
outstanding shares of the Company's voting stock or (ii) announced a tender
offer for 30% or more of the total voting power of the then outstanding shares
of the Company's voting stock. These change of control events upon which the
Marriott International Purchase Right becomes exercisable are substantially
identical to those events that cause a distribution of the Rights under the
Rights Agreement (see "Description of Host Marriott Capital Stock--Rights and
Junior Preferred Stock"). Accordingly, certain share ownership of the Company's
voting stock by specified persons is exempt under the Rights Agreement, and
consequently will not result in a distribution of Rights, and will not cause
the Marriott International Purchase Right to become exercisable.
In connection with the Marriott International Distribution, the Board amended
the terms of the Rights Agreement to provide that the exercise of the Marriott
International Purchase Right will not result in a distribution of the Rights.
Accordingly, upon exercise of the Marriott International Purchase Right,
Marriott International will be entitled to receive the Rights associated with
the Common Stock and will not be deemed an "Acquiring Person" under the Rights
Agreement.
The purchase price for the Common Stock to be purchased upon the exercise of
the Marriott International Purchase Right is determined by taking the average
of the closing sale price of the Common Stock during the 30 consecutive trading
days preceding the date the Marriott International Purchase Right becomes
exercisable. The specific terms of the Marriott International Purchase Right
are set forth in the Marriott International Distribution Agreement.
The Marriott International Purchase Right will have an antitakeover effect.
Any person considering acquiring a substantial or controlling block of Common
Stock would face the possibility that its ability to exercise control would be
impaired by Marriott International's 20% ownership resulting from exercise of
the Marriott International Purchase Right. Moreover, so long as the Marriott
family's current percentage of ownership of Common Stock continues, the
combined Marriott family (including various trusts established by members of
the Marriott family) and Marriott International ownership following exercise of
the Marriott International Purchase Right may effectively block control by
others (see "Description of Host Marriott Capital Stock"). It is also possible
that the exercise price of the Marriott International Purchase Right would be
lower than the price at which a potential acquiror might be willing to purchase
a 20% block of shares of Common Stock because the purchase price for the
Marriott International Purchase Right is based on the average trading price
during a 30-day period which may be prior to the announcement of the takeover
event. This potential price differential may have a further antitakeover effect
by discouraging potential acquirers of Host Marriott. The antitakeover effect
of the Marriott International Purchase Right will be in addition to the
antitakeover effects of the provisions contained in the Company Certificate and
Bylaws.
64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States Federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets. It does not deal with special
classes of holders such as banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, foreign corporations and persons who are not
citizens or residents of the United States (except to the extent discussed
under the heading "Certain United States Tax Consequences to Non-United States
Holders") or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar. Further, it
does not include any description of any alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to the Preferred Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF
ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
CLASSIFICATION OF THE DEBENTURES
Host Marriott has taken the position that the Debentures will be classified
for United States Federal income tax purposes as indebtedness of Host Marriott
under current law and, by acceptance of Preferred Securities, each holder
covenants to treat the Debentures as indebtedness and the Preferred Securities
as evidence of an indirect beneficial ownership interest in the Debentures. No
assurance can be given, however, that such position of Host Marriott will not
be challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful. The remainder of this discussion assumes that
the Debentures will be classified as indebtedness of Host Marriott for United
States Federal income tax purposes.
CLASSIFICATION OF THE ISSUER
In connection with the issuance of the Preferred Securities, Latham &
Watkins, special United States tax counsel to the Issuer and Host Marriott,
rendered its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
Federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States Federal income tax
purposes, each holder of Preferred Securities generally will be considered the
owner of an undivided interest in the Debentures, and each holder will be
required to include in its gross income any original issue discount accrued
with respect to its allocable share of those Debentures.
ORIGINAL ISSUE DISCOUNT
Because Host Marriott has the option, under the terms of the Debentures, to
defer payments of interest by extending interest payment periods for up to 60
months, all of the stated interest payments
65
on the Debentures will be treated as "original issue discount." Under the Code,
holders of debt instruments (such as the Debentures) issued with original issue
discount must include that discount in income on an economic accrual basis
before the receipt of cash attributable to the interest, regardless of their
method of tax accounting. Generally, all of a holder's taxable interest income
with respect to the Debentures will be accounted for as original issue
discount. Actual payments and distributions of stated interest will not,
however, be separately reported as taxable income. The amount of original issue
discount that accrues in any quarter will approximately equal the amount of the
interest that accrues on the Debentures in that quarter at the stated interest
rate. In the event that the interest payment period is extended, holders will
continue to accrue original issue discount in an amount approximately equal to
the amount of the interest payment due at the end of the extended interest
payment period on an economic accrual basis over the length of the extended
interest payment period.
