<PAGE>
As filed with the Securities and Exchange Commission on May , 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOST MARRIOTT, L.P.
(Exact name of registrant as specified in its charter)
Delaware 7011 52-2095412
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
For Co-Registrants, see "Table of Co-Registrants" on following page.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
Christopher G. Townsend
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Scott C. Herlihy
Latham & Watkins
1001 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2505
(202) 637-2200
----------------
Approximate date of commencement of proposed sale to the public: as soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Amount Of
Title Of Each Class Of Amount To Be Offering Registration
Securities To Be Registered Registered Price Per Unit Fee (1)
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<S> <C> <C> <C>
8 3/8% Series E senior
notes due 2006.......... $300,000,000.00 100.00% $83,400
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Guarantees of Series E senior
notes (2).................. (2) (2) (2)
</TABLE>
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(1) The Registration Fee has been calculated in accordance with Rule 457(f)
under the Securities Act of 1933, as amended.
(2) No separate consideration will be received with respect to these guarantees
and, therefore, no registration fee is attributable to them.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant will
file a further amendment which specifically states that this registration
statement will thereafter become effective in accordance with section 8(a) of
the securities act or until this registration statement will become effective
on such date as the commission, acting pursuant to said section 8(a), may
determine.
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<PAGE>
Table of Co-Registrants
<TABLE>
<CAPTION>
Primary
State of Standard
other Industrial IRS Employer
Jurisdiction Classification Identification
Name of Formation Code Number Number
---- ------------- -------------- --------------
<S> <C> <C> <C>
HMH Rivers, L.P................... Delaware 7011 52-2126158
HMH Marina LLC.................... Delaware 7011 52-2095412
HMC SBM Two LLC................... Delaware 7011 52-2095412
HMC PLP LLC....................... Delaware 7011 52-2095412
HMC Retirement Properties, L.P. .. Delaware 7011 52-2126159
HMH Pentagon LLC.................. Delaware 7011 52-2095412
HMH SFO LLC....................... Delaware 7011 52-2095412
Airport Hotels LLC................ Delaware 7011 52-2095412
Chesapeake Financial Services
LLC.............................. Delaware 7011 52-2095412
HMC Capital Resources LLC......... Delaware 7011 52-2095412
YBG Associates LLC................ Delaware 7011 52-2059377
PRM LLC........................... Delaware 7011 52-2095412
Host Park Ridge LLC............... Delaware 7011 52-2095412
Host of Boston, Ltd. ............. Massachusetts 7011 59-0164700
Host of Houston, Ltd. ............ Texas 7011 52-1874034
Host of Houston 1979.............. Delaware 7011 95-3552476
Philadelphia Airport Hotel LLC.... Delaware 7011 52-2095412
HMC Hartford LLC.................. Delaware 7011 52-2095412
HMH Norfolk LLC................... Delaware 7011 52-2095412
HMH Norfolk, L.P.................. Delaware 7011 52-2039042
HMC Park Ridge LLC................ Delaware 7011 52-2095412
HMC Park Ridge II LLC............. Delaware 7011 52-2095412
HMC Park Ridge LP................. Delaware 7011 52-2095412
HMC Partnership Holdings LLC...... Delaware 7011 52-2095412
HMC Suites LLC.................... Delaware 7011 52-2095412
HMC Suites Limited Partnership.... Delaware 7011 52-1632307
Wellsford-Park Ridge Marriott
Hotel Limited Partnership........ Delaware 7011 52-6323494
City Center Interstate Partnership
LLC.............................. Delaware 7011 52-2095412
Farrell's Ice Cream Parlor
Restaurants LLC.................. Delaware 7011 52-2095412
HMC Burlingame LLC................ Delaware 7011 52-2095412
HMC California Leasing LLC........ Delaware 7011 52-2095412
HMC Capital LLC................... Delaware 7011 52-2095412
HMC Grand LLC..................... Delaware 7011 52-2095412
HMC Hotel Development LLC......... Delaware 7011 52-2095412
HMC Mexpark LLC................... Delaware 7011 52-2095412
HMC Polanco LLC................... Delaware 7011 52-2095412
HMC NGL LLC....................... Delaware 7011 52-2095412
HMC OLS I L.P..................... Delaware 7011 52-2095412
HMC RTZ Loan I LLC................ Delaware 7011 52-2095412
HMC RTZ II LLC.................... Delaware 7011 52-2095412
HMC Seattle LLC................... Delaware 7011 52-2095412
HMC Swiss Holdings LLC............ Delaware 7011 52-2095412
HMC Waterford LLC................. Delaware 7011 52-2095412
HMH Restaurants LLC............... Delaware 7011 52-2095412
HMH Rivers LLC.................... Delaware 7011 52-2095412
HMH WTC LLC....................... Delaware 7011 52-2095412
HMP Capital Ventures LLC.......... Delaware 7011 52-2095412
</TABLE>
<PAGE>
Table of Co-Registrants
<TABLE>
<CAPTION>
Primary
State of Standard
other Industrial IRS Employer
Jurisdiction Classification Identification
Name of Formation Code Number Number
---- ------------ -------------- --------------
<S> <C> <C> <C>
HMP Financial Services LLC......... Delaware 7011 52-2095412
Host La Jolla LLC.................. Delaware 7011 52-2095412
City Center Hotel Limited
Partnership....................... Minnesota 7011 41-1449758
MFR of Illinois LLC................ Delaware 7011 52-2095412
MFR of Vermont LLC................. Delaware 7011 52-2095412
MFR of Wisconsin LLC............... Delaware 7011 52-2095412
HMC Marquis LLC.................... Delaware 7011 52-2095412
PM Financial LLC................... Delaware 7011 52-2095412
PM Financial LP.................... Delaware 7011 52-2131022
HMC Chicago LLC.................... Delaware 7011 52-2095412
HMC HPP LLC........................ Delaware 7011 52-2095412
HMC Desert LLC..................... Delaware 7011 52-2095412
HMC Hanover LLC.................... Delaware 7011 52-2095412
HMC Diversified LLC................ Delaware 7011 52-2095412
HMC Properties I LLC............... Delaware 7011 52-2095412
HMC Potomac LLC.................... Delaware 7011 52-2095412
HMC East Side II LLC............... Delaware 7011 52-2095412
HMC Manhattan Beach LLC............ Delaware 7011 52-2095412
Chesapeake Hotel Limited
Partnership....................... Delaware 7011 52-1373476
HMH General Partner Holdings LLC... Delaware 7011 52-2095412
HMC IHP Holdings LLC............... Delaware 7011 52-2095412
HMC OP BN LLC...................... Delaware 7011 52-2095412
S.D. Hotels LLC.................... Delaware 7011 52-2095412
HMC Gateway LLC.................... Delaware 7011 52-2095412
HMC Pacific Gateway LLC............ Delaware 7011 52-2095412
HMC Desert Springs LLC............. Delaware 7011 52-2095412
MDSM Finance LLC................... Delaware 7011 52-2065959
Market Street Marriott LLC......... Delaware 7011 52-2095412
HMC Market Street LLC.............. Delaware 7011 52-2095412
New Market Street LP............... Delaware 7011 52-2131023
Times Square LLC................... Delaware 7011 52-2095412
Times Square GP LLC................ Delaware 7011 52-2095412
Saga Property Leasing LLC.......... Delaware 7011 52-2095412
Saga Restaurants LLC............... Delaware 7011 52-2095412
HMC Atlanta LLC.................... Delaware 7011 52-2095412
Ivy Street LLC..................... Delaware 7011 52-2095412
HMC Properties II LLC.............. Delaware 7011 52-2138453
Santa Clara HMC LLC................ Delaware 7011 52-2095412
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This prospectus is subject to completion and amendment. The information in +
+this prospectus is not complete and may be changed. We may not sell or offer +
+these securities until the registration statement filed with the Securities +
+and Exchange Commission is effective. This prospectus is not an offer to sell +
+these securities and we are not soliciting an offer to buy these securities +
+in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Offer to Exchange all Outstanding
8 3/8% Series D Senior Notes Due 2006
for
8 3/8% Series E Senior Notes Due 2006
of
HOST MARRIOTT, L.P.
We are offering to exchange all of our outstanding 8 3/8% Series D senior
notes for our 8 3/8% Series E notes. The terms of the Series E senior notes are
substantially identical to the terms of the Series D senior notes except that
the Series E senior notes are registered under the Securities Act of 1933, as
amended, and are therefore freely transferrable. The Series D senior notes were
issued on February 25, 1999 and, as of the date of this prospectus, an
aggregate principal amount of $300 million is outstanding.
Please consider the following:
. Our offer to exchange
the notes expires at
5:00 p.m., New York
City time, on ,
1999. However, we may
extend the offer.
. You should carefully
review the procedures
for tendering the
Series D senior notes
beginning on page 3 of
this prospectus. If
you do not follow
those procedures, we
may not exchange your
Series D senior notes
for Series E senior
notes.
. We will not receive
any proceeds from the
exchange offer.
. If you fail to tender
your Series D senior
notes, you will
continue to hold
unregistered
securities and your
ability to transfer
them could be
adversely affected.
. There is currently no
public market for the
Series E senior notes.
We do not intend to
list the Series E
senior notes on any
securities exchange.
Therefore, we do not
anticipate that an
active public market
for these notes will
develop.
Information about the Series E senior notes:
. The notes will mature on February 15, 2006.
. We will pay interest on the notes at the rate of 8 3/8% per year payable on
March 15 and September 15, commencing September 15, 1999.
. The notes are equal in right of payment to all of our unsubordinated
indebtedness and senior to all of our subordinated obligations.
. Subsidiaries of ours have guaranteed the notes. These subsidiaries comprise
all of our subsidiaries that also guarantee our credit facility and any other
indebtedness of ours.
. As security for the notes, we have pledged the common equity interests of
those of our subsidiaries whose interests are also pledged as security under
our bank credit facility and certain of our other indebtedness.
. We do not have the option to redeem the notes prior to maturity.
Please see "Risk Factors" beginning on page 7 of this prospectus for a
discussion of certain factors that you should consider before participating in
this exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 1999.
<PAGE>
SUMMARY
The following summary contains basic information about us and our offer to
exchange the Series E senior notes for the Series D senior notes. It does not
contain all the information that is important to you. For a more complete
understanding of this exchange offer, we encourage you to read this entire
document and the other documents to which we refer.
Host Marriott, L.P.
We are a limited partnership owning full service hotel properties as part of
an umbrella partnership real estate investment trust with Host Marriott
Corporation, a Maryland corporation which we will refer to as Host REIT, as our
sole general partner. We and our subsidiaries currently own 125 hotels,
representing approximately 58,000 rooms located throughout the Untied States
and Canada. Nearly all of these hotels are operated under the Marriott, Ritz-
Carlton, Four Seasons, Swissotel and Hyatt brand names, which are among the
most respected and widely recognized brand names in the lodging industry. As we
describe in greater detail in the sections of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business", our hotels are held by us and our subsidiaries and
are leased by us and our subsidiaries to lessees, principally subsidiaries of
Crestline Capital Corporation. The hotels are managed on behalf of the lessees
by subsidiaries of Marriott International, Inc. and other companies.
We were formed as a Delaware limited partnership in April 1998, as an
indirect wholly owned subsidiary of Host Marriott Corporation, a Delaware
corporation, which we will refer to as Host Marriott, in connection with its
efforts to reorganize its business operations to qualify as a real estate
investment trust, or REIT, for federal income tax purposes. As part of this
reorganization, which we refer as the REIT conversion, on December 28, 1998,
Host Marriott and various of its subsidiaries contributed to us substantially
all of their assets and we assumed substantially all of their liabilities. As a
result, we have succeeded to the hotel ownership business formerly conducted by
Host Marriott. As a part of the REIT conversion, Host Marriott was merged with
and into Host REIT. Host REIT intends to elect, effective January 1, 1999, to
be treated as a REIT for federal income tax purposes.
Our principal executive offices are located at 10400 Fernwood Road,
Bethesda, Maryland 20817-1109. Our telephone number is (301) 380-9000.
1
<PAGE>
The Exchange Offer
Securities to be
exchanged................... On February 25, 1999, we issued $300 million in
aggregate principal amount of Series D senior
notes in a transaction exempt from the
registration requirements of the Securities Act
of 1933. The terms of the Series E senior notes
and the Series D senior notes are substantially
identical in all material respects, except that
the Series E senior notes will be freely
transferable by the holders thereof except as
otherwise provided in this prospectus.
The exchange offer.......... $1,000 principal amount of Series E senior notes
in exchange for each $1,000 principal amount of
Series D senior notes. As of the date of this
prospectus, Series D senior notes representing
$300 million in aggregate principal amount are
outstanding.
We believe that, subject to the limitations noted
in this prospectus, Series E senior notes issued
pursuant to the exchange offer in exchange for
Series D senior notes may be offered for resale,
resold or otherwise transferred by holders
thereof without compliance with the registration
and prospectus delivery requirements of the
Securities Act of 1933. Our belief is based on
interpretations by the staff of the Securities
and Exchange Commission, as set forth in no-
action letters issued to certain third parties
unrelated to us. The exemption from the
Securities Act of 1933 requirements only applies
if Series E senior notes are acquired in the
ordinary course of the holders' business and the
holders have no arrangement with any person to
engage in a distribution of such registered
notes. Any holder who is our "affiliate" within
the meaning of Rule 405 promulgated under the
Securities Act of 1933, or a broker-dealer who
purchased Series D senior notes directly from us
to resell pursuant to Rule 144A under the
Securities Act of 1933 or any other available
exemption promulgated under the Securities Act of
1933, is not eligible for this exemption.
However, the Securities and Exchange Commission
has not considered our exchange offer in the
context of a no-action letter. We cannot be sure
that the staff of the Securities and Exchange
Commission would make a similar determination
with respect to our exchange offer as in those
other circumstances. Furthermore, unless you are
a broker-dealer, you must acknowledge that you
are not engaged in, and do not intend to engage
in, a distribution of Senior E senior notes and
you have no arrangement or understanding to
participate in a distribution of Series E senior
notes. If you are a broker-dealer that receives
Series E senior notes for your own account
pursuant to the exchange offer you must
acknowledge that you will comply with the
prospectus delivery requirements of the
Securities Act of 1933 in connection with any
resale of Series E senior notes. Broker-dealers
who acquired Series D senior notes directly from
us and not as a result of market-making
activities or other trading activities may not
rely on the
2
<PAGE>
staff's interpretations discussed above or
participate in our exchange offer and must comply
with the prospectus delivery requirements of the
Securities Act of 1933 in order to resell the
Series D senior notes.
Registration Rights
Agreement................... We sold the Series D senior notes on February 25,
1999 in a private placement in reliance on
Section 4(2) of the Securities Act of 1933. The
Series D senior notes were immediately resold by
their initial purchasers in reliance on Rule 144A
under the Securities Act of 1933. In connection
with the sale, we entered into a registration
rights agreement with the initial purchasers
requiring us to make the exchange offer. Under
the registration rights agreement we are required
to cause the registration statement of which the
prospectus forms a part to become effective on or
before the 160th day following the date on which
we issued the Series D senior notes and we are
obligated to consummate the exchange offer on or
before the 190th day following the issuance of
the Series D senior notes.
Expiration date............. Our exchange offer will expire at 5:00 p.m., New
York City time , 1999, or at a later date and
time to which we may extend it.
Withdrawal.................. You may withdraw a tender of Series D senior
notes pursuant to our exchange offer at any time
prior to 5:00 p.m., New York City time, on
, 1999, or such later date and
time to which we extend the offer. We will return
any Series D senior notes that we do not accept
for exchange for any reason as soon as
practicable after the expiration or termination
of our exchange offer.
Interest on the Series E
senior notes and Series D
senior notes................ Interest on the Series E senior notes will accrue
from the date of the original issuance of the
Series D senior notes or from the date of the
last payment of interest on the Series D senior
notes, whichever is later. We will not pay
interest on Series D senior notes tendered and
accepted for exchange.
Conditions to our exchange
offer....................... Our exchange offer is subject to customary
conditions which are discussed in the section of
this prospectus entitled "The Exchange Offer". As
described in that section, we have the right to
waive some of the conditions.
Procedures for tendering
Series D senior notes....... We will accept for exchange any and all Series D
senior notes which are properly tendered (and not
withdrawn) in the exchange offer prior to 5:00
p.m., New York City time, on , 1999. The
Series E senior notes issued pursuant to our
exchange offer will be delivered promptly
following the expiration date.
If you wish to accept our exchange offer, you
must complete, sign and date the letter of
transmittal, or a copy, in accordance with the
instructions contained in this prospectus and
therein, and mail or otherwise deliver the letter
of transmittal, or the copy, together
3
<PAGE>
with the unregistered notes and all other
required documentation, to the exchange agent at
the address set forth in this prospectus. If you
are a person holding Series D senior notes
through the Depository Trust Company, or "DTC",
and wish to accept our exchange offer, you must
do so pursuant to the DTC's Automated Tender
Offer Program, or "ATOP", by which you will agree
to be bound by the letter of transmittal. By
executing or agreeing to be bound by the letter
of transmittal, you will represent to us that,
among other things:
. the Series E senior notes that you acquire
pursuant to the exchange offer are being
obtained by you in the ordinary course of
your business, whether or not you are the
registered holder of the Series D senior
notes;
. you are not engaging in and do not intend to
engage in a distribution of Series E senior
notes;
. you do not have an arrangement or
understanding with any person to participate
in a distribution of Series E senior notes;
and
. you are not our "affiliate," as defined under
Rule 405 under the Securities Act of 1933.
Under the registration rights agreement we may be
required to file a "shelf" registration statement
for a continuous offering pursuant to Rule 415
under the Securities Act of 1933 in respect of
the Series D senior notes, if:
. we determine that we are not permitted to
effect the exchange offer as contemplated
by this prospectus because of any change in
law or Securities and Exchange Commission
policy; or
. we have commenced and not consummated the
exchange offer with 190 days following the
date on which we issued the Series D senior
notes for any reason.
Exchange agent.............. HSBC Bank USA is serving as exchange agent in
connection with the exchange offer.
Federal income tax
considerations.............. We believe the exchange of Series D senior notes
for Series E senior notes pursuant to our
exchange offer will not constitute a sale or an
exchange for federal income tax purposes.
4
<PAGE>
Effect of not tendering..... If you do not tender your Series D senior notes
or if you do tender them but they are not
accepted by us, your Series D senior notes will
continue to be subject to the existing
restrictions upon transfer. Except for our
obligation to file a shelf registration statement
under the circumstances described above, we will
have no further obligation to provide for the
registration under the Securities Act of 1933 of
Series D senior notes.
Ratio of Earnings to Fixed Charges
In the following table we present the ratio of
earnings to fixed charges on a historical basis
for the last five years and the first quarter of
1999 and 1998. As Host Marriott is our
predecessor, we consider the historical financial
information of Host Marriott for periods prior to
the REIT conversion to be our historical
financial information.
<TABLE>
<CAPTION>
First
Quarter Fiscal Year
---------- ---------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.6x 1.7x 1.5x 1.3x 1.0x -- --
Deficiency of earnings to fixed
charges(1)........................... -- -- -- -- -- 70 12
</TABLE>
- --------
(1) The ratio of earnings to fixed charges is computed by dividing income from
continuing operations before 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. The deficiency of earnings to fixed charges is largely the result
of depreciation and amortization of $122 million and $113 million in 1995
and 1994, respectively.
5
<PAGE>
The Series E Senior Notes
In the summary below we describe the principal terms of the Series E senior
notes. The terms and conditions described below are subject to important
limitations and exceptions. The "Description of Notes" section of this
prospectus beginning on page 98 contains a more detailed description of the
terms and conditions of the Series E senior notes.
Total amount of notes $300 million in principal amount of 8 3/8% Series
offered..................... E Senior Notes due 2006.
Maturity.................... February 15, 2006.
Issue Price................. 100% plus accrued interest from [February 25,
1999].
Interest.................... Annual rate: 8 3/8%. Payment frequency: Every six
months on March 15 and September 15. First
payment: September 15, 1999.
Ranking..................... These Series E senior notes are equal in right of
payment with all of the our unsubordinated
indebtedness and senior to all of our
subordinated obligations, including any Series D
senior notes that are not exchanged in the
exchange offer.
Optional Redemption......... We do not have the option to redeem the notes
prior to maturity.
Mandatory offer to
repurchase.................. If we sell certain assets or we undergo certain
kinds of changes of control, we must offer to
repurchase the Series E senior notes at the
prices listed in the section "Description of
Notes".
Basic covenants of
indenture................... The indenture governing the Series E senior notes
contains covenants limiting our, and most of our
subsidiaries, ability to:
. incur additional indebtedness;
. pay dividends on, redeem or repurchase our
equity interests;
. make investments;
. permit payment of dividends by, or dividend
restrictions on, particular subsidiaries of
ours;
. in the case of our restricted subsidiaries,
guarantee indebtedness;
. create particular liens; and
. sell particular assets or merge with or into
other companies. For more details you should read
the description in the section "Description of
Notes" under the heading "Certain Covenants".
Use of Proceeds............. We will not receive any cash proceeds from the
issuance of the registered notes.
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the other
information set forth in this prospectus before deciding to tender Series D
senior notes in the exchange offer.
Series D senior notes outstanding after the exchange offer will not have
registration rights.
If you do not exchange your Series D senior notes for Series E senior notes
pursuant to the exchange offer, your Series D senior notes will continue to be
subject to the restrictions on transfer of the Series D senior notes. In
general, you may not offer or sell Series D senior notes unless they are
registered under the Securities Act of 1933, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act of 1933 and applicable state securities laws. If you are a
broker-dealer that receives Series E senior notes for your own account in
exchange for Series D senior notes, where those Series D senior notes were
acquired by you as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of those Series E senior notes.
We have substantial leverage.
We have now, and after the exchange offer we will continue to have, a
significant amount of indebtedness. The following chart shows certain important
credit statistics:
<TABLE>
<CAPTION>
As of March 26, 1999
-----------------------
Historical Pro Forma(1)
---------- ------------
(in millions, except
ratios)
<S> <C> <C>
Total indebtedness, excluding convertible debt
obligations.......................................... $5,113 $5,256
Convertible debt obligations due to Host Marriott
Corporation.......................................... 567 567
Partners' capital..................................... 718 718
Redeemable limited partner interests at redemption
value................................................ 926 926
Debt to equity ratio, including redeemable limited
partner interests at redemption value................ 3.45x 3.54x
</TABLE>
- --------
(1) The debt increased by $124 million on a pro forma basis due to the
refinancing of the mortgage on the New York Marriott Marquis in April 1999.
Our substantial indebtedness could have important consequences. For example,
it could adversely affect our ability to:
. obtain financing in the future;
. undertake refinancings on terms and conditions acceptable to us;
. pursue our acquisition strategy; or
. compete effectively or operate successfully under adverse economic
conditions.
If our cash flow and working capital is not sufficient to fund our
expenditures or service our indebtedness, we would have to raise additional
funds through:
. the sale of equity;
. the refinancing of all or part of our indebtedness;
. the incurrence of additional permitted indebtedness; or
. the sale of assets.
We cannot assure you that any of these sources of funds would be available
in amounts sufficient for us to meet our obligations or fulfill our business
plans.
The notes effectively will be junior in right of payment to some other
liabilities.
Only those subsidiaries that have guaranteed payment of our indebtedness
other than the notes, including our credit facility, our Series A senior notes,
our Series B senior notes, our Series C senior notes and future
7
<PAGE>
indebtedness that is so guaranteed, have and are required to guarantee our
obligations under the notes. Although the indenture governing the terms of the
notes places limits on the overall level of indebtedness that non-guaranteeing
subsidiaries may incur, the notes effectively will be junior in right of
payment to liabilities of our subsidiaries which are not guarantors of the
notes, to the extent of the assets of such subsidiaries. Since only those
subsidiaries that guarantee the credit facility or our other indebtedness are
required to guarantee the notes, there can be no assurance as to the number of
subsidiaries that will be guarantors of the notes at any point in time or as to
the value of their assets or significance of their operations. In addition,
together with our subsidiaries, we have a significant amount of secured debt.
Therefore, the notes effectively will be junior in right of payment to our
secured debt and that or our subsidiaries to the extent of the value of the
assets securing such debt. The notes will not be secured by our assets or those
of our subsidiaries. The notes will be secured only by our directly and
indirectly held equity interests in those of our subsidiaries that have been
pledged in favor of our credit facility. In addition to the credit facility,
this collateral will be shared equally and ratably with holders of other
indebtedness, including but not limited to, our Series A senior notes, Series B
senior notes, Series C senior notes and certain of our other indebtedness
ranking pari passu with the notes.
The terms of our debt place restrictions on us and our subsidiaries, reducing
operational flexibility and creating default risks.
The documents governing the terms of our debt, including the documents
governing the terms of these notes, contain covenants that place restrictions
on us and our subsidiaries. The activities upon which such restrictions exist
include, but are not limited to:
. the incurrence of additional debt;
. the creation of liens;
. the sale of assets;
. transactions with affiliates; and
. certain mergers and consolidations.
Some sales of assets or changes of control could result in an obligation for
us to make an offer to purchase the notes. We cannot assure you that we would
have adequate resources to consummate such an offer to purchase. In addition,
covenants applying to debt other than the notes may require us and our
subsidiaries to meet financial performance tests. These covenants reduce our
flexibility in conducting our operations and create a risk of default under the
debt if we cannot satisfy the covenants.