Because income on the Debentures will constitute original issue discount,
corporate holders will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the Debentures.
LIQUIDATED DAMAGES
Host Marriott intends to take the position that the Liquidated Damages
described above under "Description of the Preferred Securities--Registration
Rights" will be taxable to a holder as ordinary income in accordance with the
holder's usual method of income tax accounting. The IRS may take a different
position, however, which could affect both the timing of the holder's income
and the timing and amount of Host Marriott's deduction with respect to the
Liquidated Damages.
REDEMPTION OF PREFERRED SECURITIES FOR DEBENTURES OR CASH UPON LIQUIDATION OF
THE ISSUER
Under certain circumstances, the Debentures may be distributed to holders in
exchange for the Preferred Securities. Under current law, such a distribution
to holders, for United States Federal income tax purposes, would be treated as
a nontaxable event to each holder, and each holder would receive an aggregate
tax basis in the Debentures distributed equal to such holder's aggregate tax
basis in its Preferred Securities exchanged therefor. A holder's holding period
in the Debentures so received would include the period during which the
Preferred Securities were held by such holder. If, however, the exchange is
caused by a Tax Event which results in the Issuer being treated as an
association taxable as a corporation the distribution would likely constitute a
taxable event to the Issuer and holders of the Preferred Securities.
Under certain circumstances described herein (see "Special Event Exchange or
Redemption"), the Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Under current law, such a redemption would, for United States Federal income
tax purposes, constitute a taxable disposition of the redeemed Preferred
Securities, and a holder would recognize gain or loss in the same manner as if
it sold such redeemed Preferred Securities for cash. See "--Sales of Preferred
Securities".
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal to
the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities. A
holder's adjusted tax basis in the Preferred Securities generally will be its
initial purchase price increased by original issue discount previously
includible in such holder's gross income to the date of disposition and
decreased by payments received on the Preferred Securities to the date of
disposition. In general, such gain or loss will be a capital gain or loss and
will be a long-term capital gain or loss if the Preferred Securities have been
held for more than one year at the time of sale.
66
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Debentures. A holder who disposes of or converts his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Debentures through the date of
disposition or conversion in income as ordinary income, and to add such amount
to his adjusted tax basis in his pro rata share of the underlying Debentures
deemed disposed of or converted. To the extent the selling price is less than
the holder's adjusted tax basis (which basis will include, in the form of
original issue discount, all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States Federal income
tax purposes.
MARKET DISCOUNT AND BOND PREMIUM
To the extent a holder acquires its Preferred Securities at a price that is
greater or less than the adjusted issue price of such holder's proportionate
share of the Debentures (which generally should approximate the face amount
plus accrued but unpaid interest on the Debentures), the holder may be deemed
to have acquired its undivided interest in the Debentures with acquisition
premium or market discount. A holder who purchases Preferred Securities at a
premium will be permitted to reduce the amount of original issue discount
required to be included in income to reflect the acquisition premium. A holder
who purchases Preferred Securities at a market discount will include the amount
of such discount in income in accordance with the market discount rules
described below.
A holder that acquires its undivided beneficial interest in the Debentures at
a market discount generally will be required to recognize ordinary income to
the extent of accrued market discount on the Debentures upon their retirement
or, to the extent of any gain, upon the disposition of the Preferred
Securities. Such market discount will accrue ratably or, at the election of the
holder, under a constant yield method over the remaining term of the
Debentures. A holder will also be required to defer the deduction of a portion
of the interest paid or accrued on indebtedness incurred to purchase or carry
Preferred Securities that represent an undivided interest in Debentures
acquired with market discount. In lieu of the foregoing, a holder may elect to
include market discount in income currently as it accrues on all market
discount instruments acquired by such holder in the taxable year of the
election or thereafter, in which case the interest deferral rules will not
apply.
A holder may elect, in lieu of applying the market discount or acquisition
premium rules described above, to account for all income under the Debentures
as if it were original issue discount. A holder that makes this election and
that is considered to have acquired its beneficial interest in the Debentures
with market discount will be considered to have made the election described in
the immediately preceding paragraph.
CONVERSION OF PREFERRED SECURITIES INTO HOST MARRIOTT COMMON STOCK
Except possibly to the extent attributable to accrued and unpaid interest on
the Debentures, a holder of Preferred Securities will not recognize income,
gain or loss upon the conversion of the Preferred Securities into Host Marriott
Common Stock through the Conversion Agent. A holder of Preferred Securities
will, however, recognize gain upon the receipt of cash in lieu of a fractional
share of Host Marriott Common Stock equal to the amount of cash received less
such holder's tax basis in such fractional share. Such a holder's tax basis in
the Host Marriott Common Stock received upon conversion should generally be
equal to such holder's tax basis in the Preferred Securities delivered to the
Conversion Agent for exchange less the basis allocated to any fractional share
for which cash is received and such holder's holding period in the Host
Marriott Common Stock received upon conversion should generally begin on the
date such holder acquired the Preferred Securities delivered to the Conversion
Agent for exchange.
Holders of Preferred Securities should not recognize gain or loss upon
expiration of the conversion rights. Such expiration should not effect a
significant modification of the underlying Debentures within
67
the meaning of applicable Treasury Regulations, and thus will not be considered
a sale or exchange for purposes of federal income taxation.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from Host Marriott in the event the conversion ratio of the Debentures were
adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Host Marriott Common Stock into or for which the
Debentures are convertible or exchangeable) of the holders of the Preferred
Securities in the assets or earnings and profits of Host Marriott were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Host Marriott
Common Stock. Thus, under certain circumstances, a reduction in the conversion
price for the holders may result in deemed dividend income to holders to the
extent of the current or accumulated earnings and profits of Host Marriott.
Holders of the Preferred Securities would be required to include their
allocable share of such deemed dividend income in gross income but would not
receive any cash related thereto.
INFORMATION REPORTING TO HOLDERS
The Issuer will report the original issue discount, if any, that accrued
during the year with respect to the Debentures, and any gross proceeds received
by the Issuer from the retirement or redemption of the Debentures, annually to
the holders of record of the Preferred Securities and the Internal Revenue
Service. The Issuer currently intends to deliver such reports to holders of
record prior to January 31 following each calendar year. It is anticipated that
persons who hold Preferred Securities as nominees for beneficial holders will
report the required tax information to beneficial holders on Form 1099.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will generally be
allowed as a credit against the holder's Federal income tax, provided the
required information is timely filed with the Internal Revenue Service.
POSSIBLE TAX LEGISLATION
As part of President Clinton's Fiscal 1997 Budget Proposal, the Treasury
Department proposed legislation that, among other things, would have treated as
equity for United States Federal income tax purposes instruments with a maximum
term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer. The legislation was to be effective
for debt instruments issued on or after December 7, 1995. Although this
legislation was not enacted as part of the Fiscal 1997 Budget, there can be no
assurance that a similar proposal would not be enacted in the future, that such
future legislation would not have a retroactive effective date and that such
future legislation would not prevent Host Marriott from deducting interest on
the Debentures. This would constitute a Tax Event and would permit the Issuer
to exchange the Preferred Securities, in whole or in part, for the Debentures.
See "Description of the Preferred Securities--Special Event Exchange or
Redemption."
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL. The following is a general discussion of certain United States
Federal income and estate tax consequences of the acquisition, ownership and
disposition of Preferred Securities by a "Non-United States Holder" and does
not deal with tax consequences arising under the laws of any
68
foreign, state, or local jurisdiction. As used herein, a "Non-United States
Holder" is a person or entity that, for United States Federal income tax
purposes, is not a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized under the laws of the United
States or a political subdivision thereof, or an estate or trust, the income of
which is subject to United States Federal income taxation regardless of its
source, or that otherwise is subject to United States federal income taxation
on a net basis in respect of the Preferred Securities. The tax treatment of the
holders of the Preferred Securities may vary depending upon their particular
situations. Certain holders (including insurance companies, tax exempt
organizations, financial institutions and broker-dealers) may be subject to
special rules not discussed below. Prospective investors who are Non-United
States Holders are urged to consult their tax advisors regarding the United
States Federal tax consequences of acquiring, holding and disposing of
Preferred Securities and Host Marriott Common Stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local or
other taxing jurisdiction.
INTEREST. Interest (including original issue discount) received or accrued by
a Non-United States Holder of Preferred Securities will not be subject to
United States Federal income or withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-United States Holder and (i) the Non-United States Holder
does not actually or constructively own 10% or more of the total voting power
of all voting stock of Host Marriott and is not a controlled foreign
corporation with respect to which Host Marriott is a "related person" within
the meaning of the Code and (ii) the beneficial owner of the Preferred
Securities certifies, under penalties
of perjury, that the beneficial owner is not a United States person and provide
the beneficial owner's name and address.
GAIN ON DISPOSITION OF PREFERRED SECURITIES. A Non-United States Holder will
generally not be subject to United States federal income tax on gain recognized
on a sale, redemption or other disposition of a Preferred Security unless (i)
the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, (ii) in the case of a
Non-United States Holder who is a nonresident alien individual and holds the
Preferred Security as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met.