The notes or a guarantee thereof may be deemed a fraudulent transfer.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee of the notes could be voided, or claims
on a guarantee of the notes could be subordinated to all other debts of that
guarantor if, among other things, the guarantor, at the time it incurred the
indebtedness evidenced by its guarantee:
1. received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
2. either:
a. was insolvent or rendered insolvent by reason of such incurrence;
b. was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
c. intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
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If such circumstances were found to exist, any payment by that guarantor
pursuant to its guarantee of the notes also could be voided and required to be
returned to the guarantor, or to a fund for the benefit of the creditors of the
guarantor.
In addition, our obligations under the notes may be subject to review under
the same laws in the event of our bankruptcy or other financial difficulty. In
that event, if a court were to find that when we issued the notes the factors
in clauses (1) and (2) above applied to us, or that the notes were issued with
actual intent to hinder, delay or defraud creditors, the court could avoid our
obligations under the notes, or direct the return of any amounts paid
thereunder to us or to a fund for the benefit of our creditors. However, we do
not believe that the issuance of the notes would be deemed a fraudulent
transfer because we do not believe that any of the applicable factors set forth
in clause (2) above would apply with respect to the issuance of the notes.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the partnership or a
guarantor would be considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that we and each of our guarantors, after giving
effect to its guarantee of the notes, will be solvent, will have a reasonable
amount of capital for the business in which we are or it is engaged and will
not have incurred debts beyond ours or its ability to pay such debts as they
mature. We can offer no assurance, however, as to what standard a court would
apply in making such determinations or that a court would agree with our
conclusions in this regard.
An active trading market may not develop for the notes.
The Series D senior notes are not listed on any securities exchange. Since
their issuance, there has been a limited trading market for the Series D senior
notes. To the extent that Series D senior notes are tendered and accepted in
the exchange offer, the trading market for untendered and tendered but
unaccepted Series D senior notes will be adversely affected. We cannot assure
you that this market will provide liquidity for you if you want to sell your
Series D senior notes.
We will not list the Series E senior notes on any securities exchange. These
notes are new securities for which there is currently no market. The Series E
senior notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities,
our performance and other factors. We have been advised by Donaldson, Lufkin &
Jenrette and BT Alex. Brown that they intend to make a market in the Series E
senior notes, as well as the Series D senior notes, as permitted by applicable
laws and regulations. However, they are not obligated to do so and their market
making activities may be discontinued at any time without notice. In addition,
their market making activities may be limited during our exchange offer.
Therefore, we cannot assure you that an active market for the Series E senior
notes will develop.
We do not control our hotel operations and are dependent on the managers and
lessees of our hotels.
Because federal income tax laws restrict real estate investment trusts and
"publicly traded" partnerships from deriving revenues directly from operating a
hotel, we operate virtually none of our hotels. Instead, we lease virtually all
of our hotels to subsidiaries of Crestline which, in turn, retain managers to
manage our hotels pursuant to management agreements. Thus, we are dependent on
the lessees but, under the hotel leases, we
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have little influence over how the lessees operate our hotels. Similarly, we
are dependent on the managers, principally Marriott International, but we have
very limited influence over how the managers manage our hotels. We have very
limited recourse if we believe that the hotel managers do not maximize the
revenues from our hotels, which in turn will maximize the rental payments we
receive under the leases. We may seek redress under most leases only if the
lessee violates the terms of the lease and then only to the extent of the
remedies set forth in the lease.
Each lessee's ability to pay rent accrued under its lease depends to a large
extent on the ability of the hotel manager to operate the hotel effectively and
to generate gross sales in excess of its operating expenses. Our rental income
from the hotels may therefore be adversely affected if the managers fail to
provide quality services and amenities and competitive room rates at our hotels
or fail to maintain the quality of the hotel brand names. Although the lessees
have primary liability under the management agreements while the leases are in
effect, we remain liable under the leases for all obligations that the lessees
do not perform. We may terminate a lease if the lessee defaults, but
terminating the lease could impair Host REIT's ability to qualify as a REIT for
federal income tax purposes and our ability to qualify as a partnership for
federal income tax purposes unless another suitable lessee is found. As
described below, Host REIT's inability to qualify as a REIT or our inability to
qualify as a partnership for federal income tax purposes would have a material
adverse effect on us.
We do not control certain assets held by non-controlled subsidiaries.
We own economic interests in certain taxable corporations, which we refer to
as the "non-controlled subsidiaries", that hold various assets which, under our
credit facility, may not exceed, in the aggregate, 15% of the value of our
assets. These assets consist primarily of interests in certain partnerships and
hotels which are not leased, and certain furniture, fixtures, furnishings and
equipment ("FF&E") used in our hotels. Ownership of these assets by Host REIT
or us could jeopardize the REIT status of Host REIT and/or our status as a
partnership for federal income tax purposes. Although we own approximately 95%
of the total economic interests of the non-controlled subsidiaries, the Host
Marriott Statutory Employee/Charitable Trust, the beneficiaries of which are
(1) a trust formed for the benefit of certain of our employees and (2) the J.
Willard Marriott Foundation, owns all of the voting common stock of the non-
controlled subsidiaries representing the remaining approximately 5% of the
total economic interests in such non-controlled subsidiaries. These voting
stockholders elect the directors who are responsible for overseeing the
operations of the non-controlled subsidiaries. The directors are currently
employees of ours, although this is not required. As a result, we have no
control over the operation or management of the hotels or other assets owned by
the non-controlled subsidiaries, even though we depend upon the non-controlled
subsidiaries for a significant portion of our revenues. Also, the activities of
non-controlled subsidiaries could cause Host REIT to be in default under its
principal debt facilities.
We are dependent on the ability of Crestline and the lessees to meet their rent
payment obligations.
The lessees' rent payments are the primary source of our revenues. Crestline
guarantees the obligations of its subsidiaries under the hotel leases, but
Crestline's liability is limited to a relatively small portion of the aggregate
rent obligation of its subsidiaries. Crestline's, and each of its
subsidiaries', ability to meet its obligations under the leases will determine
the amount of our revenue and, likewise, our ability to meet our obligations,
including payment of amounts due under the notes. We have no control over
Crestline or any of its subsidiaries and cannot assure you that Crestline or
any of its subsidiaries will have sufficient assets, income and access to
financing to enable them to satisfy their obligations under the leases or to
make payments of fees under the management agreements. Although the lessees
have primary liability under the management agreements while the leases are in
effect, we and our subsidiaries remain liable under the management agreements
for all obligations that the lessees do not perform. Because of our dependence
on Crestline, our credit rating will be affected by its creditworthiness.
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We are subject to conditions affecting the lodging industry.
Our revenues and the value of our properties are subject to conditions
affecting the lodging industry. These include:
. changes in the national, regional and local economic climate;
. local conditions such as an oversupply of, or a reduction in demand for,
hotel rooms;
. the attractiveness of our hotels to consumers and competition from
comparable hotels;
. the quality, philosophy and performance of the managers of our hotels;
. the ability of any lessee of our hotels to maximize rental payments;
. changes in room rates and increases in operating costs due to inflation
and other factors; and
. the need periodically to repair and renovate our hotels.
Adverse changes in these conditions could adversely affect our financial
performance.
Our expenses may remain constant even if our revenue drops.
The expenses of owning property are not necessarily reduced when
circumstances such as market factors and competition cause a reduction in
income from the property. If a property is mortgaged and we are unable to meet
the mortgage payments, the lender could foreclose and take the property. Our
financial condition and ability to service debt, could be adversely affected
by:
. interest rate levels;
. the availability of financing;
. the cost of compliance with government regulation, including zoning and
tax laws; and
. changes in governmental regulations, including those governing usage,
zoning and taxes.
We may be unable to sell hotel properties when appropriate.
Real estate investments generally cannot be sold quickly. We may not be able
to vary our portfolio promptly in response to economic or other conditions.
This inability to respond promptly to changes in the performance of our
investments could adversely affect our financial condition and ability to
service debt, including the notes. In addition, sales of appreciated real
property could generate material adverse tax consequences, which may make it
disadvantageous for us to sell hotels.
We depend on our key personnel.
We depend on the efforts of our executive officers and other key personnel.
While we believe that we could find replacements for these key personnel, the
loss of their services could have a significant adverse effect on our
operations. Neither Host REIT nor we intend to obtain key-man life insurance
with respect to any of our personnel.
Joint venture investments have additional risks.
Instead of purchasing hotel properties directly, we sometimes invest as a
co-venturer. Joint venturers often share control over the operation of the
joint venture assets. Actions by a co-venturer could subject such assets to
additional risk. Our co-venturer in an investment might have economic or
business interests or goals that are inconsistent with our interest or goals,
or be in a position to take action contrary to our instructions or requests or
contrary to our policies or objectives. Although we generally will seek to
maintain sufficient control of any joint venture to permit our objectives to be
achieved, we might not be able to take action without the approval of our joint
venture partners. Also, our joint venture partners could take actions binding
on the joint venture without our consent. Finally, a joint venture partner
could go bankrupt, leaving us liable for its share of joint venture
liabilities.
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Environmental problems are possible and can be costly.
We believe that our properties are in compliance in all material respects
with applicable environmental laws. Unidentified environmental liabilities
could arise, however, and could have a material adverse effect on our financial
condition and performance. Federal, state and local laws and regulations
relating to the protection of the environment may require a current or previous
owner or operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property. The owner or
operator may have to pay a governmental entity or third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. These laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants. Even if more than one
person may have been responsible for the contamination, each person covered by
the environmental laws may be held responsible for all of the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site
for damages and costs resulting from environmental contamination emanating from
that site. Environmental laws also govern the presence, maintenance and removal
of asbestos. These laws require that owners or operators of buildings
containing asbestos properly manage and maintain the asbestos, that they notify
and train those who may come into contact with asbestos and that they undertake
special precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. These laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
Compliance with other government regulations can also be costly.
Our hotels are subject to various forms of regulation, including Title III
of the Americans with Disabilities Act, building codes and regulations
pertaining to fire safety. Compliance with such laws and regulations could
require substantial capital expenditures. Such regulations may be changed from
time to time, or new regulations adopted, resulting in additional or unexpected
costs of compliance. Any such increased costs could reduce the cash available
for servicing of debt, including for payments of amounts due under the notes.
New acquisitions may fail to perform as expected or we may be unable to make
acquisitions on favorable terms.
We intend to acquire additional full service hotels and other types of real
estate. Newly acquired properties may fail to perform as expected, which could
adversely affect our financial condition. We may underestimate the costs
necessary to bring an acquired property up to standards established for its
intended market position. We expect to acquire hotels and other types of real
estate with cash from secured or unsecured financings and proceeds from
offerings of equity or debt, to the extent available. We may not be in a
position or have the opportunity in the future to make suitable property
acquisitions on favorable terms. Competition for attractive investment
opportunities may increase prices for hotel properties, thereby decreasing the
potential return on our investment. In addition, in order to maintain Host
REIT's status as a REIT we must lease virtually all of the properties we
acquire. We cannot guarantee that the leases for newly acquired hotels will be
as favorable to us as the existing leases.
The seasonality of the hotel industry may affect the ability of the lessees to
make timely rent payments.
The seasonality of the hotel industry may, from time to time, affect either
the amount of rent that accrues under the hotel leases or the ability of the
lessees to make timely rent payments under the leases. A lessee's inability to
make timely rent payments to us could adversely affect our financial condition
and ability to service debt.
We may be unable to renew leases or find other lessees.
Our current hotel leases have terms generally ranging from seven to ten
years. There can be no assurance that upon expiration of our leases, our hotels
will be relet to the current lessees, or if relet, will be relet on
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terms favorable to us. If our hotels are not relet, we will be required to find
other lessees who meet certain requirements of the management agreements and of
the federal income tax rules that govern REITs. We cannot assure you that we
would be able to find satisfactory lessees or that the terms of any new leases
would be favorable. Failure to find satisfactory lessees could cause Host REIT
to lose its REIT status, and us to be taxed as a "C" corporation if we are a
"publicly traded partnership", which would require us to pay substantial
federal income taxes, could require us to distribute more to Host REIT (and
therefore other equityholders) to enable Host REIT to meet its tax burden, and
could adversely affect our and Host REIT's ability to raise additional capital.
Failure to enter leases on satisfactory terms could also result in reduced cash
available for servicing debt, including the notes.
A significant number of our hotels are subject to ground leases.
As of March 26, 1999, we leased 54 of our hotels pursuant to ground leases.
These ground leases generally require increases in ground rent payments every
five years. Our ability to service debt, including the notes, could be
adversely affected to the extent that the rents payable from the lessees under
the applicable hotel leases do not increase at the same or a greater rate as
the increases under the ground leases. In addition, if we were to sell a hotel
encumbered by a ground lease, the buyer would have to assume the ground lease,
which could result in a lower sales price than for a comparable hotel without a
ground lease.
Some potential losses are not covered by insurance.
We carry comprehensive liability, fire, flood, extended coverage and rental
loss (for rental losses extending up to 12 months) insurance with respect to
all of our hotels. We believe the policy specifications and insured limits of
these policies are of the type customarily carried for similar hotels. Certain
types of losses, such as from earthquakes and environmental hazards, however,
may be either uninsurable or too expensive to justify insuring against. Should
an uninsured loss or a loss in excess of insured limits occur, we could lose
all or a portion of the capital we have invested in a hotel, as well as the
anticipated future revenue from the hotel. In such an event, we might
nevertheless remain obligated for any mortgage debt or other financial
obligations related to the property.
Leases and management agreements could impair the sale or other disposition of
our hotels.
Under each lease with a subsidiary of Crestline, we generally must make a
termination payment to the lessee if we terminate the lease prior to the
expiration of its term. We must make a termination payment even if we terminate
a lease because of a change in the federal income tax laws that either would
make continuation of the lease jeopardize the REIT status of Host REIT or would
enable us to operate our hotels ourselves. The termination fee generally is
equal to the fair market value of the lessee's leasehold interest in the
remaining term of the lease, which could be a significant amount. In addition,
if we decide to sell a hotel, we may be required to terminate its lease, and
the payment of the termination fee under such circumstances could impair our
ability to sell the hotel and would reduce the net proceeds of any sale.
Under the terms of the management agreements, we generally may not sell,
lease or otherwise transfer the hotels unless the transferee assumes the
related management agreements and meets certain other conditions. Our ability
to finance, refinance or effect a sale of any of the properties managed by
Marriott International or another manager may, depending upon the structure of
such transactions, require the manager's consent. If Marriott International or
another manager did not consent, we would be prohibited from consummating the
financing, refinancing or sale without breaching the management agreement.
The acquisition contracts relating to certain hotels limit our ability to sell
or refinance such hotels.
For reasons relating to federal income tax considerations of the former
owners of certain of our hotels, we have agreed to restrictions on selling
certain hotels or repaying or refinancing the mortgage debt thereon for lock-
out periods which vary depending on the hotel. We anticipate that, in certain
circumstances, we may agree
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to similar restrictions in connection with future hotel acquisitions. As a
result, even if it were in our best interests to sell such hotels or repay or
refinance their mortgage debt, it may be difficult or impossible to do so
during their respective lock-out periods.
Marriott International's and Crestline's operation of their respective
businesses could result in decisions not in our best interest.
Marriott International, a public company in the business of hotel
management, manages a significant number of our hotels. In addition, Marriott
International manages hotels owned by others that compete with our hotels. As a
result, Marriott International may make decisions regarding competing lodging
facilities which it manages that would not necessarily be in our best
interests. Further, J.W. Marriott, Jr., a member of Host REIT's Board of
Directors, and Richard E. Marriott, Host REIT's Chairman of the Board and J.W.
Marriott, Jr.'s brother, serve as directors, and, in the case of J.W. Marriott,
Jr., also an officer, of Marriott International. J.W. Marriott, Jr. and Richard
E. Marriott also beneficially owned approximately 10.9% and 10.6%,
respectively, as of January 31, 1999 of the outstanding shares of common stock
of Marriott International. In addition, J.W. Marriott, Jr. owns approximately
6.2%, as of April 22, 1999 of the outstanding shares of common stock of
Crestline, but he does not serve as an officer or director of Crestline. As a
result, J.W. Marriott, Jr. and/or Richard E. Marriott have potential conflicts
of interest as directors of Host REIT when making decisions regarding Marriott
International, including decisions relating to the management agreements
involving the hotels, Marriott International's management of competing lodging
properties and Crestline's leasing and other businesses.
The Boards of Directors of both Host REIT and Marriott International follow
appropriate policies and procedures to limit the involvement of Messrs. J.W.
Marriott, Jr. and Richard E. Marriott in conflict situations, including
requiring them to abstain from voting as directors of either Host REIT or
Marriott International or their subsidiaries on certain matters which present a
conflict between the companies. If appropriate, these policies and procedures
will apply to other directors and officers.
The year 2000 problem may adversely impact our business and financial
condition.
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications
could fail or create erroneous results. Our potential year 2000 problems
include issues relating to our in-house hardware and software computer systems,
as well as issues relating to third parties with which we have a material
relationship and upon whom we depend, such as Marriott International and
Crestline and their respective subsidiaries, or whose systems are material to
the operations of our hotels.
In-house systems. Since October of 1993, we have invested in the
implementation and maintenance of accounting and reporting systems and
equipment that are intended to enable us to provide adequately for our
information and reporting needs and which are also year 2000 compliant.
Substantially all of our in-house systems have already been certified as year
2000 compliant through testing and other mechanisms. We have not delayed any
systems projects due to the year 2000 issue. We have engaged a third party to
review our year 2000 in-house compliance and found no problems with any mission
critical systems.
Third-party systems. We rely upon operational and accounting systems
provided by third parties, primarily the managers and lessees of our hotels, to
provide the appropriate property-specific operating systems, including
reservation, phone, elevator, security, HVAC and other systems, and to provide
us with financial information. We will continue to monitor the efforts of these
third parties to become year 2000 compliant and will take appropriate steps to
address any non-compliance issues. We have started to receive written
assurances that these parties will be Year 2000 compliant on time.
Risks. Management believes that future costs associated with year 2000
issues for its in-house systems will be insignificant and therefore not impact
our business, financial condition and results of operations.
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However, the actual effect that year 2000 issues will have on our business will
depend significantly on whether other companies and governmental entities
properly and timely address year 2000 issues and whether broad-based or
systemic failures occur. We cannot predict the severity or duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or disruption of hotel reservations made on centralized
reservation systems and errors or failures in financial transactions or payment
processing systems such as credit cards.
Moreover, we are dependent upon Crestline to interface with third parties in
addressing year 2000 issues at our hotels leased to its subsidiaries. Due to
the general uncertainty inherent with respect to year 2000 issues and our
dependence on third parties, including Crestline, we are unable to determine at
this time whether the consequences of year 2000 failures will have a material
impact on us. Although our joint year 2000 compliance program with Crestline is
expected to significantly reduce uncertainties arising out of year 2000 issues
and the possibility of significant interruptions of normal operations, we
cannot assure you that this will be the case.
Our partnership agreement restricts our ability to accumulate cash which might
be used in future periods to make debt payments or fund growth.
Pursuant to the terms of our partnership agreement, we are generally
required to distribute to Host REIT each quarter cash in an amount sufficient
to enable it to pay shareholder dividends that will satisfy the requirements
for qualification as a REIT and avoid any federal income or excise tax
liability. In order to qualify as a REIT and avoid federal income tax
liability, Host REIT must distribute to its shareholders at least 95% of its
net taxable income, excluding net capital gain. To avoid excise tax liability,
Host REIT's distributions to shareholders for the year must exceed the sum of
85% of its ordinary income, 95% of its capital gain net income and any
undistributed taxable income from prior years. For any distributions that we
make to Host REIT, we also must make proportionate distributions to our other
equityholders.
In addition, our partnership agreement requires us to pay, or reimburse Host
REIT for, all of Host REIT's expenses relating to our organization and the
ownership of our assets and our operations, and to discharge all liabilities
that Host REIT may incur, including any tax liabilities (other than taxes that
Host REIT is required to pay if it fails to qualify as a REIT for federal
income tax purposes). As a result of these distributions, payments and
reimbursements to Host REIT, we do not expect to accumulate significant amounts
of cash. Accordingly, such distributions, payments and reimbursements could
significantly reduce the cash available to us in subsequent periods to make
payments on the notes and other debt obligations and to fund future growth.
Pursuant to our partnership agreement, Host REIT cannot require us to pay to
it, as a payment or reimbursement of expenses, amounts owed by it in respect of
taxes as a result of its failure to qualify as a REIT. However, Host REIT could
nevertheless require us to make a pro rata distribution to all of our partners
which would, in the case of Host REIT, be sufficient to pay such amounts owed
by it. Such a distribution would further reduce the cash available to us to
make payments on the notes and other debt obligations or fund growth.
We cannot guarantee that we will qualify as a partnership for federal income
tax purposes.
We intend to qualify as a partnership for federal income tax purposes.
However, we will be treated as a corporation, instead of a partnership, for
federal income tax purposes if we are a "publicly traded partnership" unless at
least 90% of our income is qualifying income as defined in the tax code. We
believe that we will meet this qualifying income test, but we cannot guarantee
that we will. If we were to be taxed as a corporation, we would incur
substantial tax liabilities, Host REIT would fail to qualify as a REIT for tax
purposes, we may be required to distribute adequate amounts to Host REIT to
permit it to pay its tax liabilities, and our and Host REIT's ability to raise
additional capital could be impaired.
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We cannot guarantee that Host REIT will qualify as a REIT.
Host REIT intends to operate to qualify as a REIT for tax purposes beginning
in 1999. If Host REIT qualifies as a REIT, it generally will not be taxed on
income that it distributes to its stockholders so long as it distributes
currently at least 95% of its net taxable income, excluding net capital gain.
We cannot guarantee, however, that Host REIT will qualify as a REIT in 1999 or
in any future year. In addition, it is possible that even if it does qualify as
a REIT, new tax rules will change the way Host REIT is taxed. If Host REIT
fails to qualify as a REIT, it will be subject to federal income tax at regular
corporate rates. In this event, Host REIT may cause us to distribute adequate
amounts to Host REIT and our other unitholders to permit Host REIT to pay its
tax liabilities and Host REIT's ability to raise additional capital for us
could be impaired. This would significantly reduce the cash we would have
available to service debt, including the notes. Furthermore, Host REIT's
failure to qualify as a REIT could create a default under some of our debt
instruments, including our bank credit facility. If it fails to qualify as a
REIT, then unless certain specific statutory provisions apply, Host REIT will
be disqualified from treatment as a REIT for the next four taxable years.
Host REIT will qualify as a REIT and, if we are a "publicly traded
partnership", we will qualify as a partnership, only if the rent from the
leases meets a number of tests, but we cannot guarantee that it will.
A REIT's income must meet certain tests relating to its source. Similarly,
if we are considered a "publicly traded partnership" we will be taxed as a
corporation unless our income meets certain tests relating to its source.
Income meeting these tests is called "good income" in this prospectus. Almost
all of our income, and therefore Host REIT's income, will be rent from the
hotel leases. This rent will be good income only if the leases are respected as
true leases for federal income tax purposes. If the leases are treated as
service contracts, joint ventures or some other type of arrangement, then this
rent will not be good income, Host REIT will fail to qualify as a REIT and, if
we were considered a "publicly traded partnership", we would not qualify as a
partnership.
In addition, the rent from any particular hotel lease will be good income
only if Host REIT owns less than 10% of the lessee of the hotel. For purposes
of this test, Host REIT is treated as owning both any interests that it holds
directly and the interests owned by a person who owns more than 10% of its
stock. In determining who owns more than 10% of Host REIT's stock, a person may
be treated as owning the stock of another person who is either a relative or
has common financial interests. Host REIT will not directly own more than 10%
of any of the lessees. In addition, Host REIT has an ownership limit in its
charter, which restricts the amount of its capital stock that any person can
own. If the ownership limit is effective, then no person will ever own more
than 10% of Host REIT's capital stock and Host REIT should never be deemed to
own more than 10% of the lessees. However, we cannot guarantee that the
ownership limit will be effective. If the ownership limit is not effective,
Host REIT's ownership in the lessees may exceed the 10% limit. As a result, the
rent from leases would not be good income and Host REIT would fail to qualify
as a REIT. Similar restrictions also apply to us and our partners who own a 5%
or greater interest in us. Our partnership agreement also contains ownership
restrictions intended to permit us to meet these requirements, but if those
restrictions were not effective, we might fail to qualify as a partnership for
tax purposes.
Furthermore, rent from any particular hotel lease will be good income only
if no portion of the rent is based on the income or profits of the lessee of
the hotel. The rent, however, can be based on the gross revenues of the
lessees, unless the arrangement does not conform to normal business practice or
is being used as a device to base rent on the income or profits of the lessees.
The rent from the current leases, other than the Harbor Beach Resort lease, is
based on the gross revenues of the lessees. We believe that the leases conform
to normal business practice and, other than the Harbor Beach Resort lease, are
not being used as a device to base rent on the income or profits of the
lessees. We cannot guarantee that the IRS will agree with our position. If rent
from leases in addition to the Harbor Beach Resort lease is found to be based
on the income or profits of the lessees, the rent would not be good income,
Host REIT could fail to qualify as a REIT and, if we are a "publicly traded
partnership", we could fail to qualify as a partnership.
16
<PAGE>
Host REIT will qualify as a REIT and, if we are a "publicly traded
partnership", we will qualify as a partnership only if the personal property
arrangements are respected.
Rent that is attributable to personal property is not good income under the
REIT rules or the rules applicable to "publicly traded partnerships". Hotels
contain significant personal property. Therefore, in order to protect Host
REIT's ability to qualify as a REIT and our ability to qualify as a
partnership, we sold approximately $59 million of personal property associated
with some of our hotels to our non-controlled subsidiaries and an additional
$15 million to an unaffiliated third party. In addition, we may have to sell
additional personal property to our non-controlled subsidiaries in 1999. The
non-controlled subsidiaries and such other party lease the personal property
associated with each hotel directly to the lessee that is leasing the hotel.
Under each personal property lease, the non-controlled subsidiary or such other
party receives rent payments directly from the applicable lessee. We believe
the amount of the rent represents the fair rental value of the personal
property. If for any reason these lease arrangements are not respected for
federal income tax purposes, Host REIT likely would not qualify as a REIT and,
if we are considered a "publicly traded partnership", we likely would not
qualify as a partnership.
We may need to borrow money or issue additional equity in order for Host REIT
to qualify as a REIT.
A REIT must distribute to its shareholders at least 95% of its net taxable
income, excluding any net capital gain. The source of the distributions Host
REIT makes to its stockholders will be money distributed to Host REIT by us.
Host REIT intends to meet this 95% requirement, but there are a number of
reasons why our cash flow alone may be insufficient for it to meet this
requirement. First, as a result of some of the transactions of certain
predecessor entities of Host REIT, us and our subsidiaries, Host REIT expects
to recognize large amounts of taxable income in future years for which we will
have no corresponding cash flow or EBITDA. This type of income is often
referred to as "phantom income". Second, in order to qualify as a REIT in 1999,
Host REIT needs to distribute to its stockholders, prior to the end of 1999,
all of the "earnings and profits" that accumulated prior to 1999. If it has not
met this requirement by virtue of the distributions declared in connection with
its conversion into a REIT, it will be required to make further distributions
prior to the end of 1999. We may not have cash flow that corresponds to these
distributions. Third, the seasonality of the hospitality industry could cause a
further mismatch of our income and cash flow.
In addition, even if a REIT meets the 95% requirement, it may still be
subject to a 4% nondeductible excise tax. This excise tax applies to the amount
by which certain of the REIT's distributions in a given calendar year are less
than the sum of 85% of its ordinary income, 95% of its capital gain net income
and any undistributed taxable income from prior years. Host REIT intends to
make distributions to its stockholders so that it will not be subject to this
excise tax, but for the reasons described above, our cash flow alone may be
insufficient for us to distribute to Host REIT the funds it will need.
Our partnership agreement requires us to distribute enough cash to Host REIT
for it to meet the 95% distribution requirement and avoid the 4% excise tax,
and we have to make proportionate distributions to our other equityholders. If
our cash flow alone is insufficient for us to distribute to Host REIT the money
it needs to meet the 95% distribution requirement or to avoid the 4% excise
tax, we may need to issue additional equity or borrow money. We cannot
guarantee that these sources of funds will be available to us on favorable
terms or even at all. Any problems we have in borrowing money could be
exacerbated by two factors. First, we will need to distribute most if not all
of our earnings to Host REIT and other holders of our partnership units.
Therefore, we will be unable to retain these earnings. Accordingly, we
generally will need to refinance our maturing debt with additional debt or
equity and rely on third-party sources to fund future capital needs. Second,
our borrowing needs will be increased if Host REIT is required to pay taxes or
liabilities attributable to prior years. If we are unable to raise the money
necessary to permit Host REIT to meet the 95% distribution requirement, Host
REIT will fail to qualify as a REIT. If we are able to raise the money, but
only on unfavorable terms, then our financial performance may be damaged.
17
<PAGE>
Host REIT is required to distribute all of its prior earnings and profits, but
we cannot guarantee that it will be able to do so.
In order to qualify as a REIT for 1999, Host REIT is required to distribute
to its stockholders, prior to the end of 1999, all of the earnings and profits
that it accumulated prior to 1999. Host REIT believes that it will meet this
requirement. However, it is very hard to determine the exact level of pre-1999
earnings and profits because the determination depends on an extremely large
number of factors. The complexity of the determination is compounded by the
fact that Host REIT's predecessors started accumulating earnings and profits in
1929. Also, it is difficult to value distributions which have not been made in
cash, such as the distribution of Crestline common stock Host REIT made in
December 1998. Therefore, we cannot guarantee that Host REIT will meet this
requirement. If it does not meet this requirement, then Host REIT will not
qualify as a REIT, at least for 1999.
Host REIT will be subject to taxes even if Host REIT qualifies as a REIT.
Even if Host REIT qualifies as a REIT, it will be subject to some federal,
state and local taxes on its income and property. For example, it will have to
pay tax on income that it does not distribute. It also will be liable for any
tax that the IRS successfully asserts against its predecessors for corporate
income taxes for years prior to 1999. Furthermore, it may derive income from
the non-controlled subsidiaries and they will be subject to regular corporate
taxes. So long as Host REIT qualifies as a REIT, we will be obligated to
distribute sufficient amounts to Host REIT to enable it to pay all of these
taxes.
In addition, Host REIT and its subsidiaries contributed a large number of
assets to us with a value that was substantially greater than their tax basis
in the assets. We refer to these assets as assets with "built-in gain". Host
REIT will be subject to tax on the built-in gain if we sell these assets prior
to the end of 2008. Host REIT does not have any accrued deferred taxes on these
assets because their disposition is not probable at this time. Host REIT has
deferred tax liabilities as of March 26, 1999, of approximately $97 million,
that it will recognize as taxable income, without the receipt by them of any
corresponding cash. Even if we do not sell the built-in gain assets prior to
the end of 2008, there are a number of other transactions that could cause Host
REIT to be subject to the tax on the built-in gain. In connection with this
gain, neither we nor Host REIT will receive any corresponding cash.
Proposed legislation, if enacted, could require us to restructure our ownership
of the non-controlled subsidiaries.
The Clinton administration's fiscal year 2000 budget proposal, announced
February 1, 1999, includes a proposal that would limit a REIT's ability to own
more than 10%, by vote or value, of the stock of another corporation.
Currently, a REIT cannot own more than 10% of the outstanding voting securities
of any one issuer. A REIT can, however, own more than 10% of the value of the
stock of a corporation provided no more than 25% of the value of the REIT's
assets consist of subsidiaries that conduct impermissible activities and that
the stock of any one single corporation does not account for more than 5% of
the total value of the REIT's assets. The budget proposal would allow a REIT to
own all of the voting stock and value of a "taxable REIT subsidiary" provided
all of a REIT's taxable subsidiaries do not represent more that 15% of the
REIT's total assets. In addition, under the budget proposal, a "taxable REIT
subsidiary" would not be entitled to deduct any interest on debt funded
directly or indirectly by the REIT. The budget proposal, if enacted in its
current form, may require that we restructure our ownership of the "non-
controlled subsidiaries" because we currently own more than 10% of the value of
the "non-controlled subsidiaries". The budget proposal, if enacted in its
current form, would be effective after the date of its enactment and would
provide transition rules to allow corporations, like our non-controlled
subsidiaries, to convert into "taxable REIT subsidiaries" tax-free.
A similar proposal has been introduced in both the House of Representatives
and the Senate under the title of Real Estate Investment Trust Modernization
Act of 1999 (the "RMA"). As with the Clinton budget proposal, this proposed
bill would prohibit the ownership by a REIT of more than 10%, by vote or value,
of the stock of another corporation, but would likewise permit a REIT to own
all of the voting stock and value of a
18
<PAGE>
taxable REIT subsidiary. However, the provisions of the RMA are less
restrictive than the Clinton budget proposal in many respects. For example,
instead of limiting the value of a REIT's taxable subsidiaries to 15% of the
REIT's total assets, under the RMA, a REIT's ownership of taxable subsidiaries
would be limited only by the 75% asset test applicable to REITs. Additionally,
unlike the Clinton proposal, the RMA permits the deduction by a taxable REIT
subsidiary of interest on debt funded directly or indirectly by the REIT,
subject only to rules regarding the subsidiary's debt to equity ratio and the
amount of such interest expense relative to the subsidiary's taxable income.
The RMA also proposes certain changes to the REIT provisions of the Internal
Revenue Code of 1986, as amended, which are not discussed in the Clinton
proposal. Most notably from our perspective, the RMA would permit a REIT that
owns a hotel to lease that hotel to a taxable subsidiary and treat the income
from that lease as "good income" as long as the hotel is operated by an
independent third party pursuant to a contract with the taxable subsidiary. The
RMA also would prohibit taxable subsidiaries from managing or operating hotels,
regardless of whether they were owned by the REIT or by unrelated third
parties. In addition, the RMA would reduce the REIT distribution requirements
from 95% to 90% of a REIT's net taxable income. As with the Clinton proposal,
the RMA provides transitional rules which would allow a REIT to convert its
"non-controlled subsidiaries" into "taxable REIT subsidiaries" tax-free.
It is presently uncertain whether any proposal regarding REIT subsidiaries,
including the budget proposal, will be enacted, or if enacted, what the terms
of such proposal (including its effective date) will be. The hotel-related
provisions of the RMA would be expected to have a significant impact on the
manner in which we operate our business. However, we have not yet made any
specific decisions regarding what changes we would need to make if these
provisions were to be enacted.
19
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us and our subsidiaries, including, among
other things, factors discussed under the heading "Risk Factors" in this
prospectus and in our filings with the Securities and Exchange Commission (the
"SEC" or the "Commission") and the following:
. economic outlook;
. capital expenditures;
. cost reduction;
. cash flow;
. operating performance;
. financing activities;
. tax status of the partnership and Host REIT; or
. related industry developments, including trends affecting our business,
financial condition and results of operations.
We intend to identify forward-looking statements in this offering memorandum
by using words or phrases such as "anticipate", "believe", "estimate",
"expect", "intend", "may be", "objective", "plan", "predict", "project" and
"will be" and similar words or phrases, or the negative thereof.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the following:
. national and local economic and business conditions that will affect,
among other things, demand for products and services at our hotels and
other properties, the level of rates and occupancy that can be achieved
by such properties and the availability and terms of financing;
. our ability to maintain the properties in a first-class manner,
including meeting capital expenditure requirements;
. our ability to compete effectively in areas such as access, location,
quality or accommodations and room rate structures;
. our ability to acquire or develop additional properties and the risk
that potential acquisitions or developments may not perform in
accordance with expectations;
. changes in travel patterns, taxes and government regulations which
influence or determine wages, prices, construction procedures and costs;
. government approvals, actions and initiatives including the need for
compliance with environmental and safety requirements, and change in
laws and regulations or the interpretation thereof;
. the effects of tax legislative action, including enactment of the RMA;
. the effect on us and our operations of the year 2000 issue; and
. other factors discussed under "Risk Factors".
Although we believe the expectations reflected in our forward-looking
statements are based upon reasonable assumptions, we can give no assurance that
we will attain these expectations or that any deviations will not be material.
Except as otherwise required by the federal securities laws, we disclaim any
obligation or undertaking to disseminate to you any updates or revisions to any
forward-looking statement contained in this offering memorandum to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
20
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the Series E
senior notes for the Series D senior notes pursuant to the exchange offer. In
consideration for issuing the Series E senior notes as contemplated in this
prospectus, we will receive in exchange Series D senior notes in like principal
amounts, which will be cancelled. Accordingly, there will not be any increase
in our outstanding indebtedness.
CAPITALIZATION
In the following table we set forth our capitalization as of March 26, 1999.
We also set forth our capitalization on a pro forma basis to give effect to the
exchange offer and one other transaction. Our capitalization should be read in
conjunction with (1) our consolidated financial statements and notes contained
in this prospectus and (2) the sections of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the unaudited "Pro Forma Financial Information of Host
Marriott, L. P.".
<TABLE>
<CAPTION>
As of March 26, 1999
-----------------------------
Actual Pro Forma
------------ -------------
(unaudited, in millions)
<S> <C> <C>
Cash, cash equivalents and short-term
marketable securities.................... $ 284 $ 415
============ ============
Debt:
Senior notes
7 7/8% Series A Senior Notes due 2005... $ 500 500
7 7/8% Series B Senior Notes due 2008... 1,192(1) 1,192(1)
8.45%Series C Senior Notes due 2008..... 498(2) 498(2)
8 3/8% Series D Senior Notes due 2006... 300 --
8 3/8% Series E Senior Notes due 2006... -- 300(3)
Other senior notes....................... 55 55
Mortgage debt............................ 2,111 2,254(5)
Bank credit facility..................... 350(4) 350(4)
Other debt............................... 107 107
Convertible debt obligation to Host
REIT.................................... 567 567
------------ ------------
Total debt ............................. 5,680 5,823
Limited partner interests of third parties
at redemption value...................... 718 718
Partnership interests of Host REIT........ 926 926
------------ ------------
Total capitalization.................. $ 7,324 $ 7,467
============ ============
</TABLE>
- --------
(1) Amount is net of an $8 million discount.
(2) Amount is net of a $2 million discount.
(3) Assumes 100% participation in exchange offer.
(4) Represents draws under our bank credit facility through March 26, 1999. An
additional $900 million is available under the revolving portion of the
bank credit facility subject to the terms and conditions thereof.
(5) The debt increased by $143 million on a pro forma basis due to the
refinancing of the mortgages on eight full service properties pursuant to a
proposed commitment letter signed in May 1999.
21
<PAGE>
PRO FORMA FINANCIAL INFORMATION
We were formed to facilitate the restructuring of Host Marriott and to
enable it to qualify for treatment as a REIT under the applicable Federal
income tax regulations. In connection with the REIT conversion, substantially
all of Host Marriott's and its subsidiaries assets and liabilities were
contributed to us and our subsidiaries. Host Marriott is our predecessor for
purposes of financial presentation. Accordingly, the pro forma financial
information set forth below is based on Host Marriott's audited consolidated
financial statements for the fiscal year ended December 31, 1998 and our
unaudited financial statements for the twelve weeks ended March 26, 1999.
Our pro forma financial information reflects various transactions effected
as part of, or contemporaneously with, the REIT conversion, including (1) the
distribution of Crestline common stock to the shareholders of Host Marriott,
(2) acquisitions and dispositions consummated by Host Marriott, its
subsidiaries or us and (3) financing transactions and other transactions
relating to the REIT conversion.
Our unaudited pro forma financial statements reflect the transactions
described below for the fiscal year ended December 31, 1998 and the twelve
weeks ended March 26, 1999 as if those transactions had been completed at the
beginning of the periods presented. Our unaudited pro forma statements of
operations which we present below include only income from continuing
operations and therefore they exclude the operations of the discontinued senior
living business which were included as part of the Crestline distribution.
The following pro forma adjustments reflect significant acquisitions,
dispositions and other activities that are not related to the REIT conversion.
1999 Transactions
. Exchange of Series D senior notes for Series E senior notes
. February issuance of 1999 Series D senior notes
. May 1999 refinancing of the mortgages for eight full service hotels
. 1999 disposition of one full service hotel
. Reclassification of the dividends on the convertible preferred
securities as interest expense on the related subordinated debentures
1998 Transactions
. December 1998 acquisition of properties and other assets from affiliates
of The Blackstone Group
. December 1998 issuance of Series C senior notes
. August 1998 issuance of Series A senior notes and Series B senior notes
and retirement of previously outstanding senior notes
. 1998 acquisition of, or purchase of controlling interests in, eleven
full service hotels
. 1998 purchase of minority interests in two full service hotels
. 1998 disposition of two full service hotels
All of the above transactions except for the exchange of senior notes and
the May 1999 refinance of the mortgages on eight full service hotels are
already reflected in our consolidated balance sheet as of March 26, 1999 and,
therefore, no pro forma adjustments for these transactions were necessary on
the unaudited pro forma balance sheet.
The following pro forma adjustments include transactions comprising a
portion of the REIT conversion, all of which are reflected in the historical
balance sheet as of March 26, 1999:
. 1998 contribution of assets and liabilities to the non-controlled
subsidiaries, including the sale of certain FF&E to the non-controlled
subsidiaries
22
<PAGE>
. 1998 acquisitions of publicly-traded partnerships in exchange for our
limited partner units, or "OP Units"
. 1998 acquisition of minority interests in four private partnerships in
exchange for OP Units
. 1998 lease of substantially all of our hotel properties to Crestline and
conversion of revenues and certain operating expenses to rental income
. 1998 adjustment to remove deferred taxes and the impact on the tax
provision resulting from the change in tax status related to the REIT
conversion
. 1999 special dividend to Host Marriott shareholders of either .087
shares of Host REIT stock or $1.00 in cash per share of common stock, at
the election of each shareholder ("Special Dividend")
. 1998 sale of an investment in a subsidiary to Crestline
Our unaudited pro forma financial statements do not purport to represent
what our results of operations of would actually have been if these
transactions had in fact occurred on such date or at the beginning of such
period, or to project the results of operations for any future period.
Our unaudited pro forma financial statements are based upon available
information and upon assumptions, as set forth in the notes to the unaudited
pro forma financial statements, that we believe are reasonable under the
circumstances. The unaudited pro forma financial statements and accompanying
notes should be read in conjunction with our consolidated financial statements
included in this prospectus.
23
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
March 26, 1999
(in millions, except OP Unit amounts)
<TABLE>
<CAPTION>
Q A
Host Mortgage
Marriott, L.P. Debt Debt Pro
Historical Refinancing Exchange Forma
-------------- ----------- -------- ------
<S> <C> <C> <C> <C>
Assets
Property and equipment, net........ $ 7,173 $-- $ -- $7,173
Notes and other receivables, net... 201 -- -- 201
Rent receivable.................... 78 -- -- 78
Investments in affiliates.......... 44 -- -- 44
Other assets....................... 391 12 -- 403
Cash, cash equivalents ............ 284 131 -- 415
------- ---- ----- ------
$ 8,171 $143 $ -- $8,314
======= ==== ===== ======
Liabilities and Equity
Debt............................... $ 5,680 $143 $ 300 $5,823
(300)
Accounts payable and accrued
expenses.......................... 161 -- -- 161
Deferred income taxes.............. 97 -- -- 97
Other liabilities.................. 439 -- -- 439
------- ---- ----- ------
Total liabilities.................. 6,377 143 -- 6,520
Minority interests................. 150 -- -- 150
Limited partner interests of third
parties at redemption value (on a
historical and pro forma basis
64.5 million OP Units outstanding
or currently issuable)(B)......... 718 -- -- 718
Equity
General partner (on a historical
and pro forma basis
.2 million OP Units
outstanding)(B) 1 -- -- 1
Limited partner interests of
Host REIT (on a historical and
pro forma basis 227.4 million OP
Units outstanding)(B)............ 930 -- -- 930
Accumulated other comprehensive
loss............................. (5) -- -- (5)
------- ---- ----- ------
$ 8,171 $143 $ -- $8,314
======= ==== ===== ======
</TABLE>
See Notes to the Unaudited Pro Forma Financial Statements.
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Fiscal Year 1998
(in millions, except per OP Unit amounts)
<TABLE>
<CAPTION>
C D E F G/Q H J K
Host Debt
Marriott, 1998 Issuance, Non- Public Private
L.P. Subordinated Blackstone Acquisi- Repayment & Controlled Partnership Partner-
Historical Debentures Acquisition tions Dispositions Refinancing Subsidiary Mergers ships
---------- ------------ ----------- -------- ------------ ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rental
revenues....... $ -- $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Hotel sales..... 3,442 -- 459 116 (36) -- (73) 223 --
Net gains
(losses) on
property
transactions... 57 -- -- -- (53) -- -- -- --
Interest
income......... 51 -- (13) (16) (2) -- 4 1 --
Other revenues.. 14 -- -- -- -- -- (3) -- --
------ ---- ----- ----- ----- ----- ----- ----- -----
Total revenues.. 3,564 -- 446 100 (91) -- (72) 224 --
------ ---- ----- ----- ----- ----- ----- ----- -----
Expenses
Hotels.......... (2,824) -- (382) (98) 30 -- 55 (194) (2)
Minority
interest....... (52) -- -- (1) 1 -- 4 26 1
Corporate
expenses....... (50) -- -- -- (1) -- 1 -- --
REIT conversion
expenses....... (64) -- -- -- -- -- -- -- --
Interest
expense........ (335) (38) (39) (1) 1 (51) 7 (29) --
Dividends on
convertible
preferred
securities..... (37) 37 -- -- -- -- -- -- --
Other........... (28) -- -- -- -- -- 2 -- --
------ ---- ----- ----- ----- ----- ----- ----- -----
Income (loss)
before income
taxes.......... 174 (1) 25 -- (60) (51) (3) 27 (1)
Benefit
(provision) for
income taxes... 20 -- (10) -- 24 21 3 (11) --
------ ---- ----- ----- ----- ----- ----- ----- -----
Income (loss)
from continuing
operations..... $ 194 $ (1) $ 15 $ -- $ (36) $ (30) $ -- $ 16 $ (1)
====== ==== ===== ===== ===== ===== ===== ===== =====
Basic earnings
per OP Unit
from continuing
operations..... $ 0.90
======
<CAPTION>
L N/P I/M O
Earnings Other Lease Income
& Profits REIT Conver- Tax Pro
Distribution Activities sion Adjustment Forma
------------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
REVENUE
Rental
revenues....... $ -- $ -- $ 1,264 $ -- $1,264
Hotel sales..... -- -- (4,131) -- --
Net gains
(losses) on
property
transactions... -- -- -- -- 4
Interest
income......... (4) -- 6 -- 27
Other revenues.. -- -- -- -- 11
------------ ---------- -------- ---------- -------
Total revenues.. (4) -- (2,861) -- 1,306
------------ ---------- -------- ---------- -------
Expenses
Hotels.......... -- -- 2,816 -- (599)
Minority
interest....... -- (2) -- -- (23)
Corporate
expenses....... -- -- -- -- (50)
REIT conversion
expenses....... -- 64 -- -- --
Interest
expense........ -- -- -- -- (485)
Dividends on
convertible
preferred
securities..... -- -- -- -- --
Other........... -- -- -- -- (26)
------------ ---------- -------- ---------- -------
Income (loss)
before income
taxes.......... (4) 62 (45) -- 123
Benefit
(provision) for
income taxes... 1 (25) 18 (47) (6)
------------ ---------- -------- ---------- -------
Income (loss)
from continuing
operations..... $ (3) $ 37 $ (27) $ (47) $ 117
============ ========== ======== ========== =======
Basic earnings
per OP Unit
from continuing
operations..... $ 0.40
=======
</TABLE>
See Notes to the Unaudited Pro Forma Financial Statements.
25
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the twelve weeks ended March 26, 1999
(in millions, except per OP Unit amounts)
<TABLE>
<CAPTION>
Q F
Host Marriott, Mortgage
L.P. Debt 1999 Pro
Historical Refinance Disposition Forma
-------------- --------- ----------- -----
<S> <C> <C> <C> <C>
REVENUE
Rental revenues................... $ 286 $-- $-- $ 286
Net gains on property
transactions..................... 12 -- (11) 1
Interest income................... 8 -- -- 8
Other revenues.................... 1 -- -- 1
----- ---- ---- -----
Total revenues.................... 307 -- (11) 296
----- ---- ---- -----
EXPENSES
Hotels............................ (124) -- -- (124)
Minority interest................. (5) -- -- (5)
Corporate expenses................ (8) -- -- (8)
Interest expense.................. (108) (2) -- (110)
Other............................. (4) -- -- (4)
----- ---- ---- -----
Income (loss) before income
taxes............................ 58 (2) (11) 45
Benefit for income taxes.......... -- -- -- --
----- ---- ---- -----
Net income (loss)................. $ 58 $ (2) (11) $ 45
===== ==== ==== =====
Basic earnings per OP Unit........ $0.20 $0.15
===== =====
</TABLE>
See Notes to the Unaudited Pro Forma Financial Statements.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
A. Represents the adjustment to record the exchange of $300 million of
Series D senior notes for Series E senior notes.
B. The number of OP Units includes the following (in millions):
<TABLE>
<S> <C>
Limited Partner interests of Host Marriott........................... 227.4
General Partner interests of Host Marriott........................... 0.2
Limited Partner interests of former partners of publicly-traded
partnerships........................................................ 13.7
Limited Partner interests of former partners of private
partnerships........................................................ 3.1
Limited Partner interests of Blackstone entities..................... 47.7
-----
Total OP Units..................................................... 292.1
=====
</TABLE>
C. Represents the adjustment to eliminate the dividends on the convertible
preferred securities of Host Marriott and record interest expense on the
related subordinated debentures.
D. Represents the adjustment to record the historical revenues, operating
expenses, interest expense, income taxes and to reduce interest income
associated with the Blackstone acquisition.
E. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income associated with the 1998 acquisition of, or purchase of
controlling interests in 11 full-service hotels.
F. Represents the adjustment to historical revenues, operating expenses,
minority interest, interest expense, income taxes and to reduce interest income
for the 1998 sale of the New York Marriott East Side and the Napa Valley
Marriott, and the 1999 sale of the Minneapolis/Bloomington Airport Marriott,
including the elimination of the non-recurring gains on the sales totalling $50
million and related taxes of $20 million in fiscal year 1998 and the $11
million gain in the first quarter of 1999.