DIVIDENDS ON HOST MARRIOTT COMMON STOCK. In the event that dividends are paid
on Host Marriott Common Stock, except as described below, such dividends paid
to a Non-United States Holder of Host Marriott Common Stock will be subject to
withholding of United States Federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the Non-United States Holder within the United States. If the dividend is
effectively connected with the conduct of a trade or business of the Non-United
States Holder within the United States, the dividend would be subject to United
States Federal income tax on a net income basis at applicable graduated
individual or corporate rates and would be exempt from the 30% withholding tax
described above. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury regulations, not currently in effect, however, a Non-United
States Holder of Host Marriott Common Stock who wishes to claim the benefit of
an applicable treaty rate would be required to satisfy applicable certification
and other requirements. Certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
69
A Non-United States Holder of Host Marriott Common Stock that is eligible for
a reduced rate of United States withholding tax pursuant to a tax treaty may
obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION OF HOST MARRIOTT COMMON STOCK. A Non-United States Holder
generally will not be subject to United States Federal income tax on any gain
recognized on a disposition of the Host Marriott Common Stock (i) subject to
the exception discussed below, Host Marriott is or has been a "United States
real property holding corporation" (a "USRPHC") within the meaning of Section
897 (c) (2) of the Code at any time within the shorter of the five-year period
preceding such disposition or such Non-United States Holder's holding period
(the "Required Holding Period"), (ii) the gain is effectively connected with
the conduct of a trade or business within the United States of the Non-United
States Holder and, if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-United States Holder, (iii) the Non-United
States Holder is an individual who holds the Host Marriott Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition and either (a) such individual has a "tax home"
(as defined for United States Federal income tax purposes) in the United States
or (b) the gain is attributable to an office or other fixed place of business
maintained in the United States by such individual, or (iv) the Non-United
States Holder is subject to tax pursuant to the Code provisions applicable to
certain United States expatriates. If an individual Non-United States Holder
falls under clauses (ii) or (iv) above, he or she will be taxed on his or her
net gain derived from the sale under regular United States Federal income tax
rates. If the individual Non-United States Holder falls under clauses (iii)
above, he or she will be subject to a flat 30% tax on the gain derived from the
sale which may be offset by United States capital losses (notwithstanding the
fact that he or she is not considered a resident of the United States). If a
Non-United States Holder that is a foreign corporation falls under clause (ii)
above, it will be taxed on its gain under regular graduated United States
Federal income tax rates and, in addition, will under certain circumstances be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits" within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
A corporation is generally a USRPHC if the fair amount value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. While not free from doubt, Host
Marriott believes that it currently is a USRPHC; however, a Non-United States
Holder would generally not be subject to tax or withholding in respect of such
tax on gain from a sale or other disposition of Host Marriott Common Stock by
reason of Host Marriott's USRPHC status if the Host Marriott Common Stock is
regularly traded on an established securities market ("regularly traded")
during the calendar year in which such sale or disposition occurs provided that
such holder does not own, actually or constructively, Host Marriott Common
Stock with a fair market value in excess of 5% of the fair market value of all
the Host Marriott Common Stock outstanding at any time during the Required
Holding Period. The Company believes that the Host Marriott Common Stock will
be treated as regularly traded.
If Host Marriott is or has been a USRPHC within the Required Holding Period,
and if a Non-United States Holder owns in excess of 5% of the fair market value
of the outstanding Host Marriott Common Stock (as described in the preceding
paragraph), such Non-United States Holder will be subject to United States
Federal income tax at regular graduated rates under certain rules ("FIRPTA
tax") on gain recognized on a sale or other disposition of such stock. In
addition, if Host Marriott is or has been a USRPHC within the Required Holding
Period and if the Host Marriott Common Stock was not treated as regularly
traded, a Non-United States Holder (without regard to its ownership percentage)
is subject to withholding in respect of FIRPTA tax at a rate of 10% of the
amount realized on a sale or other disposition of Host Marriott Common Stock in
USRPHCs and will be further subject to FIRPTA tax in excess of the amounts
withheld. Any amount withheld pursuant to such withholding tax will be
70
creditable against such Non-United States Holder's United States Federal income
tax liability. Non-United States Holders are urged to consult their tax
advisors concerning the potential applicability of these provisions.
FEDERAL ESTATE TAXES. A Preferred Security beneficially owned by an
individual who is a Non-United States Holder at the time of his or her death
generally will not be subject to United States Federal estate tax as a result
of such individual's death, provided that (i) such individual does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of Host Marriott entitled to vote within the meaning of
section 871(h)(3) of the Code, and (ii) interest payments (including payments
of original issue discount) with respect to the Debentures would not have been,
if received at the time of such individual's death, effectively connected with
the conduct of a U.S. trade or business by such individual. Common stock of
Host Marriott owned, or treated as owned, by an individual Non-United States
Holder at the time of his or her death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Host Marriott must report
annually to the Internal Revenue Service and to each Non-United States Holder
the amount of interest and dividends paid to such holder and the amount of any
tax withheld. These information reporting requirements apply regardless of
whether withholding is required. Copies of the Information returns reporting
such interest and dividends and withholding may also be made available to the
tax authorities in the country in which the Non-United States Holder resides
under the provisions of an applicable income tax treaty.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither Host Marriott
nor its payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Under temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Preferred Securities by or
through a United States office of a United States or foreign broker, unless the
holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup withholding, will
also apply to a payment of the proceeds of a disposition of the Preferred
Securities by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States. Neither
information reporting nor backup withholding generally will apply to a payment
of the proceeds of a disposition of the Preferred Securities by or through a
foreign office of a foreign broker not subject to the preceding sentence.