G. Represents the adjustment to record interest expense and related
amortization of deferred financing fees, reduce interest income, and to record
income taxes as a result of the Series A senior notes, Series B senior notes,
the Series C senior notes, the Series D senior notes and the repayment or
refinancing of the various mortgages, the old Host Marriott credit facility and
outstanding senior notes. The adjustment excludes the extraordinary loss of
$148 million, net of taxes, related to the outstanding senior notes which were
repurchased resulting from the write-off of deferred financing fees and the
payment of bond tender and consent fees. The change in interest expense related
to the Series D senior notes and the associated repayment or refinancing of
various mortgages was not material in the first quarter of 1999.
The following table represents the interest expense, including amortization
of deferred financing fees for the period:
<TABLE>
<CAPTION>
Fiscal Year
1998
-----------
<S> <C>
Series A and Series B senior notes................................ $(75)
Credit facility................................................... (17)
Series C senior notes............................................. (34)
Series D senior notes (and subsequent to exchange Series E senior
notes)........................................................... (26)
Old senior notes.................................................. 72
Old credit facility............................................... 2
Debt repaid, refinanced or acquired with proceeds of Series C
senior notes..................................................... 17
Debt repaid, refinanced, or acquired with proceeds of Series D
senior notes..................................................... 24
----
$(37)
====
</TABLE>
27
<PAGE>
H. Represents the adjustment for revenues, operating expenses, minority
interest, interest expense, corporate expenses, income taxes and interest
income contributed to the non-controlled subsidiaries and to reflect our share
of income as equity in earnings of affiliates.
I. Represents the adjustment to reduce depreciation expense of $8 million
for fiscal year 1998 related to certain furniture and equipment sold to the
non-controlled subsidiaries, record interest income of approximately $1 million
for fiscal year 1998 earned on the 8.75%, $15 million in notes from the non-
controlled subsidiaries and reduce the lease payment to us from the lessee.
J. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, interest income and income taxes
associated with the publicly-traded partnership mergers, including three
partnerships not previously consolidated.
K. Represents the adjustment to record additional depreciation expense and
the decrease in minority interest expense related to the purchase of the
remaining minority interests in the private partnerships.
L. Represents the adjustment to reduce interest income and income taxes for
the $69 million cash payment of the Special Dividend to shareholders of Host
Marriott.
M. Represents the adjustment to remove hotel revenues of $4,131 million and
management fees and other expenses of $2,816 million for fiscal year 1998, and
to record rental revenues associated with the leasing of substantially all of
our hotel properties to Crestline and other lessees and interest income of $5
million for fiscal year 1998 earned on the 5.12%, $95 million in notes from
Crestline. Rental revenues under the leases are based on the greater of
percentage rent or minimum rent. Total rent in the pro forma statements of
operations is calculated based on the historical gross sales of the property
and the negotiated rental rates and thresholds by property as if the leases
were entered into on the first day of fiscal year 1998. There are generally
three sales categories utilized in the rent calculation: rooms, food and
beverage and other. For rooms and food and beverage, there generally are three
tiers of rent with two thresholds, while the other category generally has one
tier of rent with no threshold. The percentage rent thresholds are increased
annually on the first day of each year after the initial lease year based on a
blended increase of the consumer price index ("CPI") and a wage and benefit
index.
N. Represents the adjustment to record minority interest expense related to
amendments to partnership agreements adjusted in connection with the REIT
conversion.
O. Represents the adjustment to the income tax provision to reflect the REIT
conversion including the elimination of the $106 million tax benefit recorded
in connection with the REIT conversion.
P. Represents the adjustment to eliminate non-recurring expenses incurred in
connection with the REIT conversion.
Q. Adjustment to record the May 1999 proposed refinancing of mortgages for
the eight hotel properties of approximately $610 million due 2008 at an
interest rate equal to the 10 year U.S. Treasury securities plus 100-200 basis
points. The proposed refinancing will increase outstanding debt by $143 million
and cash by $131 million will result in a reduction in interest expense,
including amortization of deferred financing, of approximately $3 million in
1998 and an increase of $2 million in the first quarter of 1999. The company
has a signed commitment letter to complete the proposed financing which is
subject to various conditions, including the results of due diligence on the
eight underlying properties which will act as collateral for the proposed
transaction.
28
<PAGE>
SELECTED FINANCIAL DATA
In the following table we present selected historical financial data of Host
Marriott, L.P. and Host Marriott. This information has been derived from Host
Marriott's and our audited consolidated financial statements for the five most
recent fiscal years ended December 31, 1998 and the unaudited financial
statements for the twelve weeks ended March 26, 1999 and March 27, 1998. As
Host Marriott is our predecessor, we consider the historical financial
information of Host Marriott for periods prior to the REIT conversion to be our
historical financial information. The earnings per share information included
below is based on the outstanding common stock of Host Marriott for all periods
prior to 1999. The 1998 and 1997 financial information reflects the
discontinued operations related to the spin-off of our senior living business
in conjunction with the REIT conversion.
<TABLE>
<CAPTION>
First Quarter Fiscal Year
-------------- --------------------------------------------------
1999 1998 1998(3) 1997(3) 1996(1) 1995(2) 1994(3)
------- ------ -------- -------- -------- -------- --------
(in millions, except per share/unit data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue(9)............. $ 307 $ 805 $ 3,513 $ 2,823 $ 1,957 $ 1,362 $ 1,011
Income (loss) from
continuing
operations............ 58 28 194 47 (13) (62) (13)
Income (loss) before
extraordinary items... 58 30 195 47 (13) (123) (19)
Net income (loss)(4)... 58 30 47 50 (13) (143) (25)
Basic earnings (loss)
per common
share/unit:(5)
Income (loss) from
continuing
operations............ .20 .13 .90 .22 (.06) (.36) (.08)
Income (loss) before
extraordinary items... .20 .14 .91 .22 (.06) (.72) (.12)
Net income (loss)(4)... .20 .14 .22 .23 (.06) (.84) (.15)
Diluted earnings (loss)
per common
share/unit:(5)
Income (loss) from
continuing
operations............ .19 .13 .84 .22 (.06) (.36) (.08)
Income (loss) before
extraordinary items... .19 .14 .85 .22 (.06) (.72) (.12)
Net income (loss)(4)... .19 .14 .27 .23 (.06) (.84) (.15)
Cash dividends declared
per common
share/unit(8).......... .21 -- 1.00 -- -- -- --
Ratio Data (unaudited):
Ratio of earnings to
fixed charges(6)...... 1.6x 1.7x 1.5x 1.3x 1.0x -- --
Deficiency of earnings
to fixed charges(6)... -- -- -- -- -- 70 12
Balance Sheet Data:
Total assets(7)........ $8,171 6,762 $ 8,262 $ 6,141 $ 5,152 $ 3,557 $ 3,366
Debt................... 5,680 3,914 5,698 3,466 2,647 2,178 1,871
</TABLE>
- --------
(1) Fiscal year 1996 includes 53 weeks.
(2) Operating results for 1995 include a $10 million pre-tax charge to write
down the carrying value of five limited service properties to their net
realizable value and a $60 million pre-tax charge to write down an
undeveloped land parcel to its estimated sales value. In 1995, we
recognized a $20 million extraordinary loss, net of taxes, on the
extinguishment of debt.
(3) In 1998, we recognized a $148 million extraordinary loss, net of taxes, on
the extinguishment of debt. In 1997, we recognized a $3 million
extraordinary gain, net of taxes, on the extinguishment of certain debt. In
1994, we recognized a $6 million extraordinary loss, net of taxes, on the
required redemption of senior notes.
(4) We recorded income from discontinued operations, net of taxes, of $6
million in 1998, as a result of the Distribution. We also recorded a loss
from discontinued operations, net of taxes, of $61 million in 1995 and $6
million in 1994, as a result of the spin-off of Host Marriott Services
Corporation. The 1995 loss from discontinued operations includes a pre-tax
charge of $47 million for the adoption of SFAS No. 121, "Accounting For the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" a
pre-tax $15 million restructuring charge and an extraordinary loss of $10
million, net of taxes, on the extinguishment of debt.
(5) Basic earnings (loss) per common share or units is computed by dividing net
income (loss) by the weighted average number of shares of common stock/unit
outstanding. Diluted earnings (loss) per share/unit is computed by dividing
net income (loss) by the weighted average number of shares of common stock
or units outstanding plus other dilutive securities. Diluted earnings
(loss) per share has not been adjusted for the impact of convertible
preferred securities issued by a subsidiary trust of Host Marriott in
December 1996 for 1997 and 1996 and for the comprehensive stock plan and
warrants for 1994 through 1996, as they were anti-dilutive. Basic and
diluted earning per share have been restated to reflect the issuance of
approximately 11.9 million shares for the stock dividend declared December
18, 1998. For 1999, the amounts represent earnings per partnership unit.
(6) The ratio of earnings to fixed charges is computed by dividing income from
continuing operations before 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. The deficiency of earnings to fixed charges is largely the result
of depreciation and amortization of $122 million and $113 million in 1995
and 1994, respectively.
(7) Total assets includes $236 million related to net investment in
discontinued operations for 1997.
(8) We declared a dividend on December 18, 1998 payable in .087 shares of Host
Marriott common shares or $1 in cash. Approximately 11.9 million shares
were issued and $67 million paid in cash.
(9) 1999 revenue primarily represents rental revenues. Prior to 1999 revenue
primarily represents gross hotel sales.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In December 1998, Host Marriott completed its REIT conversion. As a part of
that transaction, Host Marriott contributed to us substantially of the hotel
assets held by it and its subsidiaries. For this reason, we consider Host
Marriott to be our predecessor for financial reporting purposes. As a result,
the results of operations referred to below for the periods prior to 1999
represent the results of operations of Host Marriott. The historical earnings
per unit/share information referred to below is based on the outstanding common
stock of Host Marriott for 1998 and all prior periods and earnings per
partnership unit for 1999. For a more complete description of the hotel
industry and our business within that industry, you should read the "Business
and Properties" section beginning on page 48.
Results of Operations
Our historical revenues for fiscal years 1998, 1997 and 1996 have been
restated to give retroactive effect to the adoption of EITF 97-2, which effect
is discussed below. Substantially all of our hotels are leased due to the REIT
conversion and therefore we now recognize rental income and not gross property
level sales. We have provided a table in Note 3 to the first quarter financial
statements comparing gross hotel sales for first quarter 1999 to first quarter
1998 to facilitate an investor's understanding of the operation of our
properties and the change in reporting.
On November 20, 1997, the Emerging Issues Task Force, or "EITF", of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements" EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity in
its financial statements.
We considered the impact of EITF 97-2 on our financial statements and
determined that EITF 97-2 required us to include property-level sales and
operating expenses of our hotels in the statements of operations. We have given
retroactive effect to the adoption of EITF 97-2 in the accompanying
consolidated statements of operations. Application of EITF 97-2 to the
consolidated financial statements for the first quarter of 1998 and fiscal
years ended December 31, 1998, January 2, 1998 and January 3, 1997 increased
both revenues and operating expenses by approximately $.5 billion, $2.1
billion, $1.7 billion and $1.2 billion, respectively, and had no impact on
operating profit, net income or earnings per share.
Prior to the REIT conversion, our hotel operating costs and expenses were,
to a great extent, fixed. Therefore, we have derived substantial operating
leverage from increases in revenue. This operating leverage was somewhat
diluted, however, by the impact of base management fees which were calculated
as a percentage of sales, variable ground lease payments and incentive
management fees tied to operating performance above certain established levels.
Successful hotel performance resulted in some of our properties reaching levels
which allowed the manager to share in the growth of profits in the form of
higher management fees. Since the REIT conversion, we record rental income and
not hotel sales or hotel operating expenses, including management fees thus
further reducing our variable costs. We continue to pay certain property-level
expenses such as property taxes, equipment rent, insurance, ground rent and
certain other owner costs.
For the periods discussed below, our hotel properties experienced
substantial increases in revenue per available room, or "REVPAR". REVPAR is a
commonly used indicator of market performance for hotels which represents the
combination of the average daily room rate charged and the average occupancy
achieved. REVPAR does not include food and beverage or other ancillary revenues
generated by the property. The REVPAR increase primarily reflects strong
percentage increases in room rates, while occupancy increases have been more
moderate. Increases in average room rates have generally been achieved by the
managers through shifting occupancies away from discounted group business to
higher-rated group and transient business and by selectively increasing room
rates. This has been made possible by increased travel due to improved economic
conditions and by the favorable supply/demand characteristics existing in the
upscale and luxury full-service segments of the lodging industry.
30
<PAGE>
First Quarter 1999 Compared to First Quarter 1998
Revenues. Our historical revenues have primarily represented gross property-
level sales from hotels, net gains on property transactions, interest income
and equity in earnings of affiliates. As of January 1, 1999, we lease
substantially all of our hotels to subsidiaries of Crestline. As a result of
these leases, we no longer record property-level revenues and expenses, rather
we recognize rental income on the leases. Thus, 1999 revenues and expenses are
not comparable with prior periods. Note 3 to the financial statements for the
first quarter of 1999 presents a table comparing gross hotel sales for the
first quarter 1999 and 1998 results in order to facilitate an investor's
understanding of the operation of our properties. The comparison of the 1999
quarterly results with 1998 is also affected by a change in the reporting
period for our hotels not managed by Marriott International, which resulted in
the inclusion of only two months of results in the 1999 first quarter versus
three months in 1998 for the 24 such hotels (8,524 rooms) we owned as of the
beginning of 1998. The change in reporting period was required as part of the
REIT conversion. Results in the first quarter of 1999 were driven by the
addition of 36 properties in 1998. The increase in hotel sales reflects growth
in room revenues generated per available room or REVPAR. For comparable
properties, REVPAR increased 4.4% to $120.37 for the first quarter of 1999. On
a comparable basis, average room rates increased approximately 3%, while
average occupancy increased one percentage point.
Interest income decreased as the result of a lower level of cash and
marketable securities held in the first quarter of 1999 compared to the first
quarter of 1998.
The net gain on property transactions for 1999 resulted from the $11 million
pre-tax gain on the sale of the 479-room Minneapolis/Bloomington Marriott for
approximately $35 million.
Expenses. As discussed above, hotel revenues and hotel operating costs are
not comparable with the prior year. The lessee pays certain property-level
costs including management fees and we receive a rent payment, which is net of
those costs. Property-level costs which are comparable, including depreciation,
property taxes, insurance, ground and equipment rent increased $9 million or 8%
to $124 million, primarily reflecting the depreciation from the 36 properties
added in 1998.
Minority Interest. Minority interest expense decreased $11 million to $5
million for the first quarter of 1999, primarily reflecting the impact of the
consolidation of partnerships which occurred in connection with the REIT
conversion.
Interest Expense. Interest expense increased 42% to $108 million in the
first quarter of 1999, primarily due to the issuance of senior notes,
establishment of a new credit facility, interest expense on the convertible
debt obligation to Host REIT and additional mortgage debt on properties
acquired in connection with the REIT conversion.
Dividends on Convertible Preferred Securities. The dividends on the
convertible preferred securities reflect the accrual for the first twelve weeks
of fiscal year 1998 on the $550 million in 6 3/4% Convertible Quarterly Income
Preferred Securities issued by a subsidiary trust of Host Marriott in December
1996. The convertible preferred securities are held by Host REIT. The dividends
paid by Host REIT are supported by our $567 million debt obligation to Host
REIT on the balance sheet. We incur interest expense on the debt obligation,
and, therefore, no dividends are included in the current period statement of
operations.
Corporate Expenses. Corporate expenses decreased $4 million to $8 million
for the first quarter of 1999 resulting primarily from the timing of certain
project costs not incurred in 1999.
Income from Discounted Operations. Income from discounted operations
represents the senior living communities business' results of operations for
the first quarter of 1998 as restated for the spin-off of Crestline.
Net Income. Our net income for the first quarter of 1999 was $58 million
compared to $30 million for first quarter of 1998. Basic earnings per unit were
$0.20 and $0.14 for the first of 1999 and 1998 respectively. Diluted earnings
per unit was $0.19 and $0.14 for the first quarter of 1999 and 1998,
respectively.
31
<PAGE>
1998 Compared to 1997
Revenues. Revenues increased $0.7 billion, or 24%, to $3.5 billion for 1998
from $2.8 billion for 1997. Our revenue and operating profit were impacted by
improved results for comparable full-service hotel properties, the addition of
18 full-service hotel properties during 1997 and 36 full-service hotel
properties during 1998 and the gain on the sale of two hotel properties in
1998.
Hotel sales, which are gross hotel sales, including room sales, food and
beverage sales, and other ancillary sales such as telephone sales, increased
$0.6 billion, or 23%, to over $3.4 billion in 1998, reflecting the REVPAR
increases for comparable units and the addition of full-service hotels in 1997
and 1998. Improved results for our full-service hotels were driven by strong
increases in REVPAR for our 78 comparable units of 7.3% to $112.39 for 1998.
Results were further enhanced by approximately one percentage point increase in
the house profit margin for comparable full-service properties. Average room
rates increased nearly 6.9% for our comparable full-service hotels.
As discussed in Note 2 to the financial statements, we spun off Crestline
which owned our senior living communities. We have accounted for these revenues
and expenses as discontinued operations and has shown the amount, net of taxes,
below income from continuing operations. Revenues generated from our 31 senior
living communities totaled $241 million for 1998 compared to $111 million for
1997, as the assets were purchased in the third quarter of 1997.
Revenues were also impacted by the gains on the sales of two hotels. The New
York East Side Marriott was sold for $191 million resulting in a pre-tax gain
of approximately $40 million. The Napa Valley Marriott was sold for $21 million
resulting in a pre-tax gain of approximately $10 million.
Operating Costs and Expenses. Operating costs and expenses principally
consisted of property-level operating costs, depreciation, management fees,
real and personal property taxes, ground, building and equipment rent,
insurance and certain other costs. Operating costs and expenses increased $0.5
billion to $2.9 billion, primarily representing increased hotel operating
costs. Hotel operating costs increased $0.5 billion to $2.8 billion for 1998,
primarily due to the addition of 54 full-service hotel properties during 1997
and 1998 and increased management fees and rentals tied to improved property
results. As a percentage of hotel revenues, hotel operating costs and expenses
decreased slightly to 82% for 1998 from 84% of revenues for 1997, due to the
significant increases in REVPAR discussed above, offset by increases in
management fees and property-level operating costs, including higher labor
costs in certain markets.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, our operating profit increased $0.2 billion, or
53%, to $0.7 billion for 1998. For 1998, property-level operating profit
increased $0.2 billion, or 39%, to $0.6 billion, or 18% of hotel revenues, for
1998 compared to $0.4 billion, or 16% of hotel revenues, for 1997.
Specifically, hotels in New York City, San Francisco, Toronto and Mexico City
reported significant improvements for 1998 over 1997. Properties in Florida
reported some temporary declines in operating results due to exceptionally poor
weather in 1998.
Minority Interest. Minority interest expense increased $21 million to $52
million for 1998, primarily reflecting the impact of the consolidation of
affiliated partnerships and the acquisition of controlling interests in newly-
formed partnerships during 1997 and 1998.
Corporate Expenses. Corporate expenses increased $5 million to $50 million
for 1998. As a percentage of revenues, corporate expenses decreased to 1.4% of
revenues for 1998 from 1.6% in 1997, reflecting our efforts to control
corporate expenses in spite of the substantial growth in revenues.
32
<PAGE>
REIT Conversion Expenses. REIT conversion expenses reflect the professional
fees, consent fees, and other expenses associated with our conversion to a REIT
and totaled $64 million for 1998. There were no REIT conversion expenses prior
to 1998.
Interest Expense. Interest expense increased 16% to $335 million in 1998,
primarily due to additional debt assumed in connection with the 1997 and 1998
full-service hotel additions as well as the issuance of the senior notes and
establishment of a new credit facility in 1998.
Dividends on Convertible Preferred Securities of Subsidiary Trust. The
dividends on the convertible preferred securities reflect the dividends on the
$550 million in 6 3/4% Convertible Quarterly Income Preferred Securities issued
by a subsidiary trust of Host Marriott in December 1996.
Interest Income. Interest income decreased $1 million to $51 million for
1998, primarily reflecting the lower level of cash and marketable securities
held in 1998 compared to 1997.
Discontinued Operations. Income from discontinued operations of $6 million
for 1998 represents the senior living communities' business results of
operations for the entire year. The provision for loss on disposal of $5
million for 1998 includes organizational and formation costs related to
Crestline.
Income before Extraordinary Item. Income before extraordinary item for 1998
was $195 million, compared to $47 million for 1997.
Extraordinary Gain (Loss). In connection with the purchase in August 1998 of
our old senior notes, we recognized an extraordinary loss of $148 million,
which represents the bond premium and consent payments totaling approximately
$175 million and the write-off of deferred financing fees of approximately $52
million related to the old senior notes, net of taxes. In March 1997, we
purchased 100% of the outstanding bonds secured by a first mortgage on the San
Francisco Marriott Hotel. We purchased the bonds for $219 million, which was an
$11 million discount to the face value of $230 million. In connection with the
redemption and defeasance of the bonds, we recognized an extraordinary gain of
$5 million, which represents the $11 million discount and the write-off of
deferred financing fees, net of taxes. In December 1997, we refinanced the
mortgage debt secured by Marriott's Orlando World Center. In connection with
the refinancing, we recognized an extraordinary loss of $2 million, which
represents payment of a prepayment penalty and the write-off of unamortized
deferred financing fees, net of taxes.
Net Income (Loss). Net income for 1998 was $47 million compared to net
income of $50 million for 1997. Basic earnings (loss) per common share was $.22
and $.23 for 1998 and 1997, respectively. Diluted earnings (loss) per common
share was $.27 and $.23 for 1998 and 1997, respectively.
1997 Compared to 1996
Revenues. Revenues increased $866 million, or 44%, to $2,823 million for
1997. Our revenues and operating profit were impacted by:
. improved lodging results for comparable full-service hotels;
. the addition of 23 full-service hotels during 1996 and 18 full-service
hotels during 1997;
. the 1996 sale and leaseback of 16 Courtyard properties and 18 Residence
Inns; and
. the 1997 results including 52 weeks versus 53 weeks in 1996.
Hotel sales increased $864 million, or 44%, to over $2,806 million in 1997,
reflecting the REVPAR increases for comparable units and the addition of full-
service properties during 1996 and 1997. Improved results for our full-service
hotels were driven by strong increases in REVPAR for comparable units of 12.6%
in
33
<PAGE>
1997. Results were further enhanced by a more than two percentage point
increase in the house profit margin for comparable full-service properties. On
a comparable basis for our full-service properties, average room rates
increased almost 11%, while average occupancy increased over one percentage
point.
Operating Costs and Expenses. Operating costs and expenses increased $667
million to $2,391 million for 1997, primarily representing increased hotel
operating costs, including depreciation and management fees. Hotel operating
costs increased $676 million to $2,362 million, primarily due to the addition
of 41 full-service properties during 1996 and 1997, and increased management
fees and rentals tied to improved property results. As a percentage of hotel
revenues, hotel operating costs and expenses decreased to 84% of revenues for
1997, from 87% of revenues for 1996, reflecting the impact of increased 1997
revenues spread over relatively fixed operating costs and expenses.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, our operating profit increased $199 million, or
85%, to $432 million in 1997. Hotel operating profit increased $188 million, or
73%, to $444 million, or 16% of hotel revenues, for 1997 compared to $256
million, or 13% of hotel revenues, for 1996. In nearly all markets, our hotels
recorded improvements in comparable operating results. In particular, our
hotels in the Northeast, Mid-Atlantic and Pacific coast regions benefited from
the upscale and luxury full-service room supply and demand imbalance. Hotels in
New York City, Philadelphia, San Francisco/Silicon Valley and Southern
California performed particularly well. In 1997, our suburban Atlanta
properties, which consist of three properties totaling 1,022 room generally
reported decreased results due to higher activity in 1996 related to the Summer
Olympics and the impact of the additional supply added to the suburban areas.
However, the majority of our hotel rooms in Atlanta are in the core business
districts in downtown and Buckhead where they realized strong year-over-year
results and were only marginally impacted by the additional supply.
Minority Interest. Minority interest expense increased $25 million to $31
million for 1997, primarily reflecting the impact of the consolidation of
affiliated partnerships and the acquisition of controlling interests in newly-
formed partnerships during 1996 and 1997.
Corporate Expenses. Corporate expenses increased $2 million to $45 million
in 1997. As a percentage of revenues, corporate expenses decreased to 1.6% of
hotel sales in 1997 from 2.2% of hotel sales in 1996. This reflects our efforts
to control corporate expenses in spite of the substantial growth in revenues.
Interest Expense. Interest expense increased $51 million to $288 million in
1997, primarily due to the additional mortgage debt of approximately $1.1
billion assumed in connection with the 1996 and 1997 full-service hotel
additions, approximately $315 million in debt incurred in conjunction with the
acquisition of senior living communities, as well as the issuance of $600
million of 8 7/8% senior notes in July 1997.
Dividends on Convertible Preferred Securities of Subsidiary Trust. The
dividends on the convertible preferred securities reflect the dividends on the
$550 million in 6 3/4% Convertible Quarterly Income Preferred Securities issued
by a subsidiary trust of Host Marriott in December 1996.
Interest Income. Interest income increased $4 million to $52 million for
1997, primarily reflecting the interest income on the available proceeds
generated by the December 1996 offering of convertible preferred securities and
the proceeds generated by the issuance of our 8 7/8% senior notes in July 1997.
Discontinued Operations. Income from discontinued operations was breakeven
in 1997. There were no discontinued operations in 1996.
Income (Loss) Before Extraordinary Items. Income before extraordinary items
for 1997 was $47 million, compared to a $13 million loss before extraordinary
items for 1996, as a result of the items discussed above.
Extraordinary Gain (Loss). In March 1997, we purchased 100% of the
outstanding bonds secured by a first mortgage on the San Francisco Marriott
Hotel. We purchased the bonds for $219 million, which was an
34
<PAGE>
$11 million discount to the face value of $230 million. In connection with the
redemption and defeasance of the bonds, we recognized an extraordinary gain of
$5 million, which represents the $11 million discount less the write-off of
unamortized deferred financing fees, net of taxes. In December 1997, we
refinanced the mortgage debt secured by Marriott's Orlando World Center. In
connection with the refinancing, we recognized an extraordinary loss of $2
million, which represents payment of a prepayment penalty and the write-off of
unamortized deferred financing fees, net of taxes.
Net Income (Loss). Our net income in 1997 was $50 million, compared to a net
loss of $13 million in 1996. Basic and diluted earnings per common share was
$.23 for 1997, compared to a basic and diluted loss per common share of $.06 in
1996.
Liquidity and Capital Resources
Host Marriott funded its capital requirements with a combination of
operating cash flow, debt and equity financing and proceeds from sales of
selected properties and other assets. We expect to fund our capital
requirements in a similar manner. Host Marriott utilized these sources of
capital to acquire new properties, fund capital additions and improvements and
make principal payments on debt. As a result of the REIT conversion, Host REIT
is required to use available funds to pay dividends to the extent of 95% of
taxable income in order to maintain its REIT qualification, and Host REIT has
indicated an intent to pay dividends equivalent to 100% of taxable income for
each year. Payment of these dividends is expected to be funded by distributions
from us to Host REIT. These distributions will be made to Host REIT and the
other holders of our OP Units. To the extent that our cash flow is not
sufficient for this purpose, we may be required to borrow money to pay such
distributions.
Capital Transactions. Host Marriott substantially changed its debt financing
through the following series of transactions which were intended to facilitate
the consummation of the REIT conversion. In connection with the REIT
conversion, we assumed liability for all of the senior, mortgage and other debt
of Host Marriott. Additionally, we assumed liability for the $567 million
convertible subordinated debenture underlying $550 million convertible
preferred securities of a subsidiary trust of Host Marriott held by the public
and $17 million common securities of that trust held by Host Marriott.
On April 20, 1998, Host Marriott and subsidiaries filed a shelf registration
statement on Form S-3 with the Securities and Exchange Commission for $2.5
billion in securities, including debt, equity or any combination thereof. HMH
Properties, Inc., then Host Marriott's wholly-owned subsidiary, utilized $2.2
billion of the capacity under this shelf registration to issue senior notes
described further below.
On August 5, 1998, HMH Properties, which was merged into us as part of the
REIT conversion, purchased substantially all of its (1) $600 million of 9 1/2%
senior notes due 2005, (2) $350 million of 9% senior notes due 2007 and (3)
$600 million of 8 7/8% senior notes due 2007. Concurrently with each offer to
purchase, HMH Properties solicited consents from registered holders of these
senior notes to amendments to eliminate or modify substantially all of the
restrictive covenants and certain other provisions contained in the indentures
pursuant to which the old senior notes were issued. HMH Properties
simultaneously utilized the shelf registration to issue an aggregate of $1.7
billion in senior notes, in two series: $500 million of 7 7/8% Series A senior
notes due in 2005 and $1.2 billion of 7 7/8% Series B senior notes due in 2008.
The August 1998 consent solicitations facilitated the merger of HMC Capital
Resources Holdings Corporation, then Host Marriott's wholly-owned subsidiary,
with and into HMH Properties. HMC Capital Resources, the owner of eight of Host
Marriott's hotel properties, was the obligor under Host Marriott's old $500
million revolving credit facility. In August 1998, HMH Properties entered into
a new $1.25 billion credit facility with a group of commercial banks, which
replaced the old credit facility. The credit facility provides (1) a $350
million term loan facility, subject to certain increases, and (2) a $900
million revolving credit facility. The new credit facility has an initial
three-year term with two one-year extension options. Borrowings under this new
credit facility generally bear interest at the Eurodollar rate plus 1.75% (7.5%
at December 31, 1998) and the interest rate and commitment fee on the unused
portion of the facility fluctuate based on financial
35
<PAGE>
ratios. As of December 31, 1998, $350 million was outstanding under the credit
facility. The net proceeds from the offering of the $1.7 billion senior notes
and borrowings under the credit facility were used to purchase substantially
all of HMH Properties' old senior notes, to repay amounts outstanding under the
old credit facility and to make bond premium and consent payments totaling $175
million. These costs, along with the write-off of deferred financing fees of
approximately $52 million related to the old senior notes and the old credit
facility, were recorded as a pre-tax extraordinary loss on the extinguishment
of debt in 1998.
In December 1998, HMH Properties issued $500 million of 8.45% Series C
senior notes due in 2008 under the same indenture and with the same covenants
as the Series A and Series B senior notes our issued in August 1998. The
proceeds were used to pay down other debt and pay expenses of the REIT
conversion. HMH Properties had a total of $2.2 billion in senior notes
outstanding as of our merger with it on December 16, 1998. These senior notes,
and obligations under new credit facility, became our obligations at that time.
In February 1999, we issued $300 million of 8 3/8% Series D senior notes due in
2006 under the same indenture and with the same covenants as the Series A,
Series B and Series C senior notes. The debt was used to refinance, or
purchase, approximately $299 million of debt acquired in the mergers of
subsidiary partnerships, including approximately $40 million of other mortgage
debt.
In April 1999, one of our subsidiaries completed the refinancing of the
mortgage on the New York Marriott Marquis. The mortgage is for $245 million
maturing June 2000 and bears interest at a rate of LIBOR plus 2.125% for the
period from March 31, 1999 through December 31, 1999 and LIBOR plus 2.5% until
maturity. We are required to make principal payments of $10 million and $5
million on December 31, 1999 and March 31, 2000, respectively, as well as pay
an extension fee of 0.5% of the principal balance of the loan outstanding at
December 31, 1999.
On May 21, 1999, we signed a proposed financing commitment letter pursuant
to which we plan to borrow approximately $610 million due 2008 at a fixed rate
of interest equal to the 10 year U.S. Treasury securities plus a spread to be
agreed upon based upon the final amount borrowed. The proceeds from this
financing will be used to refinance existing mortgage indebtedness maturing at
various times through 2002. The interest rate at the time of this filing has
not been fixed, but may be fixed upon our execution of a rate lock agreement or
upon closing of the loan. The proposed financing is subject to various
conditions, including the results of an investigation of the eight underlying
properties which will act as collateral for the proposed transaction. We cannot
guarantee that this transaction will be consummated. However, in the event the
transaction does not close, we do not believe that there will be a material
impact to our financial statements. Until such time as the loan closes and a
rate lock is not entered into the interest rate is subject to fluctuation. We
may, prior to closing the loan, enter into a rate lock agreement to mitigate
fluctuations in interests rates. In the event we enter into a rate lock
agreement and the loan does not close, including for reasons outside our
control, we may be subject to losses related to the lender's hedging of the
interest rate which could be material.
In July 1997, HMH Properties and HMC Acquisition Properties, Inc. completed
consent solicitations with holders of their senior notes to amend certain
provisions of their senior notes indentures. The 1997 consent solicitations
facilitated the merger of HMC Acquisitions with and into HMH Properties.
Concurrent with the 1997 consent solicitations and the HMH Properties and HMC
Acquisitions merger, HMH Properties issued an aggregate of $600 million of 8
7/8% senior notes at par with a maturity of July 2007. HMH Properties received
net proceeds of approximately $570 million, net of the costs of the 1997
consent solicitations and the offering. HMH Properties paid dividends to Host
Marriott of $54 million and $29 million in 1997 and 1996, respectively, as
permitted under the indentures. No dividends were paid in 1998.
In addition to the capital resources provided by its debt financings, in
December 1996, Host Marriott Financial Trust, a subsidiary trust of Host
Marriott, issued 11 million shares of 6 3/4% Convertible Quarterly Income
Preferred Securities, with a liquidation preference of $50 per share for a
total liquidation amount of $550 million. These convertible preferred
securities represent an undivided beneficial interest in the assets of the
trust and, pursuant to various agreements entered into in connection with the
transaction, are fully, irrevocably and unconditionally guaranteed by us.
Proceeds from the issuance of the convertible preferred
36
<PAGE>
securities were invested in 6 3/4% Convertible Subordinated Debentures due
December 2, 2026 issued by Host Marriott and now assumed by us, which are the
trust's sole assets. Each of the convertible preferred securities is
convertible at the option of the holder into shares of Host REIT common stock
at the rate of 3.2537 shares per convertible preferred security equivalent to a
conversion price of $15.367 per share of Host REIT common stock. This
conversion ratio includes adjustments to reflect distributions made to Host
REIT common stockholders in connection with the REIT conversion. During 1998,
1997 and 1996, no shares were converted into common stock. Holders of the
convertible preferred securities are entitled to receive preferential
cumulative cash distributions at an annual rate of 6 3/4% accruing from the
original issue date, commencing March 1, 1997, and payable quarterly in arrears
thereafter. The distribution rate and the distribution and other payment dates
for the convertible preferred securities correspond to the interest rate and
interest and other payment dates on the convertible subordinated debentures. We
may defer interest payments on the convertible subordinated debentures for a
period not to exceed 20 consecutive quarters. If interest payments on the
convertible subordinated debentures are deferred, so too are payments on the
convertible preferred securities. Under this circumstance, we would not be
permitted to declare or pay any cash distributions with respect to our capital
stock or debt securities that rank equal in right of payment with or junior to
the convertible subordinated debentures. Subject to certain restrictions, the
convertible preferred securities are redeemable at Host REIT's option upon any
redemption of the convertible subordinated debentures after December 2, 1999.
Upon repayment at maturity or as a result of the acceleration of the
convertible subordinated debentures upon the occurrence of a default, the
convertible preferred securities are subject to mandatory redemption. We may,
from time to time, make market repurchases of these securities as conditions
permit.
In connection with consummation of the REIT conversion, we assumed primary
liability for repayment of the convertible subordinated debentures, although
Host REIT also retains liability. Upon conversion by a convertible preferred
securities holder, Host REIT will issue shares of its common stock, which will
be delivered to such holder. Upon the issuance of such shares by Host REIT, we
will issue to Host REIT a number of our limited partner units, or "OP Units",
equal to the number of shares of its common stock issued in exchange for the
convertible subordinated debentures.
Capital Acquisitions, Additions and Improvements. We seek to grow primarily
through opportunistic acquisitions of full-service hotels. We believe that the
upscale and luxury full-service hotel segments of the market offer
opportunities to acquire assets at attractive multiples of cash flow and at
discounts to replacement value, including under-performing hotels which may be
improved by conversion to the Marriott or Ritz-Carlton brands. In April 1999,
we completed a 210-room extension of the Philadelphia Marriott Convention
Center at a cost of approximately $43 million, including debt of $9 million. In
the first quarter of 1998, Host Marriott acquired a controlling interest in the
partnership that owns the 1,671-room Atlanta Marriott Marquis Hotel for $239
million, including the assumption of $164 million of mortgage debt. Host
Marriott also acquired a controlling interest in the partnership that owns the
359-room Albany Marriott, the 350-room San Diego Marriott Mission Valley and
the 320-room Minneapolis Marriott Southwest for approximately $50 million. In
the second quarter of 1998, Host Marriott acquired the 289-room Park Ridge
Marriott for $24 million and acquired the 281-room Ritz-Carlton, Phoenix for
$75 million. In addition, Host Marriott acquired the 397-room Ritz-Carlton,
Tysons Corner, Virginia for $96 million and the 487-room Torrance Marriott near
Los Angeles, California, for $52 million. In the third quarter of 1998, Host
Marriott acquired the 308-room Ritz-Carlton, Dearborn for approximately $65
million, the 336-room Ritz-Carlton, San Francisco for approximately $161
million and the 404-room Memphis Crowne Plaza (which was converted to the
Marriott brand upon acquisition) for approximately $16 million. We are
regularly engaged in discussions with respect to other potential acquisition
properties.
In December 1998, we completed the acquisition of, or controlling interests
in, twelve world-class luxury hotels and certain other assets, including a
mortgage note on a thirteenth hotel property from affiliates of The Blackstone
Group. We paid approximately $920 million in cash and assumed debt and issued
approximate 47.7 million OP Units, along with other consideration for a total
value of approximately $1.55 billion.
37
<PAGE>
In December 1998, several of our subsidiaries merged with eight public
partnerships and acquired limited partnership interests in four private
partnerships, which collectively own or control 28 properties 15 of which were
controlled by us and consolidated on our financial statements prior to December
1998. We issued approximately 25 million OP Units, 8.5 million of which were
subsequently converted to common stock of Host Marriott, for interests in these
partnerships valued at approximately $333 million. As a result of these
transactions, we increased our ownership of most of the 28 properties to 100%
while consolidating 13 additional hotels with a total 4,445 rooms.
In connection with Host Marriott's conversion to a REIT, two non-controlled
subsidiaries were formed, which own approximately $264 million in assets. The
ownership of most of these assets by us and/or Host REIT could jeopardize Host
REIT's status as a REIT and/or our status as a partnership for federal income
tax purposes. These assets primarily consist of partnership or other interests
in hotels which are not leased and certain furniture, fixtures and equipment
used in our hotels. In exchange for our contribution of these assets to the
non-controlled subsidiaries, we received only nonvoting common stock
representing approximately 95% of the total economic interests of the non-
controlled subsidiaries. The Host Marriott Statutory Employee/Charitable Trust,
the beneficiaries of which are (1) a trust formed for the benefit of certain
employees of the operating partnership and (2) the J. Willard Marriott
Foundation, acquired all of the voting common stock representing the remaining
approximately 5% of the total economic interests, and reflecting 100% of the
control of each non-controlled subsidiary. As a result, as of December 31,
1998, we did not control the non-controlled subsidiaries.
During 1997, Host Marriott acquired eight full-service hotels with a total
of 3,600 rooms and controlling interests in nine additional full-service hotels
with a total of 5,024 rooms for an aggregate purchase price of approximately
$766 million, including the assumption of approximately $418 million of debt.
Host Marriott also completed the acquisition of the 504-room New York Marriott
Financial Center, after acquiring the mortgage on the hotel for $101 million in
late 1996. During 1996, Host Marriott acquired six full-service hotels with a
total 1,964 rooms for an aggregate purchase price of $189 million and
controlling interests in 17 additional full-service properties with a total
8,917 rooms for an aggregate purchase price of approximately $1.1 billion,
including the assumption of $696 million of debt.
In November 1997, Host Marriott announced a commitment to develop and
construct the 717-room Tampa Convention Center Marriott for a cost estimated at
approximately $88 million, net of an approximate $16 million subsidy provided
by the City of Tampa.
We may also expand existing hotel properties where strong performance and
market demand exists. Expansions to existing properties create a lower risk to
us as the success of the market is generally known and development time is
significantly shorter than new construction. Prior to the REIT conversion, Host
Marriott committed to add approximately 500 rooms and an additional 15,000
square feet of meeting space to the 1,503-room Marriott's Orlando World Center.
In July 1998, Host Marriott announced the purchase of a 13-acre parcel of land
for the development of a 295-room Ritz-Carlton that will serve as an extension
of the 463-room Ritz-Carlton Naples, which was purchased in September 1996. The
existing hotel just completed a restaurant and public space refurbishment and
is in the process of adding a world-class spa. In addition, a subsidiary of one
of the non-controlled subsidiaries entered into a joint venture through which a
non-controlled subsidiary owns 49% of the surrounding 27-hole world-class Greg
Norman designed golf course development. The golf course joint venture was
transferred to one of the non-controlled subsidiaries in connection with the
REIT conversion. The total investment by us in expansion and investments in the
Ritz-Carlton, Naples property is expected to be approximately $97 million.
In 1997, Host Marriott acquired the outstanding common stock of Forum Group,
Inc. from Marriott Senior Living Services, Inc., a subsidiary of Marriott
International. Host Marriott purchased the Forum Group portfolio of 29 senior
living communities for approximately $460 million, including approximately $270
million in debt. Additionally, during 1997 and 1998, Host Marriott completed
certain expansions and acquired two additional senior living properties for
$100 million, including $48 million of debt. The properties, which continued to
be operated by Marriott International, were owned by a subsidiary of Crestline
which was distributed to Host
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Marriott's shareholders in connection with the REIT conversion and are
reflected as discontinued operations in our financial statements. In December
1998, Host Marriott discontinued the senior living business as a result of the
distribution of the Crestline common stock to its shareholders.
Asset Dispositions. Host Marriott historically has disposed of, and we may
from time to time in the future consider opportunities to sell or exchange,
real estate properties at attractive valuations when the proceeds could be
redeployed into investments with more favorable returns. In February 1999, we
disposed of the Minneapolis/Bloomington Marriott for $35 million and recorded a
gain on sale of approximately $11 million. During the second quarter of 1998,
Host Marriott disposed of the 662-room New York Marriott East Side for proceeds
of $191 million and recorded a pre-tax gain of approximately $40 million and
the Napa Valley Marriott for proceeds of $21 million and recorded a pre-tax
gain of approximately $10 million. During 1997, Host Marriott disposed of the
255-room Sheraton Elk Grove Suites for proceeds of approximately $16 million.
Host Marriott also sold 90% of an 174-acre parcel of undeveloped land in
Germantown, Maryland for approximately $11 million, which approximated its
carrying value. During the first and second quarters of 1996, 16 of Host
Marriott's Courtyard properties and 18 of its Residence Inn properties were
sold, subject to a leaseback, to Hospitality Properties Trust for approximately
$314 million, with approximately $35 million to be received upon expiration of
the leases. Again on the transactions of approximately $45 million was deferred
and is being amortized over the initial term of the leases.
In cases where we have made a decision to dispose of particular properties,
we assess impairment of each individual property to be sold on the basis of
expected sales price less estimated costs of disposal. Otherwise, we assess
impairment of our real estate properties based on whether it is probable that
undiscounted future cash flows from such properties will be less than their net
book value. If a property is impaired, its basis is adjusted to its fair market
value.
Cash Flows. Cash flow from continuing operations in 1998, 1997 and 1996
totaled $312 million, $432 million and $205 million, respectively. Cash flow
from, that is, used in, discontinued operations totaled $29 million, $32
million and ($4 million) in 1998, 1997 and 1996, respectively. We reported a
decrease in cash and cash equivalents of $152 million during the twelve weeks
ended March 26, 1999. Cash from continuing operations was $4 million for the
first quarter of 1999 and $97 million for the first quarter of 1998. The $93
million decrease in cash from continuing operations resulted principally due to
an increase in rent receivable resulting from the timing of the receipt of cash
payments under the leases versus management agreements. There was no cash from
(used in) discontinued operations for the first quarter of 1999; however, cash
from discontinued operations totaled $2 million for the first quarter of 1998.
Cash used in investing activities from continuing operations in 1998, 1997
and 1996 totaled $655 million, $807 million and $504 million, respectively.
Cash from investing activities primarily consists of net proceeds from the
sales of assets, offset by the acquisition of hotels and other capital
expenditures previously discussed, as well as the purchases and sales of short-
term marketable securities. Cash used in investing activities from continuing
operations was significantly impacted by the purchase of $354 million of short-
term marketable securities in 1997 and the net sale of $354 million of short-
term marketable securities in 1998. Cash flow used in investing activities from
discontinued operations totaled $50 million and $239 million in 1998 and 1997,
respectively. There was no cash flow from investing activities from
discontinued operations in 1996. Cash used in investing activities from
continuing operations was $42 million for the first quarter of 1999 and cash
from investing activities from continuing operations was $23 million for the
first quarter of 1998. Cash used in investing activities for the first quarter
of 1999 includes capital expenditures of $76 million, mostly related to
renewals and replacements on existing properties. In addition, we generated $36
million of cash from the net sale of assets, primarily the
Minneapolis/Bloomington property. There was no cash from (used in) investing
activities from discontinued operations for the first quarter of 1999; however,
cash used in investing activities of discontinued operations totaled $28
million for the first quarter of 1998.
Cash from financing activities from continuing operations was $265 million
for 1998, $392 million for 1997 and $806 million for 1996. Our cash from
financing activities from continuing operations primarily
39
<PAGE>
consists of the proceeds from debt and equity offerings, mortgage financing on
certain acquired hotels and borrowings under our credit facilities offset by
redemptions and payments on senior notes, prepayments on hotel mortgages and
other scheduled principal payments. Cash flow from financing activities from
discontinued operations totaled $24 million and ($3 million) in 1998 and 1997,
respectively. There was no cash flow from financing activities from
discontinued operations in 1996. Cash used in financing activities from
continuing operations was $114 million for the first quarter of 1999 and $22
million for the first quarter of 1998. Cash used in financing activities for
the first quarter of 1999 includes $323 million in prepayment on debt, offset
by $299 million in debt issuances. Both financing activities were related to
our February 1999 issuance of $300 million of 8 3/8% Series D senior notes due
in 2006. The Series D senior notes were used to refinance, or purchase, debt
which had been assumed through the merger of some of our partnerships or the
purchase of hotel properties in connection with the REIT conversion in December
1998. There was no cash from (used in) financing activities from discontinued
operations in the first quarter of 1999; however, cash used in financing
activities of discontinued operations totaled $27 million in the first quarter
of 1998.
On March 15, 1999, the Board of Directors of Host Marriott declared a
regular cash dividend of $0.21 per share of common stock and we declared
corresponding distribution of $0.21 per unit of limited partnership interest.
The distribution was paid on April 14, 1999 to unitholders of record on March
31, 1999.
FFO and EBITDA.
We consider earnings before interest expense, taxes, depreciation and
amortization and other non-cash items, or "EBITDA", and Funds from Operations,
or "FFO", to be indicative measures of our operating performance due to the
significance of our long-lived assets and because such data is considered
useful by the investment community to better understand our results, and can be
used to measure our ability to service debt, fund capital expenditures and
expand our business. FFO is defined by the National Association of Real Estate
Investment Trusts as net income computed in accordance with GAAP, excluding
gains or losses from debt restructurings and sales of properties, plus real
estate related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. For periods prior to the REIT
conversion, FFO includes deferred taxes. FFO should not be considered as an
alternative to net income, operating profit, cash flows from operations or any
other operating or liquidity performance measure prescribed by GAAP. FFO is
also not an indicator of funds available for our cash needs, including
distributions. Our method of calculating FFO may be different from methods used
by other REITs and, accordingly, is not comparable to such other REITs.
However, such information should not be considered as an alternative to net
income, operating profit, cash from operations, or any other operating or
liquidity performance measure prescribed by generally accepted accounting
principles. Cash expenditures for various long-term assets, interest expense
(for EBITDA purposes only) and income taxes have been, and will be, incurred
which are not reflected in the EBITDA and FFO presentation.
FFO from total operations increased $107 million, or 36%, to $402 million in
1998. FFO from total operations increased $131 million, or 80%, to $295 million
in 1997. The following is a reconciliation of our income before extraordinary
items to FFO (in millions):
FFO increased $32 million, or 38%, to $117 million in the first quarter of
1999. For periods prior to 1999, the FFO disclosed represents FFO plus deferred
tax expense. FFO from total operations increased $131 million, or 80%, to $295
million in 1997. The following is a reconciliation of our income before
extraordinary items to FFO (in millions):
<TABLE>
<CAPTION>
First Quarter Ended
-------------------
March 26, March 27,
1999 1998
<S> <C> <C>
---- ---
Income from continuing operations........................... $ 58 $28
Depreciation and amortization............................... 68 54
Other real estate activities................................ (11) (1)
Partnership adjustments..................................... 2 (6)
Deferred taxes.............................................. -- 10
---- ---
Funds From Operations..................................... $117 $85
==== ===
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
------------
1998 1997
----- -----
<S> <C> <C>
Income before extraordinary items................................. $ 195 $ 47
Depreciation and amortization..................................... 265 240
Other real estate activities...................................... (53) 6
Partnership adjustments........................................... (11) (13)
Deferred taxes.................................................... 46 15
Other non-recurring adjustments
REIT conversion expenses.......................................... (37) --
Change in reporting period(1)..................................... (3) --
----- -----
FFO from total operations......................................... 402 295
Discontinued operations........................................... (28) (10)
----- -----
FFO from continuing operations.................................... $ 374 $ 285
===== =====
</TABLE>
- --------
(1) We changed our method of recording operations for certain non-Marriott
owned properties in 1998, resulting in the recognition of 13 months of
operations in 1998. This amount represents the incremental operations
recognized.
Cash expenditures for various long-term assets and income taxes have been,
and will be, incurred are not reflected in the FFO presentation.
Our EBITDA increased $23 million, or 11%, to $226 million in the first
quarter of 1999. Hotel EBITDA increased $26 million, or 13%, to $230 million in
the first quarter of 1999, reflecting comparable full-service hotel EBITDA
growth, as well as incremental EBITDA from 1997 and 1998 acquisitions offset by
amounts representing approximately 1% to 1.5% of hotel sales which are retained
by Crestline under the leases. EBITDA increased $180 million, or 25%, to $888
million in fiscal year 1998 from $708 million in 1997.
Hotel EBITDA increased $180 million, or 26%, to $870 million in 1998 from
$690 million in 1997, reflecting comparable full-service hotel EBITDA growth,
as well as incremental EBITDA from 1997 and 1998 acquisitions. Full-service
hotel EBITDA from comparable hotel properties increased 9.6% on a REVPAR
increase of 7.3%. Our senior living communities contributed $61 million of
EBITDA in 1998.