United States backup withholding tax generally will not apply to (a) the
payment of dividends paid on Host Marriott Common Stock to a Non-United States
Holder at an address outside the United States or (b) the payment of the
proceeds of the sale of Host Marriott Common Stock to or through the foreign
office of a broker. In the case of the payment of proceeds from such a sale of
Host Marriott Common Stock through a foreign office of a broker that is a
United States person or a "U.S. related person," however, information reporting
(but not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a Non-United
States Holder and certain other requirements are met or the holder otherwise
establishes an exemption. For this purpose, a "U.S. related person" is (i) a
controlled foreign corporation for United States Federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business. The payment of the proceeds of a
71
sale of Host Marriott Common Stock to or through a United States office of a
broker is subject to information reporting and possible backup withholding
unless the owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information and backup withholding rules are under review by the United
States Treasury and their application to the Preferred Securities and the Host
Marriott Common Stock could be changed by future regulations. On April 15,
1996, the Internal Revenue Service issued proposed Treasury Regulations
concerning the withholding of tax and reporting for certain amounts paid to
non-resident individuals and foreign corporations. The proposed regulations
would, among other changes, eliminate the presumption under current regulations
with respect to dividends paid to addresses outside the United States. The
proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 15, 1997. Prospective purchasers of
the Preferred Securities should consult their tax advisors concerning the
potential adoption of such Treasury Regulations.
SELLING HOLDERS
The Preferred Securities were originally issued by the Issuer and sold by
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation, BT
Securities Corporation and Montgomery Securities (the "Purchasers"), in a
transaction exempt from the registration requirements of the Securities Act, to
persons reasonably believed by such Purchasers to be "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act). The Selling Holders
may from time to time offer and sell pursuant to this Prospectus any or all of
the Offered Securities. The term Selling Holder includes the holders listed
below and the beneficial owners of the Preferred Securities and their
transferees, pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Holders of the Preferred Securities and the respective number of Preferred
Securities beneficially owned by each Selling Holder that may be offered
pursuant to this Prospectus.
SELLING
HOLDERS* NUMBER OF PREFERRED SHARES*
-------- ---------------------------
* To be filed by amendment.
None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Issuer or the Company
or any of their predecessors or affiliates. Because the Selling Holders may,
pursuant to this Prospectus, offer all or some portion of the Preferred
Securities, the Convertible Debentures or the Common Stock issuable upon
conversion of the Preferred Securities, no estimate can be given as to the
amount of the Preferred Securities, the Convertible Debentures or the Common
Stock issuable upon conversion of the Preferred Securities that will be held by
the Selling Holders upon termination of any such sales. In addition, the
Selling Holders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Preferred Securities since the date on
which they provided the information regarding their Preferred Securities
included herein in transactions exempt from the registration requirements of
the Securities Act.
72
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to
time offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such
underwriter, broker/dealer or agent may be deemed to be underwriting discounts
and commissions under the Securities Act. The Offered Securities may be sold
from time to time in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the Offered Securities may be
effected in transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which the Offered
Securities may be listed or quoted at the time of sale, (ii) in the over-the-
counter market, (iii) in transactions otherwise than on such exchanges or in
the over-the-counter market or (iv) through the writing of options. At the time
a particular offering of the Offered Securities is made, a Prospectus
Supplement, if required, will be distributed which will set forth the aggregate
amount and type of Offered Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company and the Trust
shall each bear all reasonable fees and expenses customarily borne by issuers
in a non-underwritten secondary offering by selling security holders or in an
underwritten offering, as the case may be, incurred in connection with the
performance of its obligations under the Registration Rights Agreement;
provided, however, that the Selling Holders will pay all underwriting discounts
and selling commissions, if any. The Selling Holders will be indemnified by the
Company and the Trust, jointly and severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company and the Trust will be
indemnified by the Selling Holders severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
EXPERTS
The audited consolidated financial statements and schedules of the Company
and the financial statements of the Dallas/Fort Worth Airport Marriott, Pacific
Landmark Hotel, Ltd. and Pacific Gateway, Ltd., San Antonio Marriott Riverwalk,
and TEC Entities incorporated by reference into this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
73
The combined financial statements of Pacific Landmark Hotel, Ltd. and
Pacific Gateway, Ltd. as of December 31, 1994 and 1993, and for each of the
years in the two-year period ended December 31, 1994, are incorporated by
reference in this registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The audited financial statements of the New York Vista (now the Marriott
World Trade Center) incorporated by reference in this registration statement
have been audited by Ernst & Young LLP, independent public accountants, as
indicated in their report with respect thereto and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
LEGAL OPINIONS
Certain legal matters with respect to the Preferred Securities, the
Convertible Debentures, the Guarantee and the Company Common Stock issuable
upon conversion of the Preferrred Securities will be passed upon for the
Company and the Issuer by Christopher G. Townsend, Esquire, Senior Vice-
President and General Counsel of the Company.