The following is a reconciliation of EBITDA to our income before
extraordinary items (in millions):
<TABLE>
<CAPTION>
First Quarter Ended
-----------------------------
March 26, 1999 March 27, 1998
-------------- --------------
<S> <C> <C>
EBITDA........................................... $ 226 $203
Interest expense................................. (108) (76)
Dividends on Convertible Preferred Securities.... -- (9)
Depreciation and amortization.................... (68) (54)
Minority interest expense........................ (5) (16)
Income taxes..................................... -- (20)
Other non-cash charges, net...................... 13 --
----- ----
Income from continuing operations................ $ 58 $ 28
===== ====
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
December 31, 1998 January 2, 1998
----------------- ---------------
<S> <C> <C>
EBITDA...................................... $888 $ 708
REIT conversion expense..................... (64) --
Interest expense............................ (335) (302)
Dividends on convertible preferred
securities................................. (37) (37)
Depreciation and amortization............... (243) (240)
Minority interest expense................... (52) (32)
Income taxes................................ 20 (36)
Gain (loss) on disposition of assets and
other non-cash charges, net................ 18 (14)
---- -----
Income before extraordinary items........... $195 $ 47
==== =====
</TABLE>
Our interest coverage, defined as EBITDA divided by cash interest expense
was 2.4, 2.8, 2.5, 2.5 and 2.0 for the first quarters 1999 and 1998, and for
fiscal years 1998, 1997 and 1996, respectively. The ratio of earnings to fixed
charges was 1.6 to 1.0, 1.7 to 1.0, 1.5 to 1.0, 1.3 to 1.0 and 1.0 to 1.0 in
the first quarters of 1999 and 1998 and the fiscal years 1998, 1997 and 1996,
respectively.
Partnership Activities. Prior to the REIT conversion, Host Marriott had
general and limited partner interests in numerous limited partnerships which
owned 240 hotels including 20 full-service hotels, managed by Marriott
International. Debt of the hotel limited partnerships was typically secured by
first mortgages on the properties and was generally nonrecourse to the limited
partnerships and their partners. However, Host Marriott committed to advance
amounts to certain affiliated limited partnerships, if necessary, to cover
certain future debt service requirements; these commitments now have been
assumed by the operating partnership. These commitments are limited, in the
aggregate, to $22 million. Amounts repaid to Host Marriott under these
guarantees totaled $14 million and $2 million in 1998 and 1997, respectively.
Fundings by Host Marriott under these guarantees amounted to $10 million in
1997. There were no fundings in 1998 or 1996. As a result of the REIT
conversion, Host Marriott's interests in the 220 limited-service hotels were
transferred to the non-controlled subsidiaries. Additionally, as part of the
REIT conversion, 13 of the 20 full-service hotels were acquired by us, two were
sold, four were transferred to one of the non-controlled subsidiaries and one
was retained by Host Marriott.
Leases. We lease certain property and equipment under noncancelable
operating leases, including the long-term ground leases for certain hotels,
generally with multiple renewal options. The leases related to the 53 Courtyard
properties and 18 Residence Inn properties sold during 1995 and 1996, are
nonrecourse to us and contain provisions for the payment of contingent rentals
based on a percentage of sales in excess of stipulated amounts. We remain
contingently liable on certain leases related to divested non-lodging
properties. Such contingent liabilities aggregated $93 million at December 31,
1998. However, management considers the likelihood of any substantial funding
related to these divested properties' leases to be remote.
Inflation. Our hotel lodging properties have been impacted by inflation
through its effect on increasing costs and on the managers' ability to increase
room rates. Unlike other real estate, hotels have the ability to change room
rates on a daily basis, so the impact of higher inflation generally can be
passed on to customers. Our exposure to inflation is less now that
substantially all of our hotels are leased to others.
A substantial portion of our debt bears interest at fixed rates. This debt
structure largely mitigates the impact of changes in the rate of inflation on
future interest costs. However, we are currently exposed to some variable
interest rate debt, whose market risk is hedged through interest rate exchange
agreements with financial institutions with an aggregate notional amount of
$327 million. Under the agreements, we collect interest based on one-month
LIBOR (which was a rate of 4.94% at March 26, 1999) and pay interest at fixed
rates ranging from 5.72% to 6.60%. The agreements expire between August 2000
and August 2002. Accordingly, the amount of our interest expense under the
interest rate exchange agreements and the floating rate debt for a particular
year will be affected by changes in short-term interest rates.
42
<PAGE>
Year 2000 Issue
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications
could fail or create erroneous results. The following disclosure provides
information regarding the current status of our Year 2000 compliance program.
We have adopted the compliance program because we recognize the importance
of minimizing the number and seriousness of any disruptions that may occur as a
result of the Year 2000 issue. Our compliance program includes an assessment of
our hardware and software computer systems and embedded systems, as well as an
assessment of the Year 2000 issues relating to third parties with which we have
a material relationship or whose systems are material to the operations of our
hotel properties. Our efforts to ensure that our computer systems are Year 2000
compliant have been segregated into two separate phases: in-house systems and
third-party systems. Following the REIT conversion, Crestline, as the lessee of
most of our hotels, will deal directly with Year 2000 matters material to the
operation of the hotels, and Crestline has agreed to adopt and implement the
program outlined below with respect to third-party systems for all hotels for
which it is the lessee.
In-House Systems. Since the distribution of Marriott International on
October 8, 1993, we have invested in the implementation and maintenance of
accounting and reporting systems and equipment that are intended to enable us
to provide adequately for our information and reporting needs and which are
also Year 2000 compliant. Substantially all of our in-house systems have
already been certified as Year 2000 compliant through testing and other
mechanisms and we have not delayed any systems projects due to the Year 2000
issue. We engaged a third party to review our Year 2000 in-house readiness and
found no problems with any mission critical systems. Management believes that
future costs associated with Year 2000 issues for our in-house systems will be
insignificant and therefore not impact our business, financial condition and
results of operations. We have not developed, and do not plan to develop, a
separate contingency plan for our in-house systems due to their current Year
2000 compliance. We do, however, have the normal disaster recovery procedures
in place should we have a systems failure.
Third-Party Systems. We rely upon operational and accounting systems
provided by third parties, primarily the managers and operators of our hotel
properties, to provide the appropriate property-specific operating systems,
including reservation, phone, elevator, security, HVAC and other systems, and
to provide us with financial information. Based on discussion with the third
parties that are critical to our business, including the managers and operators
of our hotels, we believe that these parties are in the process of studying
their systems and the systems of their respective vendors and service providers
and, in many cases, have begun to implement changes, to ensure that they are
Year 2000 compliant. We have started to receive written assurances that these
third parties will be Year 2000 compliant on time. To the extent these changes
impact property-level systems, we may be required to fund capital expenditures
for upgraded equipment and software. We do not expect these charges to be
material, but we are committed to making these investments as required. To the
extent that these changes relate to a third party manager's centralized
systems, including reservations, accounting, purchasing, inventory, personnel
and other systems, management agreements generally provide for these costs to
be charged to our properties subject to annual limitations, which costs will be
borne by Crestline under the leases. We expect that the third party managers
will incur Year 2000 costs in lieu of costs for their centralized systems
related to systems projects that otherwise would have been pursued and,
therefore, the overall level of centralized systems charges allocated to the
properties will not materially increase as a result of the Year 2000 compliance
effort. We believe that this deferral of certain systems projects will not have
a material impact on our future results of operations, although it may delay
certain productivity enhancements at our properties. We and Crestline will
continue to monitor the efforts of these third parties to become Year 2000
compliant and will take appropriate steps to address any non-compliance issues.
We believe that, in the event of material Year 2000 non-compliance, we will
have the right to seek recourse against the manager under our third party
management agreements. The management agreements, however, generally do not
specifically address the Year 2000 compliance issue. Therefore, the amount of
any recovery in the event of Year 2000
43
<PAGE>
non-compliance at a property, if any, is not determinable at this time, and
only a portion of such recovery would accrue to us through increased lease
rental payments from Crestline.
We and Crestline will work with the third parties to ensure that appropriate
contingency plans will be developed to address the most reasonably likely worst
case Year 2000 scenarios, which may not have been identified fully. In
particular, we and Crestline have had extensive discussions regarding the Year
2000 problem with Marriott International, the manager of a substantial majority
of our hotel properties. Due to the significance of Marriott International to
our business, a detailed description of Marriott International's state of
readiness follows.
Marriott International has adopted an eight-step process toward Year 2000
readiness, consisting of the following:
1. Awareness: fostering understanding of, and commitment to, the problem
and its potential risks;
2. Inventory: identifying and locating systems and technology components
that may be affected;
3. Assessment: reviewing these components for Year 2000 compliance, and
assessing the scope of Year 2000 issues;
4. Planning: defining the technical solutions and labor and work plans
necessary for each affected system;
5. Remediation/Replacement: completing the programming to renovate or
replace the problem software or hardware;
6. Testing and Compliance Validation: conducting testing, followed by
independent validation by a separate internal verification team;
7. Implementation: placing the corrected systems and technology back into
the business environment; and
8. Quality Assurance: utilizing an internal audit team to review
significant projects for adherence to quality standards and program
methodology.
Marriott International has grouped its systems and technology into three
categories for purposes of Year 2000 compliance: (1) information resource
applications and technology (IT Applications)--enterprise-wide systems
supported by Marriott International's centralized information technology
organization ("IR"); (2) Business-initiated Systems ("BIS")--systems that have
been initiated by an individual business unit, and that are not supported by
Marriott International's IR organization; and (3) Building Systems--non-IT
equipment at properties that use embedded computer chips, such as elevators,
automated room key systems and HVAC equipment. Marriott International is
prioritizing its efforts based on how severe an effect noncompliance would have
on customer service, core business processes or revenues, and whether there are
viable, non-automated fallback procedures (System Criticality).
Marriott International measures the completion of each phase based on
documented and quantified results, weighted for System Criticality. As of March
26, 1999, the Awareness and Inventory phases were complete for IT Applications,
BIS and Building Systems. For IT Applications, the Assessment and Planning
phases were complete and Remediation/Replacement and Testing phases were 95
percent complete. Compliance Validation had been completed for approximately
75% of key systems, with most of the remaining work in its final stage. For BIS
and Building Systems, assessment and planning are substantially complete. For
BIS, Remediation/Replacement is substantially complete and testing is in
progress. Marriott International is on track for completion of
Remediation/Replacement and Testing of Building Systems for September 1999.
Compliance validation is in progress for both BIS and Building Systems.
Implementation and Quality Assurance is in progress for IT Applications, BIS
and Building Systems.
Year 2000 compliance communications with Marriott International's
significant third party suppliers, vendors and business partners, including its
franchisees are ongoing. Marriott International's efforts are focused
44
<PAGE>
on the connections most critical to customer service, core business processes
and revenues, including those third parties that support the most critical
enterprise-wide IT Applications, franchisees generating the most revenues,
suppliers of the most widely used Building Systems and BIS, the top 100
suppliers, by dollar volume, of non-IT products, and financial institutions
providing the most critical payment processing functions. Responses have been
received from a majority of the firms in this group. A majority of these
respondents have either given assurances of timely Year 2000 compliance or have
identified the necessary actions to be taken by them or Marriott International
to achieve timely Year 2000 compliance for their products.
Marriott International has established a common approach for testing and
addressing Year 2000 compliance issues for its managed and franchised
properties. This includes a guidance protocol for operated properties, and a
Year 2000 "Toolkit" for franchisees containing relevant Year 2000 compliance
information. Marriott International is also utilizing a Year 2000 best-
practices sharing system.
Risks. There can be no assurances that Year 2000 remediation by us or third
parties will be properly and timely completed, and failure to do so could have
a material adverse effect on us, our business and our financial condition. We
cannot predict the actual effects to us of the Year 2000 problem, which depend
on numerous uncertainties such as: whether significant third parties properly
and timely address the Year 2000 issue and whether broad-based or systemic
economic failures occur. Moreover, we are reliant upon Crestline to interface
with third parties in addressing the Year 2000 issue at the hotels leased by
Crestline. We are also unable to predict the severity and duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or disruption of hotel reservations made on centralized
reservation systems and errors or failures in financial transactions or payment
processing systems such as credit cards. Due to the general uncertainty
inherent in the Year 2000 problem and our dependence on third parties,
including Crestline, we are unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on us. Our Year
2000 compliance program, and Crestline's adoption thereof, are expected to
significantly reduce the level of uncertainty about the Year 2000 problem and
management believes that the possibility of significant interruptions of normal
operations should be reduced.
Accounting Standards. In the fourth quarter of 1996, we adopted SFAS No.
123, "Accounting for Stock Based Compensation". The adoption of SFAS No. 123
did not have a material effect on our financial statements. During 1997, we
adopted SFAS No. 128, "Earnings Per Share", SFAS No. 129, "Disclosure of
Information About Capital Structure" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". The adoption of these
statements did not have a material effect on our consolidated financial
statements and the appropriate disclosures required by these statements have
been incorporated herein.
As of January 3, 1998, we adopted SFAS No. 130, "Reporting Comprehensive
Income" which establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses on our right to receive Host Marriott Services Corporation stock and
foreign currency translation adjustments, to be included in other comprehensive
income. For 1998 and 1997, our other comprehensive income (loss) was ($16
million) and $7 million, respectively. As of December 31, 1998 and January 2,
1998, our accumulated other comprehensive income (loss) was approximately ($4
million) and $12 million, respectively.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective
45
<PAGE>
for fiscal years beginning after June 15, 1999. We have not determined the
impact of SFAS No. 133, but we do not believe it will be material.
On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus of EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
As discussed in Note 1 to the financial statements, we have adopted EITF 97-
2 in the fourth quarter of 1998 with retroactive effect in prior periods to
conform to the new presentation. Application of EITF 97-2 to the consolidated
financial statements for the first quarter 1998, and fiscal years 1998, 1997
and 1996 increased both revenues and operating expenses by approximately $0.5
billion, $2.1 billion, $1.7 billion and $1.2 billion, respectively, and had no
impact on operating profit, net income or earnings per share.
46
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
In table below we provide information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at the
reporting date.
We refinanced or repaid approximately $300 million of variable rate
mortgages with proceeds from the $300 million senior notes offering in February
1999. Additionally, we terminated an associated swap agreement on a $40 million
mortgage, incurring a termination fee of approximately $1 million. We also
completed the refinancing of the New York Marriott Marquis for $245 million of
variable rate debt. The variable interest rate is based on LIBOR and matures in
June 2000. The debt has been included in the following analysis of our variable
debt risks.
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term variable rate
debt:
New York Marriott
Marquis(1)............ $ 14 $331 $-- $-- $-- $-- $245 $245
San Diego Marriott..... 5 5 6 6 7 167 196 190
Hyatt Regency,
Cambridge............. -- 45 -- -- -- -- 45 45
Hyatt Regency, Reston.. -- -- 49 -- -- -- 49 49
Hyatt Regency,
Burlingame............ -- 54 -- -- -- -- 54 54
The Ritz-Carlton,
Amelia Island......... -- -- -- -- 90 -- 90 90
Swissotel.............. 2 3 3 191 -- -- 199 199
Credit facility........ -- -- 350 -- -- -- 350 350
Average Interest
Rate(2)................ 6.89% 6.89% 6.95% 7.07% 7.04% 7.04% 6.89%
<CAPTION>
Expected Expiration Date
--------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Notional Amount
---- ---- ---- ---- ---- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate
Derivatives
Receivables:
Hyatt Regency,
Cambridge............. $-- $ 20 $-- $-- $-- $-- $ 20
Hyatt Regency,
Cambridge............. -- 20 -- -- -- -- 20
Hyatt Regency, Reston.. -- -- 24 -- -- -- 24
Hyatt Regency, Reston.. -- -- 24 -- -- -- 24
Hyatt Regency,
Burlingame............ -- 42 -- -- -- -- 42
Hyatt Regency,
Burlingame............ -- 10 -- -- -- -- 10
Swissotel.............. -- -- -- 188 -- -- 188
Payables:
Hyatt Regency,
Cambridge............. -- 20 -- -- -- -- 20
Hyatt Regency,
Cambridge............. -- 20 -- -- -- -- 20
Hyatt Regency, Reston.. -- -- 24 -- -- -- 24
Hyatt Regency, Reston.. -- -- 24 -- -- -- 24
Hyatt Regency,
Burlingame............ -- 42 -- -- -- -- 42
Hyatt Regency,
Burlingame............ -- 10 -- -- -- -- 10
Swissotel.............. -- -- -- 188 -- -- 188
Average interest rate
receivables(3)......... 4.94% 4.94% 4.94% 4.94% -- -- 4.94%
Payables(4)............. 6.16% 6.15% 6.17% 6.17% -- -- 6.20%
</TABLE>
- --------
(1) In April 1999, the New York Marriott Marquis was refinanced maturing in
June 2000.
(2) Interest rates are based on one-month LIBOR plus certain basis points which
range from zero to 275 basis points. The one-month LIBOR rate at March 26,
1999 was 4.94%. The current yield curve is relatively flat over the
expected maturity dates and, therefore, we have calculated the average
interest rates using the one-month LIBOR rate at March 26, 1998.
(3) Interest rates are at fixed rates ranging from 5.72% to 6.60%.
(4) Our fixed rate debt of $3.7 billion has a fair value which exceeds its
carrying value by $20 million. Substantially all of our fixed rate debt
matures in years subsequent to 2003.
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<PAGE>
BUSINESS AND PROPERTIES
We are a limited partnership owning full service hotel properties as part of
an umbrella partnership real estate investment trust. Host REIT is our sole
general partner. We and our subsidiaries currently own 125 hotels representing
approximately 58,000 rooms located throughout the United States and Canada. The
majority of these hotels are operated under the Marriott, Ritz-Carlton, Four
Seasons, Swissotel and Hyatt brand names, which are among the most respected
and widely recognized brand names in the lodging industry. As described more
fully below, our hotels are held by us and our subsidiaries and leased by us
and our subsidiaries to lessees, principally subsidiaries of Crestline Capital
Corporation. The hotels are managed on behalf of the lessees by subsidiaries of
Marriott International and other companies.
We were formed as a Delaware limited partnership in April 1998, as an
indirect wholly owned subsidiary of Host Marriott Corporation, a Delaware
corporation, in connection with Host Marriott's efforts to reorganize its
business operations to qualify as a REIT for federal income tax purposes. As
part of the REIT conversion, on December 28, 1998, Host Marriott and various of
its subsidiaries contributed to us substantially all of their assets and we
assumed substantially all of their liabilities. As a result, we have succeeded
to the hotel ownership business formerly conducted by Host Marriott, which is
described more fully below. Throughout, the following discussion activities
prior to December 29, 1998, represent the activities of our predecessor, Host
Marriott Corporation and its subsidiaries.
The REIT conversion
During 1998, Host Marriott and its subsidiaries and affiliates consummated a
series of transactions intended to enable it to qualify as a REIT for federal
income tax purposes. As a result of these transactions the hotel ownership
business formerly conducted by Host Marriott and its subsidiaries and other
affiliates is conducted as an umbrella partnership REIT, or UPREIT, through us
and our subsidiaries. Host REIT intends to elect to be treated as a REIT for
federal income tax purposes effective January 1, 1999.
Certain of the transactions comprising the REIT conversion are described
below.
Reorganization of lodging assets. During 1998, Host Marriott reorganized its
hotel ownership assets and certain other assets so that they were owned by us
and our subsidiaries. In exchange for the hotel ownership business, Host
Marriott received a number of OP Units equal to the number of then-outstanding
shares of Host Marriott common stock, and we and our subsidiaries assumed
substantially all of the liabilities of Host Marriott and its subsidiaries.
Host REIT is the sole general partner and holds approximately 78% of our
outstanding OP Units. The remaining interests in us are owned by outside third
parties as a result of the acquisitions described below. We and our
subsidiaries conduct the hotel ownership business.
Host Marriott did not transfer to us and we therefore do not own other
assets formerly held by Host Marriott and its subsidiaries principally
consisting of 31 retirement communities and controlling interests in the
entities that lease our hotels. Most of these assets are owned by Crestline,
formerly a wholly owned subsidiary of Host Marriott. Crestline became a
separate publicly traded company on December 29, 1998 as part of the
shareholder distribution discussed below.
Our acquisitions. Prior to the REIT conversion, Host Marriott and several of
its separate direct and indirect wholly owned subsidiaries were the sole
general partners of eight publicly traded limited partnerships and four private
partnerships in which Host Marriott or a subsidiary owned or held a controlling
interest in 28 full-service hotels operating under the Marriott brand. The
following table lists each of these partnerships and the hotel properties owned
by it or in which it holds a controlling interest.
48
<PAGE>
<TABLE>
<CAPTION>
Partnership Hotel Properties Rooms
- ----------- ---------------- -----
<S> <C> <C>
Public
Atlanta Marriott Marquis II Limited
Partnership (1).................... Atlanta Marriott Marquis 1,671
Desert Springs Marriott Limited
Partnership (1).................... Desert Springs Resort and Spa 884
Hanover Marriott Limited Partnership
(1)................................ Hanover, New Jersey 353
Marriott Diversified American
Hotels, L.P........................ Dayton, Ohio 399
Fairview Park, Virginia 395
Livonia, Michigan 224
Fullerton, California 224
Research Triangle Park, North Carolina 224
Southfield, Michigan 226
Marriott Hotel Properties Limited
Partnership (1)......................Orlando.World Center 1,503
Harbor Beach Resort, Florida 624
Marriott Hotel Properties II Limited
Partnership (1).................... San Antonio Rivercenter 999
New Orleans 1,292
San Ramon, California 368
Santa Clara, California 754
Mutual Benefit Chicago Marriott
Suite Hotel Partners, L.P.......... Chicago O'Hare Suites 256
Potomac Hotel Limited Partnership... Albuquerque, New Mexico 411
Greensboro/High Point, North Carolina 299
Houston Medical Center 386
Mountain Shadows Resort, Arizona 337
Miami Biscayne Bay 605
Raleigh Crabtree, North Carolina (2) 375
Seattle Sea-Tac Airport 459
Tampa Westshore (2) 309
Private
HMC BN Limited Partnership(3)....... Ritz-Carlton, Buckhead, Georgia 553
Ritz-Carlton, Naples, Florida 463
Ivy Street Hotel Limited Partnership
(3)................................ Atlanta Marriott Marquis 1,671
Times Square Marquis Hotel Limited
Partnership (3).................... New York Marriott Marquis 1,919
HMC/RGI Hartford Limited Partnership
(3)................................ Hartford/Farmington 380
</TABLE>
- --------
(1) Host Marriott owned or had a controlling interest in these partnerships
prior to the REIT conversion. These properties were previously
consolidated by Host Marriott.
(2) Host Marriott consolidated these properties through its investments,
including the ownership of mortgage notes prior to the REIT conversion.
(3) We acquired substantially all of the unaffiliated partnership interests
prior to the REIT conversion. These properties were previously consolidated
by Host Marriott.
As part of the REIT conversion, we, directly and through our subsidiaries,
acquired all of the publicly-traded partnerships and the four private
partnerships identified in the table above in exchange for approximately 25
million OP Units. Approximately 8.5 million of these OP Units have been
converted into shares of Host REIT's common stock. Additionally, some of the
limited partners of the publicly-traded partnerships elected to exchange OP
Units for approximately $3 million aggregate principal amount unsecured notes
due December 15, 2005 issued by us. In connection with our issuance of OP Units
to third parties as part of the REIT conversion, including the acquisitions of
the public and private partnerships and the Blackstone acquisition, we issued
approximately 64.5 million OP Units which are convertible into cash or Host
REIT's common stock, at Host REIT's option. These OP Units are restricted from
converting until July 1999, October 1999 and January 2000 when 23.9 million,
11.9 million and 28.8 million units, respectively, are eligible for conversion.
49
<PAGE>
In addition to the partnerships listed above, we own controlling interests
in other private partnerships which Host Marriott has previously consolidated.
Certain of the minority partners in these partnerships retain the right to
exchange their interests in these partnerships for OP Units subject to certain
conditions. We estimate that approximately 10 million OP Units could be issued
at various points in time in the event that all such minority partners were to
elect to exchange their partnership interests.
We also acquired, on December 30, 1998, from The Blackstone Group, a
Delaware limited partnership, and a series of funds controlled by affiliates of
Blackstone Real Estate Partners (together, the "Blackstone Entities"),
ownership of or a controlling interest in 12 upscale and luxury full-service
hotels in the U.S. and a mortgage loan secured by a thirteenth hotel and
certain other assets. As part of the Blackstone acquisition, we also acquired a
25% interest in the U.S. Swissotel management company which was sold in turn to
Crestline at book value. In exchange for these assets, we issued to the
Blackstone Entities approximately 47.7 million OP Units, which OP Units are
redeemable for cash or, at Host REIT's option, Host REIT common stock. We also
assumed debt and made cash payments to the Blackstone Entities totaling, in the
aggregate, approximately $920 million and distributed, in the aggregate,
approximately 1.4 million shares of Crestline common stock and other
consideration to the Blackstone Entities. As a result of the consummation of
the Blackstone acquisition, the Blackstone Entities currently own approximately
16.4% of our outstanding OP Units. The Blackstone hotel portfolio consists of
two Ritz-Carlton, two Four Seasons, one Grand Hyatt, three Hyatt Regency and
four Swissotel properties. John G. Schreiber, co-chairman of Blackstone Real
Estate Partners' investment committee, is a member of Host REIT's Board of
Directors.
Contribution of assets to non-controlled subsidiaries. In connection with
the REIT conversion, two taxable corporations--Rockledge Hotel Properties, Inc.
and Fernwood Hotel Assets, Inc.--were formed in which we own approximately 95%
of the economic interest but none of the voting interest. We refer to these two
subsidiaries as the non-controlled subsidiaries. The non-controlled
subsidiaries hold various assets which were originally contributed to us by
Host Marriott and its subsidiaries, the direct ownership of which by us or our
subsidiaries would jeopardize Host REIT's status as a REIT and/or our status as
a partnership for federal income tax purposes. These assets primarily consist
of interests in certain partnerships or other interests in hotels which are not
leased, and furniture, fixtures and equipment, also known as "FF&E", used in
our hotels and certain international hotels. We have no control over the
operation or management of the hotels or other assets owned by the non-
controlled subsidiaries. The Host Marriott Statutory Employee/Charitable Trust,
the beneficiaries of which are a trust formed for the benefit of certain of our
employees and the J. Willard Marriott Foundation, acquired all of the voting
common stock of each non-controlled subsidiary, representing, in each case, the
remaining approximately 5% of the total economic interests in each non-
controlled subsidiary.
Leases of hotels. Under current federal income tax law, a REIT cannot derive
income from the operation of hotels but can derive rental income by leasing
hotels. Therefore, as part of the REIT conversion, we and our subsidiaries have
leased virtually all of our hotel properties to certain subsidiaries of
Crestline. Generally, there is a separate lessee for each hotel property or
there is a separate lessee for each group of hotel properties that has separate
mortgage financing or has owners in addition to us and our wholly owned
subsidiaries. Each lessee is generally a limited liability company whose
purpose is limited to acting as lessee under an applicable lease. The lessees
under leases of hotels that are managed by subsidiaries of Marriott
International are owned 100% by a wholly owned subsidiary of Crestline,
although Marriott International or its appropriate subsidiary has a non-
economic voting interest on certain matters. The LLC operating agreement or the
limited partnership agreement, as applicable, for such lessees provides that
the Crestline subsidiary or general partner of the lessee will have full
control over the management of the business of the lessee, except with respect
to certain decisions for which the consent of members or partners and the
manager will be required.
The hotel management agreements to which Host Marriott or its subsidiaries
were parties were assigned to the lessees for the term of the applicable
leases. Although the lessees have primary liability under the management
agreements while the leases are in effect, we retain contingent liability under
the management agreements for all obligations that the lessees do not perform.
We also remain primarily liable for certain obligations under the management
agreements.
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<PAGE>
Proposed legislation was introduced in Congress in April 1999 that would
have the effect of enabling a REIT to lease hotels to a wholly owned subsidiary
corporation that could operate hotels directly, provided that the subsidiary
contracts out the management functions to independent third parties. In the
event that this or similar legislation is enacted, then we, at our discretion,
may elect to terminate the leases of our hotels with Crestline subsidiaries and
pay certain termination fees. We cannot predict at this time whether this
legislation will be enacted. If it were to be enacted we do not yet know what
action we might take.
The shareholder distributions. As part of the REIT conversion, Host Marriott
made certain taxable distributions to its shareholders in which they received,
for each share of common stock, (1) one-tenth of one share of common stock of
Crestline and, (2) either $1 cash or 0.087 share of Host Marriott common stock
at the election of the shareholder. The aggregate value of the Crestline common
stock, the common stock and cash distributed to shareholders of Host Marriott
was approximately $510 million.
Operations as a REIT
Host REIT is our sole general partner and manages all aspects of our
business. This includes decisions with respect to sales and purchases of
hotels, the financing of the hotels, the leasing of the hotels, and capital
expenditures for the hotels, subject to the terms of the leases and the
management agreements described below.
Under current federal income tax law, REITs are restricted in their ability
to derive revenues directly from the operations of hotels. Therefore, we lease
virtually all of our hotels to certain entities we refer to as the "lessees."
The lessees pay rent to us and our subsidiaries generally equal to a specified
minimum rent plus rent based on specified percentages of different categories
of aggregate sales at the relevant hotels to the extent such "percentage rent"
would exceed the minimum rent. The lessees operate the hotels pursuant to
management agreements with the managers. Each of the management agreements
provides for certain base and incentive management fees, plus reimbursement of
certain costs, as further described below. Such fee and cost reimbursements are
the primary obligation of the lessees and not us. We remain liable under the
management agreements and the obligation of the lessees to pay such fees could
adversely affect the ability of the lessees to pay the required rent to us. A
summary of the material terms of these leases and management agreements is
provided below.
The leases, through the sales percentage rent provisions, are designed to
allow us to participate in any growth above specified levels in room sales at
the hotels, which management expects can be achieved through increases in room
rates and occupancy levels. Although the economic trends affecting the hotel
industry will be the major factor in generating growth in lease revenues, the
abilities of the lessees and the managers will also have a material impact on
future sales growth.
In addition to external growth generated by new acquisitions, we intend to
carefully and periodically review our portfolio to identify opportunities to
selectively enhance existing assets to improve operating performance through
major capital improvements. Our leases provide us with the right to approve and
finance major capital improvements.
Business Strategy
Our primary objective is to acquire upscale and luxury full service hotel
lodging properties and achieve long-term sustainable growth in "Funds from
Operations" per OP Unit and cash flow. Since the beginning of 1994 we have
grown our hotel portfolio, directly or through our respective subsidiaries, by
105 full-service hotels representing more than 48,000 rooms for an aggregate
purchase price of approximately $6.2 billion. Based upon data provided by Smith
Travel Research, we believe that our full-service hotels outperform the
industry's average occupancy rate by a significant margin. Our full-service
hotels averaged 78.8% occupancy for 1998, for comparable properties, compared
to a 71.1% average occupancy for our competitive set. "Comparable properties"
are those owned by Host Marriott directly or indirectly from the beginning of
each period presented. Our competitive set refers to hotels in the upscale and
luxury full-service segment of the
51
<PAGE>
lodging industry, the segment which is most representative of our full-service
hotels, and consists of Marriott Hotels, Resorts and Suites; Crowne Plaza;
Doubletree; Hyatt; Hilton; Radisson; Red Lion; Sheraton; Westin; and Wyndham.
One commonly used indicator of market performance for hotels is REVPAR,
which measures daily room revenues generated on a per room basis. This does not
include food and beverage or other ancillary revenues generated by the
property. REVPAR represents the product of the average daily room rate charged
and the average daily occupancy achieved. The relatively high occupancy rates
of our hotels, along with increased demand for full-service hotel rooms, have
allowed the managers of our hotels to increase average daily room rates by
selectively raising room rates and by replacing certain discounted group
business with higher-rate group and transient business. As a result, on a
comparable basis, REVPAR for our full-service properties increased
approximately 7.3% and 12.6% in 1998 and 1997, respectively.
Although competition for acquisitions has increased, we believe that the
upscale and luxury full-service segments of the market offer opportunities to
acquire assets at attractive multiples of cash flow and at discounts to
replacement value. We intend to increase our pool of potential acquisition
candidates by considering acquisitions of select non-Marriott and non-Ritz-
Carlton hotels that offer long-term growth potential and are consistent with
the overall quality of our current portfolio. We will focus on upscale and
luxury full-service properties in difficult to duplicate locations with high
barriers to entry, such as hotels located in downtown, airport and
resort/convention locations, which are operated by quality managers. We believe
this ability to acquire hotel properties operated by a variety of quality
managers under long-term contracts represents a strategic advantage over a
number of competitors. For example, in December 1998, we consummated the
Blackstone acquisition for approximately $1.55 billion in a combination of OP
Units, cash, assumed debt and other consideration.
In certain circumstances, we have improved the results of under-performing
hotels by converting them to the Marriott brand. Based upon data provided by
Smith Travel Research, we believe that the Marriott brand has consistently
outperformed the industry. Demonstrating the strength of the Marriott brand
name, our comparable properties generated a 26% REVPAR premium over our
competitive set for 1998. Accordingly, management anticipates that any
additional full-service properties acquired in the future and converted from
other brands to the Marriott brand should achieve higher occupancy rates and
average room rates than has previously been the case for those properties as
the properties begin to benefit from Marriott's brand name recognition,
reservation system and group sales organization. Of our 105 full-service hotels
acquired from the beginning of 1994 through the date hereof, sixteen were
converted to the Marriott brand following their acquisition although such
opportunities have been more limited recently.
We also plan to selectively develop new upscale and luxury full-service
hotels in major urban markets and convention/resort locations with strong
growth prospects, unique or difficult to duplicate sites, high barriers to
entry for other new hotels and limited new supply. We intend to target only
development projects that show promise of providing financial returns that
represent a premium to acquisitions. In 1997, Host Marriott announced that it
would develop the 717-room Tampa Convention Center Marriott for $104 million,
including a $16 million subsidy provided by the City of Tampa.
We believe we are well qualified to pursue our acquisition and development
strategy. Management has extensive experience in acquiring and financing
lodging properties and believes its industry knowledge, relationships and
access to market information provide a competitive advantage with respect to
identifying, evaluating and acquiring hotel assets.
Recent Acquisitions, Dispositions and Developments
In January 1998, one of Host Marriott's subsidiaries acquired an additional
interest in Atlanta Marquis, which owns an interest in the 1,671-room Atlanta
Marriott Marquis Hotel, for approximately $239 million, including the
assumption of approximately $164 million of mortgage debt. It previously owned
a 1.3% general
52
<PAGE>
and limited partnership interest. As noted above, the remaining limited partner
interests in Atlanta Marquis were acquired as part of the REIT conversion.
In March 1998, one of Host Marriott's subsidiaries acquired a controlling
interest in the partnership that owns three hotels: the 359-room Albany
Marriott, the 350-room San Diego Marriott Mission Valley and the 320-room
Minneapolis Marriott Southwest for approximately $50 million. In the second
quarter of 1998, one of Host Marriott's subsidiaries acquired the partnership
that owns the 289-room Park Ridge Marriott in Park Ridge, New Jersey for $24
million. It previously owned a 1% managing general partner interest and a note
receivable interest in such partnership. In addition, Host Marriott's
subsidiary acquired the 281-room Ritz-Carlton, Phoenix for $75 million, the
397-room Ritz-Carlton, Tysons Corner in Virginia for $96 million and the 487-
room Torrance Marriott near Los Angeles, California for $52 million. In the
third quarter of 1998, Host Marriott acquired the 308-room Ritz-Carlton,
Dearborn for approximately $65 million; a subsidiary of Host Marriott also
acquired the 336-room Ritz-Carlton, San Francisco for approximately $161
million, and Host Marriott acquired the 404-room Memphis Crowne Plaza (which
was converted to the Marriott brand upon acquisition) for approximately $16
million. These assets are currently held by us and our subsidiaries.
As noted above, in December 1998, we completed acquisitions of eight public
partnerships and interests in four private partnerships which own or control 28
properties and we consummated the Blackstone acquisition. The Blackstone hotel
portfolio is one of the premier collections of hotel real estate properties
which includes: the 449-room Ritz-Carlton, Amelia Island; the 275-room Ritz-
Carlton, Boston; the 793-room Hyatt Regency Burlingame at San Francisco
Airport; the 469-room Hyatt Regency Cambridge, Boston; the 514-room Hyatt
Regency Reston, Virginia; the 439-room Grand Hyatt Atlanta; the 365-room Four
Seasons Philadelphia; the 246-room Four Seasons Atlanta; the 494-room Drake
(Swissotel) New York; the 630-room Swissotel Chicago; the 498-room Swissotel
Boston and the 348-room Swissotel Atlanta. Additionally, the transaction
included: a $65.6 million first mortgage loan on the 285-room Four Seasons
Beverly Hills; two office buildings in Atlanta--the offices at The Grand
(97,879 sq. ft.) and the offices at the Swissotel (67,110 sq. ft.); and a 25%
interest in the U.S. Swissotel management company (which was transferred to
Crestline).
During 1997, Host Marriott or its subsidiaries acquired, or purchased
controlling interests in, 17 full-service hotels, containing 8,624 rooms, for
an aggregate purchase price of approximately $765 million, including the
assumption of approximately $418 million of debt. Host Marriott's subsidiaries
also completed the acquisition of the 504-room New York Marriott Financial
Center following the acquisition of the mortgage on the hotel for $101 million
in late 1996.
In 1997, Host Marriott or its subsidiaries acquired, or obtained controlling
interests in, five affiliated partnerships, adding 10 hotels to its portfolio.
In January 1997, a subsidiary of Host Marriott acquired a controlling interest
in MHP. MHP owns the 1,503-room Marriott Orlando World Center and a 50.5%
interest in the 624-room Marriott Harbor Beach Resort. In April, a subsidiary
of Host Marriott acquired a controlling interest in the 353-room Hanover
Marriott. In the fourth quarter, a subsidiary of Host Marriott acquired the
Chesapeake Hotel Limited Partnership. This partnership owns the 430-room Boston
Marriott Newton; the 681-room Chicago Marriott O'Hare; the 595-room Denver
Marriott Southeast; the 588-room Key Bridge Marriott in Virginia; the 479-room
Minneapolis/Bloomington Airport Marriott in Minnesota (which we sold in 1999);
and the 221-room Saddle Brook Marriott in New Jersey. In December 1997, a
subsidiary of Host Marriott obtained a controlling interest in the partnership
that owns the 884-room Marriott's Desert Springs Resort and Spa in California
and we acquired the remaining interests in December 1998 as part of the REIT
conversion.
In addition to investments in partnerships in which it already held minority
interests, Host Marriott has been successful in adding properties to its
portfolio through partnership arrangements with either the seller of the
property or the incoming managers, typically Marriott International or a
Marriott franchisee. We now have the financial flexibility and, due to our
existing private partnership investment portfolio, the administrative
infrastructure in place to accommodate such arrangements. We view this ability
as a competitive advantage and expect to enter into similar arrangements to
acquire additional properties in the future.
53
<PAGE>
Through subsidiaries, we currently own four Canadian properties, with 1,636
rooms, and will continue to evaluate other attractive acquisition opportunities
in Canada. In addition, the overbuilding and economic stress currently being
experienced in some European and Pacific Rim countries may eventually lead to
additional international acquisition opportunities. We will acquire
international properties only when such acquisitions achieve satisfactory
returns after adjustments for currency and country risks and tax consequences.
We may also expand certain existing hotel properties where strong
performance and market demand exists. Expansions to existing properties create
a lower risk to us as the success of the market is generally known and
development time is significantly shorter than new construction. We recently
began construction on a 500-room expansion and an additional 15,000 square feet
of meeting space to the 1,503-room Marriott Orlando World Center, which is due
to be completed in early 2000. In July 1998, a subsidiary of Host Marriott
purchased a 13-acre parcel of land for the development of a 295-room Ritz-
Carlton that will serve as an extension of the 463-room Ritz-Carlton, Naples,
which was purchased in September 1996. The existing hotel just completed room,
restaurant and public space refurbishment and is in the process of adding a
world-class spa. In addition, a subsidiary of one of the non-controlled
subsidiaries has entered into a joint venture through which it owns 49% of the
surrounding newly developed 27-hole world-class Greg Norman designed golf
course development. The golf course joint venture was transferred to a non-
controlled subsidiary in connection with the REIT conversion. Our total
investment in expansions and improvements of the Ritz-Carlton, Naples property
is expected to be approximately $97 million. We also completed a 210-room
extension of the Philadelphia Marriott Convention Center in April 1999 at a
cost of approximately $43 million including debt of $9 million.
In February 1999, we sold the Minneapolis/Bloomington Airport Marriott for
$35 million and recorded a gain on the sale of approximately $11 million. We
also may selectively dispose of other hotel assets where we believe we can earn
higher returns on our invested capital.
Hotel Lodging Industry
The lodging industry posted strong gains in 1998, as higher average daily
rates drove increases in REVPAR. Over the last five years, the lodging industry
has benefited from a favorable supply/demand imbalance, driven in part by low
construction levels in the markets in which our hotels compete combined with
high gross domestic product, or "GDP", growth. Recently, however, supply has
begun to moderately outpace demand, causing slight declines in occupancy rates
in the upscale and luxury full-service segments in which we operate. According
to Smith Travel Research, supply in our competitive set increased 1.2% for the
year ended December 31, 1998 versus the same period one year ago while demand
in our competitive set decreased 0.3% for the same period. At the same time,
occupancy declined 1.5% in our competitive set for the year ended December 31,
1998 versus the same period one year ago.
These declines in occupancy, however, were more than offset by increases in
average daily rates which generated higher REVPAR. According to Smith Travel
Research, for the year ended December 31, 1998, average daily rate and REVPAR
for our competitive set increased 6.5% and 5.0%, respectively, versus the same
period one year ago. The current amount of excess supply in the lodging
industry is relatively moderate and much less severe than that experienced in
the lodging industry beginning in 1989, in part because of the greater
financial discipline and lending practices imposed by financial institutions
and public markets today relative to those during the late 1980's.
Within the upscale and luxury full-service segment, our hotels have
outperformed the overall sector. The attractive locations of our hotels, the
limited availability of new building sites for new construction of competing
full-service hotels, and the lack of availability of financing for new full-
service hotels has allowed us to maintain REVPAR and average daily rate
premiums over our competitors in these service segments. On a comparable basis,
average daily rates for our full service hotels increased 6.9% during 1998
compared with 1997. The increase in average daily rate helped generate a strong
increase in comparable hotel REVPAR of 7.3% for the same period. Furthermore,
because our lodging operations have a high fixed-cost component,
54
<PAGE>
increases in REVPAR generally yield greater percentage increases in EBITDA.
While we do not benefit directly from increases in EBITDA levels at our
properties due to the structure of our leases, we should benefit from such
increases due to expected higher market valuations of our properties based on
such elevated EBITDA levels.
We believe that the current environment of excess supply will most likely
continue over the next twelve to eighteen months, although any excess supply is
expected to be moderate given the fact that demand is expected to grow at the
same 1% to 2% rate as projected GDP and new construction has been limited by
capital constraints. Given the relatively long lead time required to develop
urban, convention and resort hotels, we believe that the growth in room supply
in upscale and luxury full-service sub-markets in which we operate will remain
moderate through the year 2000. However, there can be no assurance that growth
in supply will remain moderate or that REVPAR and EBITDA will continue to
improve.
Hotel Lodging Properties
Our lodging portfolio currently consists of 125 upscale and luxury full
service hotels with approximately 58,000 rooms. Our hotel lodging properties
represent quality assets in the upscale and luxury full-service lodging
segments. All but thirteen of our hotel properties are currently operated under
the Marriott or Ritz-Carlton brand names.
To maintain the overall quality of our lodging properties, each property
undergoes refurbishments and capital improvements on a regularly scheduled
basis. Typically, refurbishing has been provided at intervals of five years,
based on an annual review of the condition of each property. For the fiscal
years 1998, 1997 and 1996, we spent $165 million, $129 million and $87 million,
respectively, on capital improvements to existing properties. As a result of
these expenditures, we will be able to maintain high quality rooms at our
properties.
Our hotels average nearly 465 rooms. Thirteen of our hotels have more than
750 rooms. Hotel facilities typically include meeting and banquet facilities, a
variety of restaurants and lounges, swimming pools, gift shops and parking
facilities. Our hotels primarily serve business and pleasure travelers and
group meetings at locations in downtown and suburban areas, near airports and
at resort convention locations throughout the United States. The properties are
generally well situated in locations where there are significant obstacles
faced by potential competitors including downtown areas of major metropolitan
cities at airports and resort/convention locations where there are limited or
no development sites. Marriott International serves as the manager for 99 of
our 125 hotels and all but 13 are part of Marriott International's full-service
hotel system. The Marriott brand name has consistently delivered occupancy and
REVPAR premiums over other brands.
The average age of our properties is sixteen years, although several of our
properties have had substantial, more recent renovations or major additions. In
1998, a subsidiary of Host Marriott substantially completed a two-year $25
million dollar capital improvement program at the New Orleans Marriott which
included renovations to all guest rooms, refurbishment of ballrooms and
restaurant updates. In early 1998, a subsidiary of Host Marriott completed a
$15 million capital improvement program at the Denver Marriott Tech Center. The
program included replacement of guestroom interiors, remodeling of the lobby,
ballroom, meeting rooms and corridors, as well as renovations to the exterior
of the building.
A number of our full-service hotel acquisitions, such as the Memphis
Marriott which was acquired in 1998, were converted to the Marriott brand upon
acquisition. The conversion of these properties to the Marriott brand is
intended to increase occupancy and room rates as a result of Marriott
International's nationwide marketing and reservation systems, its Marriott
Rewards program, group sales force, as well as customer recognition of the
Marriott brand name. The invested capital with respect to these properties is
primarily used for the improvement of common areas, as well as upgrading soft
and hard goods (i.e., carpets, drapes, paint, furniture and additional
amenities). The conversion process typically causes periods of disruption to
these properties as selected rooms and common areas are temporarily taken out
of service. Historically, the conversion properties have shown improvements as
the benefits of Marriott International's marketing and
55
<PAGE>
reservation programs, group sales force and customer service initiatives take
hold. In addition, these properties have generally been integrated into
Marriott International's systems covering purchasing and distribution,
insurance, telecommunications and payroll processing.
The chart below sets forth performance information for our comparable
hotels:
<TABLE>
<CAPTION>
First Quarter Fiscal Year
---------------- ----------------
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comparable Full-Service Hotels(1)
Number of properties........................ 89 89 78 78
Number of rooms............................. 44,386 44,386 38,589 38,589
Average daily rate.......................... $151.87 $147.77 $142.67 $133.45
Occupancy percentage........................ 79.3% 78.0% 78.8% 78.5%
REVPAR...................................... $120.37 $115.32 $112.39 $104.79
REVPAR% change.............................. 4.4% -- 7.3% --
</TABLE>
- --------
(1) Consists of the 89 and 78 properties owned directly or indirectly by Host
Marriott for the first quarter of 1999 and 1998 and entire 1998 and 1997
fiscal years, respectively. These properties, for the respective periods,
represent the "comparable properties". Properties held for less than all
of the periods discussed above, respectively, are not considered
comparable.
The chart below sets forth certain performance information for our hotels:
<TABLE>
<CAPTION>
First Fiscal Year
Quarter ---------------------------
1999 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Number of properties...................... 125 126(1) 95 79
Number of rooms........................... 57,975 58,445(1) 45,718 37,210
Average daily rate........................ $150.86 $140.35 $133.74 $119.94
Occupancy percentage...................... 78.1% 77.7% 78.4% 77.3%
REVPAR.................................... $117.81 $109.06 $104.84 $ 92.71
</TABLE>
- --------
(1) Number of properties and rooms as of December 31, 1998 and includes 25
properties (9,965 rooms) acquired in the public partnerships merger and
the Blackstone acquisition.
The following table presents full service hotel information by geographic
region for first quarter 1999:
<TABLE>
<CAPTION>
No. of Average No. of Average Average
Geographic Region Hotels Guest Rooms Occupancy Daily Rate REVPAR
- ----------------- ------ -------------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Atlanta...................... 11 486 78.8% $147.13 $115.91
Florida...................... 13 513 86.1 177.28 152.59
Mid-Atlantic................. 17 364 70.8 126.81 89.74
Midwest...................... 16 362 71.7 117.41 84.16
New York..................... 11 652 82.0 184.88 151.53
Northeast.................... 12 381 68.7 119.42 82.03
South Central................ 18 497 79.1 137.00 108.30
Western...................... 27 491 80.3 160.51 128.94
Average--All regions......... 125 463 78.1 150.86 117.81
</TABLE>
During 1995 and 1996, Host Marriott divested virtually all of its limited-
service hotel properties through the sale and leaseback of 53 Courtyard
properties and 18 Residence Inn properties. During 1998, limited-service
properties represented less than 2% of our EBITDA from hotel properties and we
expect this percentage to continue to decrease as we continue to acquire full
service properties. These 71 properties that we lease continue to be reflected
in our revenues. The Courtyard and Residence Inn properties are subleased to
subsidiaries of Crestline under sublease agreements and are managed by
Marriott International under long-term management agreements.
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<PAGE>
The following table sets forth as of May 19, 1999, the location and number
of rooms relating to each of our 125 hotels. All of the properties are leased
to a subsidiary of Crestline and operated under Marriott brands by Marriott
International, unless otherwise indicated.