AVAILABLE INFORMATION
Host Marriott is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by Host Marriott,
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at 7 World Trade Center, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Host Marriott Common Stock is
listed on the New York Stock Exchange and reports and other information herein
and therein concerning Host Marriott can also be inspected at the office of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
Host Marriott and the Issuer have filed with the Commission a Registration
Statement (which term shall encompass any amendments thereto) on Form S-3
under the Securities Act with respect to the securities offered by this
Prospectus (the "Registration Statement"). This Prospectus, which constitutes
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement, certain items of which are contained
in exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to Host
Marriott and the securities offered by this Prospectus, reference is made to
the Registration Statement, including the exhibits thereto, and the financial
statements and notes thereto filed or incorporated by reference as a part
thereof, which are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the offices of the Commission. Statements made in
this Prospectus concerning the contents of any document referred to herein are
not necessarily complete, and, in each such instance, are qualified in all
respects by reference to the applicable documents filed with the Commission.
The Registration Statement and the exhibits thereto filed by Host Marriott
with the Commission may be inspected and copied at the locations described
above.
74
No separate financial statements of the Issuer have been included herein.
The Issuer and Host Marriott do not consider that such financial statements
would be material to potential investors because the Issuer is a newly
organized special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Debentures of Host Marriott
and issuing the Preferred Securities and Common Securities and Host Marriott
has fully and unconditionally guaranteed all of the Issuer's obligations under
the Preferred Securities. See "Host Marriott Financial Trust," "Description of
the Preferred Securities," "Description of the Guarantee" and "Description of
the Debentures."
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Host Marriott with the Commission are
incorporated herein by reference: (i) Host Marriott's Annual Report on Form
10-K for the year ended December 29, 1995, (ii) Host Marriott's Quarterly
Reports on Form 10-Q for the quarters ended March 22, June 14 and September 6,
1996, (iii) the proxy statement for the Company's Annual Meeting of
Stockholders held on May 23, 1996, and (iv) Host Marriott's Current Reports on
Form 8-K dated January 11, January 17, February 28, March 7, May 31, June 18,
July 11, November 20, December 6, 1996, January 14, and January 16, 1997. All
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
filing of a post-effective amendment that indicates the termination of this
offering shall be deemed to be incorporated in this Prospectus by reference
and to be a part hereof from the date of filing of such documents. Any
statements contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this offering to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom this
Prospectus has been delivered, a copy of any or all of the documents referred
to above that have been or may be incorporated by reference herein other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference therein). Requests for such copies should be directed to Host
Marriott Corporation, 10400 Fernwood Road, Bethesda, MD 20817-1109, Attention:
Corporate Secretary, or by telephone at (301) 380-9000.
75
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGES IN THE AFFAIRS OF THE ISSUER OR HOST MARRIOTT SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
-----------
TABLE OF CONTENTS
PAGE
----
Special Note Regarding Forward-Looking Statements......................... 3
Risk Factors.............................................................. 4
Host Marriott Financial Trust............................................. 14
Use of Proceeds........................................................... 16
Accounting Treatment...................................................... 16
Ratio of Earnings to Fixed Charges........................................ 16
Description of the Preferred Securities................................... 18
Description of the Guarantee.............................................. 41
Description of the Debentures............................................. 44
Relationship Among the Preferred Securities, the Debenture and the
Guarantee................................................................ 53
Description of Host Marriott Capital Stock................................ 55
Purposes and Antitakeover Effects of Certain Provisions of the Company
Certificate and Bylaws and the Marriott International Purchase Right..... 60
Certain Federal Income Tax Consequences................................... 66
Selling Holders........................................................... 73
Plan of Distribution...................................................... 73
Experts................................................................... 74
Legal Opinions............................................................ 75
Available Information..................................................... 75
Documents Incorporated by Reference....................................... 76
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11,000,000 PREFERRED SECURITIES
Host Marriott
Financial Trust
6 3/4% CONVERTIBLE QUARTERLY INCOME
PREFERRED SECURITIES
("CONVERTIBLE QUIPS")
(LIQUIDATION PREFERENCE $50 PER SHARE)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
[LOGO OF HOST MARRIOTT CORPORATION APPEARS HERE]
------------------------
PROSPECTUS
------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities registered hereby. Except for
the SEC registration fee, all amounts provided are estimated.
SEC registration fee........................................... $180,000
Printing and engraving expenses................................ *
Legal fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees and
expenses)..................................................... *
Accounting fees and expenses................................... *
Transfer agent and trustee fees................................ *
Miscellaneous.................................................. *
--------
Total........................................................ $ *
========
--------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article Eleven and Article Sixteen of the Company's Certificate and Section
7.7 of the Bylaws limit the personal liability of directors to the Company or
its shareholders for monetary damages for breach of fiduciary duty. The
provisions of the Company Certificate and Bylaws are collectively referred to
herein as the "Director Liability and Indemnification Provisions."
Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Company Certificate and the
Bylaws.
Elimination of Liability in Certain Circumstances. Article Sixteen of the
Company Certificate protects directors against monetary damages for breaches
of their fiduciary duty of care, except as set forth below. Under the Delaware
General Corporation Law, absent such limitation of liability provisions as are
provided in Article Sixteen, 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 Sixteen eliminates liability of
directors 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
shareholders, as well 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 Sixteen does not
eliminate director liability under Section 174 of the Delaware General
Corporation Law, 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 the Director Liability and Indemnification Provisions provide
directors with protection from awards of monetary damages for breaches of the
duty of care, they do not eliminate the directors' duty of care. Accordingly,
these provisions 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 Sixteen, which eliminates liability as
described above, will apply to officers of the Company only if they are
directors of the Company and are acting in their capacity as directors, and
will not apply to officers of the Company 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 such actions seek monetary
damages.
II-1
Indemnification and Insurance. Under Section 145 of the Delaware General
Corporation Law, 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 the
corporation, 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 the derivative actions, except that
indication only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the Delaware
General Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
Section 7.7 of the Bylaws provides that the Company shall indemnify any
person to whom, and to the extent, indemnification may be granted pursuant to
Section 145 of the Delaware General Corporation law.
Article Eleven of the Company Certificate provides that a person who was or
is made a party to, or is involved in, any action, suit or proceeding by
reason of the fact that he is or was a director, officer or employee of the
Company will be indemnified by the Company against all expenses and
liabilities, including counsel fees, reasonably incurred by or imposed upon
him, except in such cases where the director, officer or employee is adjudged
guilty of willful misconduct or malfeasance in the performance of his duties.
Article Eleven also provides that the 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.
ITEM 16. EXHIBITS
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
*4.1 Certificate of Trust of Host Marriott Financial Trust.
4.2 Amended and Restated Trust Agreement of Host Marriott Financial
Trust, dated as of December 2, 1996, among Host Marriott
Corporation, as Depositor, IBJ Schroder Bank & Trust Company, as
Property Trustee, Delaware Trust Capital Management (Delaware), as
Delaware Trustee and Robert E. Parsons, Jr., Bruce D. Wardinski,
and Christopher G. Townsend, as Administrative Trustees.
4.3 Indenture for the 6 3/4% Convertible Debentures, dated as of
December 2, 1996, among Host Marriott Corporation and IBJ Schroder
Bank & Trust Corporation, as Indenture Trustee.
4.4 Form of 6 3/4% Preferred Securities (Included in Exhibit D-1 to
Exhibit 4.2 above).
4.5 Form of 6 3/4% Convertible Debentures (Included in Article 2 to
Exhibit 4.3 above).
4.6 Preferred Securities Guarantee Agreement, dated as of December 2,
1996, between Host Marriott Corporation, as Guarantor, and IBJ
Schroder Bank & Trust Company, as Guarantee Trustee.
*5.1 Opinion of Christopher G. Townsend, Senior Vice-President and
General Counsel to Host Marriott Corporation and special counsel
to Host Marriott Financial Trust, as to the legality of the
Preferred Securities, Convertible Debentures, Guarantee and the
Common Stock of Host Marriott Corporation issuable upon conversion
of the Preferred Securities being registered hereby.
II-2
EXHIBIT NO. DESCRIPTION
----------- -----------
*8.1 Opinion of Latham & Watkins, special United States tax counsel to
Host Marriott Corporation and Host Marriott Financial Trust, as to
certain tax matters.
10.1 Registration Rights Agreement, dated December 2, 1996, between
Host Marriott Financial Trust and Goldman, Sachs & Co., Donaldson,
Lufkin and Jenrette Securities Corporation, BT Securities
Corporation and Montgomery Corporation, as Purchasers.
12.1 Ratio of Earnings to Fixed Charges of Host Marriott Corporation
*23.1 Consent of Latham & Watkins (Included in Exhibits 5.1 and 8.1).
*23.2 Consent of Christopher G. Townsend, General Counsel to Host
Marriott Corporation (Included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Ernst & Young LLP.
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as Trustee
under the 6 3/4% Convertible Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as
Property Trustee under the Amended and Restated Declaration of
Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as
Guarantee Trustee under the Guarantee.
- --------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(d) The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrants pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BETHESDA,
STATE OF MARYLAND, ON JANUARY 16, 1997.
Host Marriott Corporation
/s/ Robert E. Parsons, Jr.
By___________________________________
Robert E. Parsons, Jr.
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Christopher G. Townsend
as his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the foregoing, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Terence C. Golden President, Chief January 16, 1997
- ------------------------------------- Executive Officer
TERENCE C. GOLDEN (Principal
Executive Officer)
and Director
/s/ Robert E. Parsons, Jr. Executive Vice January 16, 1997
- ------------------------------------- President and Chief
ROBERT E. PARSONS, JR. Financial Officer
(Principal
Financial Officer)
/s/ Donald D. Olinger Senior Vice January 16, 1997
- ------------------------------------- President and
DONALD D. OLINGER Corporate
Controller
(Principal
Accounting Officer)
/s/ Richard E. Marriott Chairman of the January 16, 1997
- ------------------------------------- Board of Directors
RICHARD E. MARRIOTT
II-5
SIGNATURE TITLE DATE
/s/ R. Theodore Ammon Director January 16, 1997
- ------------------------------------
R. THEODORE AMMON
/s/ Robert M. Baylis Director January 16, 1997
- ------------------------------------
ROBERT M. BAYLIS
/s/ J.W. Marriott, Jr. Director January 16, 1997
- ------------------------------------
J.W. MARRIOTT, JR.
/s/ Ann Dore McLaughlin Director January 16, 1997
- ------------------------------------
ANN DORE MCLAUGHLIN
/s/ Harry L. Vincent Director January 16, 1997
- ------------------------------------
HARRY L. VINCENT
II-6
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
*4.1 Certificate of Trust of Host Marriott Financial Trust.
4.2 Amended and Restated Trust Agreement of Host Marriott Financial
Trust, dated as of December 2, 1996, among Host Marriott
Corporation, as Depositor, IBJ Schroder Bank & Trust Company, as
Property Trustee, Delaware Trust Capital Management (Delaware), as
Delaware Trustee and Robert E. Parsons, Jr., Bruce D. Wardinski,
and Christopher G. Townsend, as Administrative Trustees.
4.3 Indenture for the 6 3/4% Convertible Debentures, dated as of
December 2, 1996, among Host Marriott Corporation and IBJ Schroder
Bank & Trust Corporation, as Indenture Trustee.
4.4 Form of 6 3/4% Preferred Securities (Included in Exhibit D-1 to
Exhibit 4.2 above).
4.5 Form of 6 3/4% Convertible Debentures (Included in Article 2 to
Exhibit 4.3 above).
4.6 Preferred Securities Guarantee Agreement, dated as of December 2,
1996, between Host Marriott Corporation, as Guarantor, and IBJ
Schroder Bank & Trust Company, as Guarantee Trustee.
*5.1 Opinion of Christopher G. Townsend, Senior Vice-President and
General Counsel to Host Marriott Corporation and special counsel
to Host Marriott Financial Trust, as to the legality of the
Preferred Securities, Convertible Debentures, Guarantee and the
Common Stock of Host Marriott Corporation issuable upon conversion
of the Preferred Securities being registered hereby.
*8.1 Opinion of Latham & Watkins, special United States tax counsel to
Host Marriott Corporation and Host Marriott Financial Trust, as to
certain tax matters.
10.1 Registration Rights Agreement, dated December 2, 1996, between
Host Marriott Financial Trust and Goldman, Sachs & Co., Donaldson,
Lufkin and Jenrette Securities Corporation, BT Securities
Corporation and Montgomery Corporation, as Purchasers.
12.1 Ratio of Earnings to Fixed Charges of Host Marriott Corporation
*23.1 Consent of Latham & Watkins (Included in Exhibits 5.1 and 8.1).
*23.2 Consent of Christopher G. Townsend, General Counsel to Host
Marriott Corporation (Included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Ernst & Young LLP
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as Trustee
under the 6 3/4% Convertible Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as
Property Trustee under the Amended and Restated Declaration of
Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of IBJ Schroder Bank & Trust Company, as
Guarantee Trustee under the Guarantee.
- --------
* To be filed by amendment.
E-1