<TABLE>
<CAPTION>
Location Rooms
- -------- -----
<S> <C>
Alabama
Grand Hotel Resort and Golf Club........................................ 306
Arizona
Mountain Shadows Resort................................................. 337
Scottsdale Suites....................................................... 251
The Ritz-Carlton, Phoenix............................................... 281
California
Coronado Island Resort(1)(2)............................................ 300
Costa Mesa Suites....................................................... 253
Desert Springs Resort and Spa........................................... 884
Fullerton(2)............................................................ 224
Hyatt Regency, Burlingame(3)............................................ 793
Manhattan Beach(1)(2)(4)(6)............................................. 380
Marina Beach(1)(2)...................................................... 368
Newport Beach........................................................... 570
Newport Beach Suites.................................................... 250
Ontario Airport(4)(6)................................................... 299
Sacramento Airport(2)(3)(7)............................................. 85
San Diego Marriott Hotel and Marina(2)(6)............................... 1,355
San Diego Mission Valley(4)(6)(7)....................................... 350
San Francisco Airport................................................... 684
San Francisco Fisherman's Wharf......................................... 285
San Francisco Moscone Center(2)......................................... 1,498
San Ramon(2)............................................................ 368
Santa Clara(2).......................................................... 754
The Ritz-Carlton, Marina del Rey........................................ 306
The Ritz-Carlton, San Francisco......................................... 336
Torrance................................................................ 487
Colorado
Denver Southeast(2)..................................................... 595
Denver Tech Center(1)................................................... 625
Denver West(2).......................................................... 307
Marriott's Mountain Resort at Vail(1)................................... 349
Connecticut
Hartford/Farmington..................................................... 380
Hartford/Rocky Hill(2).................................................. 251
Florida
Florida Fort Lauderdale Marina(2)....................................... 580
Harbor Beach Resort(2)(5)(6)(7)......................................... 624
Jacksonville(2)(4)...................................................... 256
Miami Airport(2)........................................................ 782
Miami Biscayne Bay(2)................................................... 605
Orlando World Center.................................................... 1,503
Palm Beach Gardens(4)................................................... 279
Singer Island Holiday Inn(3)............................................ 222
Tampa Airport(2)........................................................ 295
Tampa Westshore(2)...................................................... 309
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Location Rooms
- -------- -----
<S> <C>
The Ritz-Carlton, Amelia Island......................................... 449
The Ritz-Carlton, Naples................................................ 463
Georgia
Atlanta Marriott Marquis(6)............................................. 1,671
Atlanta Midtown Suites(2)............................................... 254
Atlanta Norcross........................................................ 222
Atlanta Northwest....................................................... 400
Atlanta Perimeter(2).................................................... 400
Four Seasons, Atlanta(3)................................................ 246
Grand Hyatt, Atlanta(3)................................................. 439
JW Marriott Hotel at Lenox(2)........................................... 371
Swissotel, Atlanta(3)................................................... 348
The Ritz-Carlton, Atlanta(2)............................................ 447
The Ritz-Carlton, Buckhead.............................................. 553
Illinois
Chicago/Deerfield Suites................................................ 248
Chicago/Downers Grove Suites............................................ 254
Chicago/Downtown Courtyard.............................................. 334
Chicago O'Hare(2)....................................................... 681
Chicago O'Hare Suites(2)................................................ 256
Swissotel, Chicago(3)................................................... 630
Indiana
South Bend(2)........................................................... 300
Louisiana
New Orleans............................................................. 1,290
Maryland
Bethesda(2)............................................................. 407
Gaithersburg/Washingtonian Center....................................... 284
Massachusetts
Boston/Newton........................................................... 430
Hyatt Regency, Cambridge(3)............................................. 469
Swissotel, Boston(3).................................................... 498
The Ritz-Carlton, Boston................................................ 275
Michigan
The Ritz-Carlton, Dearborn.............................................. 308
Detroit Livonia......................................................... 224
Detroit Romulus......................................................... 245
Detroit Southfield...................................................... 226
Minnesota
Minneapolis City Center(2).............................................. 583
Minneapolis Southwest(4)(6)(7).......................................... 320
Missouri
Kansas City Airport(2).................................................. 382
New Hampshire
Nashua.................................................................. 251
New Jersey
Hanover................................................................. 353
Newark Airport(2)....................................................... 590
Park Ridge(2)........................................................... 289
Saddle Brook............................................................ 221
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Location Rooms
- -------- -----
<S> <C>
New Mexico
Albuquerque(2).......................................................... 411
New York
Albany(4)(6)(7)......................................................... 359
New York Marriott Financial Center...................................... 504
New York Marriott Marquis(2)(6)......................................... 1,919
Marriott World Trade Center(1)(2)....................................... 820
Swissotel, The Drake(3)................................................. 494
North Carolina
Charlotte Executive Park(4)............................................. 298
Greensboro/Highpoint(2)................................................. 299
Raleigh Crabtree Valley................................................. 375
Research Triangle Park.................................................. 224
Ohio
Dayton.................................................................. 399
Oklahoma
Oklahoma City........................................................... 354
Oklahoma City Waterford(1)(4)(6)........................................ 197
Oregon
Portland................................................................ 503
Pennsylvania
Four Seasons, Philadelphia(3)........................................... 365
Philadelphia Convention Center(2)(6).................................... 1,410
Philadelphia Airport(2)................................................. 419
Pittsburgh City Center(1)(2)(4)......................................... 400
Tennessee
Memphis(1)(2)........................................................... 404
Texas
Dallas/Fort Worth Airport............................................... 492
Dallas Quorum(2)........................................................ 547
El Paso(2).............................................................. 296
Houston Airport(2)...................................................... 566
Houston Medical Center(2)............................................... 386
JW Marriott Houston..................................................... 503
Plaza San Antonio(1)(2)(4).............................................. 252
San Antonio Rivercenter(2).............................................. 999
San Antonio Riverwalk(2)................................................ 500
Utah
Salt Lake City(2)....................................................... 510
Virginia
Dulles Airport(2)....................................................... 370
Fairview Park(2)........................................................ 395
Hyatt Regency, Reston(3)................................................ 514
Key Bridge(2)........................................................... 588
Norfolk Waterside(2)(4)................................................. 404
Pentagon City Residence Inn............................................. 300
The Ritz-Carlton, Tysons Corner(2)...................................... 397
Washington Dulles Suites................................................ 254
Westfields(1)........................................................... 335
Williamsburg(1)......................................................... 295
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Location Rooms
- -------- ------
<S> <C>
Washington
Seattle SeaTac Airport................................................. 459
Washington, DC
Washington Metro Center(1)............................................. 456
Canada
Calgary(1)............................................................. 380
Toronto Airport(6)..................................................... 423
Toronto Eaton Center(2)................................................ 459
Toronto Delta Meadowvale(3)............................................ 374
------
TOTAL.................................................................... 58,185
======
</TABLE>
- --------
(1) This property was converted to the Marriott brand after acquisition.
(2) The land on which this hotel is built is leased under one or more long-term
lease agreements.
(3) This property is not operated under the Marriott brand and is not managed
by Marriott International.
(4) This property is operated as a Marriott franchised property.
(5) This property is leased to Marriott International.
(6) This property is not wholly owned by us.
(7) This property is not leased to Crestline.
Investments in Affiliated Partnerships
As previously discussed, in connection with the REIT conversion, the non-
controlled subsidiaries were formed to hold various assets. The direct
ownership of those assets by Host REIT or us could jeopardize Host REIT's
status as a REIT or our treatment as a partnership for federal income tax
purposes. Substantially all of our general and limited partner interests in
partnerships owning 220 limited-service hotels were transferred to the non-
controlled subsidiaries prior to year end. Additionally, of the 20 full-service
hotels in which Host Marriott had general and limited partner interests, 13
were acquired by us, two were sold, four were transferred to the non-controlled
subsidiary and one was retained by Host REIT.
Cash distributions provided from these partnerships including distributions
related to partnerships sold, transferred or acquired in 1998 are tied to the
overall performance of the underlying properties and the overall level of debt.
Distributions from these partnerships to Host Marriott were $2 million in 1998
and $5 million in each of 1997 and 1996. All debt of these partnerships is
nonrecourse to us and our subsidiaries, except that we are contingently liable
under various guarantees of debt obligations of certain of the limited-service
partnerships.
Marketing
As of March 26, 1999, 99 of our 125 hotel properties are managed by Marriott
International as Marriott or Ritz-Carlton brand hotels. Thirteen of the 26
remaining hotels are operated as Marriott brand hotels under franchise
agreements with Marriott International. We believe that these Marriott-managed
and franchised properties will continue to enjoy competitive advantages arising
from their participation in the Marriott International hotel system. Marriott
International's nationwide marketing programs and reservation systems as well
as the advantage of the strong customer preference for Marriott brands should
also help these properties to maintain or increase their premium over
competitors in both occupancy and room rates. Repeat guest business in the
Marriott hotel system is enhanced by the Marriott Rewards program, which
expanded the previous Marriott Honored Guest Awards program. Marriott Rewards
membership includes more than 7.5 million members.
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The Marriott reservation system provides Marriott reservation agents
complete descriptions of the rooms available for sale and up-to-date rate
information from the properties. The reservation system also features
connectivity to airline reservation systems, providing travel agents with
access to available rooms inventory for all Marriott and Ritz-Carlton lodging
properties. In addition, software at Marriott's centralized reservations
centers enables agents to immediately identify the nearest Marriott or Ritz-
Carlton brand property with available rooms when a caller's first choice is
fully occupied. Host REIT's website (www.hostmarriott.com) currently permits
users to connect to the Marriott reservation system to reserve rooms in its
hotels.
Competition
Our hotels compete with several other major lodging brands in each segment
in which they operate. Competition in the industry is based primarily on the
level of service, quality of accommodations, convenience of locations and room
rates. Although the competitive position of each of our hotel properties
differs from market to market, we believe that our properties compare favorably
to their competitive set in the markets in which they operate on the basis of
these factors. The following table presents key participants in sectors of the
full service segment of the lodging industry in which we compete:
<TABLE>
<CAPTION>
Segment Representative Participants
------- ---------------------------
<C> <S>
Luxury Full-Service Ritz-Carlton; Four Seasons
Upscale Full-Service Crown Plaza; Doubletree; Hyatt; Hilton; Marriott Hotels,
Resort and Suites; Radisson; Red Lion; Sheraton;
Swissotel; Westin; Wyndham
</TABLE>
Other Real Estate Investments
We have lease and sublease activity relating primarily to Host Marriott's
former restaurant operations. Additionally, as part of the Blackstone
acquisition, we acquired 165,000 square feet of office space in two buildings
in Atlanta. Prior to the REIT conversion, we owned 12 undeveloped parcels of
vacant land, totaling approximately 83 acres, originally purchased primarily
for the development of hotels or senior living communities, which are now owned
by one of the non-controlled subsidiaries.
Employees
Currently, we have approximately 200 employees not including approximately
16 other employees which are covered by a collective bargaining agreement that
are subject to review and renewal on a regular basis. We believe that we and
our managers have good relations with labor unions and have not experienced any
material business interruptions as a result of labor disputes.
Environmental and Regulatory Matters
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws may impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released asbestos-containing materials. Environmental laws also may impose
restrictions on the manner in which property may be used or business may be
operated, and these restrictions may require expenditures. In connection with
our current or prior ownership or operation of hotels, we may be potentially
liable for any such costs or liabilities. Although we are currently not aware
of any material environmental claims pending or threatened against us, no
assurance can be given that a material environmental claim will not be asserted
against us.
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The Leases
In order for Host REIT to qualify as a REIT and for us to be treated as a
partnership for federal income tax purposes, neither we nor Host REIT may
operate our hotels or related properties. Accordingly, we lease the hotels to
lessees, which are primarily wholly owned, indirect subsidiaries of Crestline.
Lessees. There generally is a separate lessee for each hotel or group of
hotels that is owned by us or one of our separate subsidiaries. Each lessee is
generally a Delaware limited liability company, whose purpose is limited to
acting as lessee under the applicable lease(s).
For those hotels where it is the manager, Marriott International or a
subsidiary has a non-economic membership interest in the lessee entitling it to
certain voting rights but no economic rights. The operating agreements for such
lessees provide that the Crestline member of the lessee has full control over
the management of the business of the lessee, except with respect to decisions
for which the consent of the members or partners and the manager are required.
These decisions are:
. dissolving, liquidating, consolidating, merging, selling or leasing all
or substantially all of the assets of the lessee;
. engaging in any other business or acquiring any assets or incurring any
liabilities not reasonably related to the conduct of the lessee's
business;
. instituting voluntary bankruptcy or similar proceedings or consenting to
involuntary bankruptcy or similar proceedings;
. terminating the management agreement relating to the lessee's hotel,
other than by reason of a breach by the manager or upon exercise of
express termination rights in the management agreement;
. challenging the status or rights of the manager or the enforceability of
the manager's consent rights; or
. incurring debt in excess of certain limits.
Upon any termination of the applicable management agreement, these special
voting rights of Marriott International (or its subsidiary) will cease.
Lease terms. Each lease has a fixed term ranging generally from seven to ten
years, depending upon the lease, subject to earlier termination upon the
occurrence of certain contingencies.
Minimum rent; percentage rent; additional charges. Each lease requires the
lessee to pay (1) minimum rent in a fixed dollar amount per year plus (2) to
the extent it exceeds minimum rent, rent based upon specified percentages of
aggregate sales from the applicable hotel, including room sales, food and
beverage sales and other income ("gross revenues"), in excess of specified
thresholds.
Minimum rent is a fixed dollar amount specified in each lease less (1) the
FF&E adjustment (which we describe under "--Personal property limitation"
below) and (2) interest on the working capital notes (which we describe under
"--Working capital" below). Any amounts other than minimum rent and percentage
rent due to the lessor under the leases are referred to as "additional
charges".
The amount of minimum rent and the percentage rent thresholds are to be
adjusted each year. The annual adjustment with respect to minimum rent equals a
percentage of any increase in the Consumer Price Index, or "CPI", during the
previous twelve months. The annual adjustment with respect to percentage rent
thresholds is a specified percentage equal to the weighted average of a
percentage of any increase in CPI plus a specified percentage of any increase
in a regional labor cost index agreed upon by the lessor and the lessee during
the previous twelve months. Neither minimum rent nor percentage rent thresholds
will be decreased because of the annual adjustment.
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Rental payments will be made on a fiscal year basis. The "fiscal year" means
the fiscal year used by the manager. Payments of rent are to be made within two
business days after the required payment date under the management agreement
for each accounting period. "Accounting period" means, for those hotels where
Marriott International is the manager, any of the thirteen four-week accounting
periods which are used in the manager's accounting system. Rent payable for
each accounting period will be the sum of (1) the excess if any, of (x) the
greater of cumulative minimum rent year-to-date or cumulative percentage rent
year-to-date over (y) the total amount of minimum rent and percentage rent paid
year-to-date plus (2) any additional charges due. If the total amount of
minimum rent and percentage rent paid year-to-date, as of any rent payment
date, is greater than both cumulative minimum rent year-to-date and cumulative
percentage rent year-to-date, then the lessor must remit the difference to the
lessee.
The leases generally provide for a rent adjustment in the event of damage,
destruction, partial taking, capital expenditures or an FF&E adjustment.
Lessee expenses. Each lessee is responsible for paying all of the expenses
of operating the applicable hotel(s), including all personnel costs, utility
costs and general repair and maintenance of the hotel(s). The lessee also is
responsible for all fees payable to the applicable manager, including base and
incentive management fees, chain services payments and franchise or system
fees, with respect to periods covered by the term of the lease. The lessee is
not obligated to bear the cost of any capital improvements or capital repairs
to the hotels or the other expenses to be borne by the lessor, as described
below.
Lessor expenses. As the lessor, we are responsible for the following
expenses: real estate taxes, personal property taxes, to the extent the lessor
owns the personal property, casualty insurance on the structures, ground lease
rent payments, required expenditures for FF&E (including maintaining the FF&E
reserve, to the extent such is required by the applicable management agreement)
and capital expenditures.
The consent of the lessor is required for any capital expenditures, except
in an emergency or where the owner's consent is not required under the
management agreement, or a change in the amount of the FF&E reserve payment.
Crestline guarantee. Crestline and its subsidiaries have entered into a
limited guarantee of the lease and management agreement obligations of each
lessee. For each of four identified "pools" of hotels, the cumulative limit of
the guarantee at any time is 10% of the aggregate rents under all leases in
such pool paid with respect to the preceding thirteen full accounting periods
with an annualized amount based upon the minimum rent for those leases that
have not been in effect for thirteen full accounting periods. In the event of a
payment default under any lease or failure of Crestline to maintain certain
minimum net worth or debt service coverage ratios, the obligations under the
guarantees of leases in each pool are secured by excess cash flow of each
lessee in such pool. Such excess cash flow will be collected, held in a cash
collateral account, and disbursed in accordance with agreed cash management
procedures.
Security. The obligations of the lessee are secured by a pledge of all
personal property, tangible and intangible, of the lessee related to or used in
connection with the operation of the hotels, including any cash and receivables
from the manager or others held by the lessee as part of working capital.
Working capital. Upon the commencement of the lease, each lessor sold to the
applicable lessee the existing working capital, including inventory and fixed
asset supplies (as defined in the Uniform System of Accounts for Hotels) and
receivables due from the manager, with respect to the leased hotel, net of
accounts payable and accrued expenses at a price equal to the fair market value
of such assets. The purchase price is represented by a note evidencing a loan
that bears interest at a rate per annum equal to the long-term applicable
federal rate in effect on the commencement of the lease. Interest owed on the
working capital loan is due simultaneously with each periodic rent payment and
the amount of each payment of interest will be credited against such rent
payment. The principal amount of the working capital loan will be payable upon
termination of the lease. At the termination or expiration of the lease, the
lessee will sell to the lessor the then existing
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working capital at a price equal to the value of such assets at that time. The
lessor will pay the purchase price of the working capital by offsetting the
purchase price against the outstanding principal balance of the working capital
loan. To the extent that the value of the working capital delivered to the
lessor exceeds the value of the working capital delivered by the lessor to the
lessee at the commencement of the lease, the lessor will pay to the lessee an
amount equal to the difference in cash. To the extent that the value of the
working capital delivered to the lessor is less than the value of the working
capital delivered by the lessor to the lessee at the commencement of the lease,
the lessee will pay to the lessor an amount equal to the difference in cash.
Termination of leases upon disposition of full-service hotels. In the event
the applicable lessor enters into an agreement to sell or otherwise transfer
any full-service hotel free and clear of the applicable lease, the lessor must
pay the lessee a termination fee equal to the fair market value of the lessee's
leasehold interest for the remaining term of the lease. For purposes of
determining the fair market value, a discount rate of 12% will be used, and the
annual income for each remaining year of the lease will be assumed to be the
average annual income generated by the lessee during the three fiscal years
preceding the termination date or if the hotel has not been in operation for at
least three fiscal years, then the average during the preceding fiscal years
that have elapsed, and if the hotel has not been in operation for at least
twelve months, then the assumed annual income will be determined on a pro forma
basis. Alternatively, the lessor would be entitled to (1) substitute a
comparable hotel or hotels in terms of economics and quality, as agreed to by
the lessee, for any hotel that is sold or (2) sell the hotel subject to the
lease, subject to the lessee's reasonable approval if the sale is to an entity
that does not have sufficient financial resources and liquidity to fulfill the
"owner's" obligations under the management agreement and the lessor's
obligations under the lease, or does not satisfy specified character standards,
without being required to pay a termination fee. In addition, the lessors
collectively and the lessees collectively each have the right to terminate up
to twelve leases without being required to pay any fee or other compensation as
a result of such termination, but the lessors are permitted to exercise such
right only in connection with sales of hotels to an unrelated third party or
the transfer of a hotel to a joint venture in which the operating partnership
does not have a two-thirds or greater interest.
Termination of the leases upon changes in tax laws. In the event that
changes in the federal income tax laws allow the lessors, or subsidiaries or
affiliates of the lessors, to directly operate the hotels without jeopardizing
Host REIT's status as a REIT, the lessors have the right to terminate all, but
not less than all, of the leases, excluding leases of hotels that must still be
leased following the tax law change, in return for paying the lessees the fair
market value of the remaining terms of the leases. The payments are payable in
cash or, subject to certain conditions, shares of Host REIT's common stock, at
the election of the lessor and Host REIT. Current proposed legislation in
Congress would permit a wholly owned subsidiary of ours to act as a lessee of
the hotels. It is not possible at this time to predict whether this legislation
will be enacted in its current form or what actions we will take if it is
enacted in its current form.
Damage or destruction. If a hotel is partially or totally destroyed and is
no longer suitable for use as a hotel as reasonably determined by the lessor,
the lease of such hotel will automatically terminate and the insurance proceeds
will be retained by the lessor, except for any proceeds attributable to
personal property owned by the lessee or business interruption insurance. In
this event, no termination fee will be owed to the lessee. If a hotel is
partially destroyed but is still suitable for use as a hotel, as reasonably
determined by the lessor, the lessee, subject to the lessor agreeing to release
the insurance proceeds to fund the cost of repair and restoration, must apply
the insurance proceeds to restore the hotel to its preexisting condition. The
lessor must fund any shortfall in insurance proceeds less than or equal to five
percent of the estimated cost of repair. The lessor may fund such deficiency,
in its sole discretion, in the event the sum of (a) the insurance proceeds and
(b) that portion of the insurance deductible, if any, which is greater than 5%
of the cost of repair, is less than 95% of the cost of the repair, provided
that if the lessor elects not to fund such shortfall, the lessee may terminate
the lease and the lessor must pay to the lessee a termination fee equal to the
lessee's operating profit for the immediately preceding fiscal year. The term
"lessee's operating profit" will mean for any fiscal year an amount equal to
revenues due to the lessee from the leased property after the payment of all
expenses relating to the operation or leasing of the leased property less rent
paid to the lessor. If and to the extent any damage or
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destruction results in a reduction of gross revenues which would otherwise be
realizable from the operation of the hotel, the lessor will receive all loss of
income insurance and the lessee will have no obligation to pay rent, for any
accounting period until the effects of the damage are restored, in excess of
the greater of (1) one-thirteenth of the total rent paid in the fiscal year
prior to the casualty or (2) percentage rent calculated for the current
accounting period.
Events of default. Except as otherwise provided below, and subject to the
notice and, in some cases, cure periods in the lease, the lease may be
terminated without penalty by the applicable lessor if any of the following
events of default, among others, occur:
. Failure to pay rent within ten days after the due date;
. Failure to comply with, or observe any of, the terms of the lease (other
than the failure to pay rent) for 30 days after notice from the lessor,
including failure to properly maintain the hotel (other than by reason
of the failure of the lessor to perform its obligations under the
lease), such period to be extended for up to an additional 90 days if
such default cannot be cured with due diligence within 30 days;
. Acceleration of maturity of certain indebtedness of the lessee with a
principal amount in excess of $1,000,000;
. Failure of Crestline to maintain minimum net worth or debt service
coverage ratio requirements;
. Filing of any petition for relief, bankruptcy or liquidation by or
against the lessee;
. The lessee voluntarily ceases to operate the hotel for 30 consecutive
days, except as a result of a casualty, condemnation or emergency
situation;
. A change in control of Crestline, the lessee or any subsidiary of
Crestline that is a direct or indirect parent of the lessee. Unless the
change in control involves an adverse party which would include a
competitor in the hotel business, a party without adequate financial
resources, a party that has been convicted of a felony or is controlled
by such a person, or a party who would jeopardize Host REIT's
qualification as a REIT, the lessor must pay a termination fee equal to
the lessee's operating profit from the hotel for the immediately
preceding fiscal year; or
. The lessee, the lessee's direct parent or Crestline defaults under the
assignment of management agreement, the guarantees described above, the
non-competition agreement described below or certain other related
agreements between the parties or their affiliates.
Assignment of lease. A lessee is permitted to sublet all or part of the
hotel or assign its interest under its lease, without the consent of the
lessor, to any wholly owned and controlled single purpose subsidiary of
Crestline, provided that Crestline continues to meet the minimum net worth test
and all other requirements of the lease. Transfers to other parties are
permitted if approved by the lessor.
Subordination to qualifying mortgage debt. The rights of each lessee are
expressly subordinate to qualifying mortgage debt and any refinancing thereof.
A default under the loan documents may result in the termination of the lease
by the lender. The lender is not required to provide a non-disturbance
agreement to the lessee.
The lessor is obligated to compensate the lessee, on a basis equal to the
lease termination provision upon disposition of hotels above, if the lease is
terminated because of a non-monetary default under the terms of a loan that
occurs because of an action or omission by the lessor or its affiliates or a
monetary default where there is not an uncured monetary event of default of the
lessee. In addition, if any loan is not refinanced in a timely manner, and the
loan amortization schedule is converted to a cash flow sweep structure, the
lessee has the right to terminate the lease after a twelve-month cure period
and the lessor would owe a termination fee as provided above. During any period
of time that a cash flow sweep structure is in effect, the lessor must
compensate the lessee for any lost revenue resulting from such cash flow sweep.
We have guaranteed these obligations.
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Personal property limitation. If a lessor reasonably anticipates that the
average tax basis of the items of the lessor's FF&E and other personal property
that are leased to the applicable lessee will exceed 15% of the aggregate
average tax basis of the real and personal property subject to the applicable
lease, the following procedures would apply, subject to obtaining lender
consent where required:
. The lessor would acquire any replacement FF&E that would cause the
applicable limits to be exceeded, and immediately thereafter the lessee
would be obligated either to acquire such excess FF&E from the lessor or
to cause a third party to purchase such FF&E.
. The lessee would agree to give a right of first opportunity to one of
our non-controlled subsidiaries to acquire the excess FF&E and to lease
the excess FF&E to the lessee at an annual rental equal to the market
leasing factor times the cost of the excess FF&E. If such non-controlled
subsidiary does not agree to acquire the excess FF&E and to enter into
such lease, then the lessee may either acquire the excess FF&E itself or
arrange for another third party to acquire such excess FF&E and to lease
the same to the lessee.
. The annual rent under the applicable lease would be reduced in
accordance with a formula based on market leasing rates for the excess
FF&E.
. Certain actions under the leases. The leases prohibit the lessee from
taking the following actions with respect to the management agreement
without notice to the lessor and, if the action would have a material
adverse effect on the lessor, the consent of the lessor:
. terminate the management agreement prior to the expiration of the
term thereof;
. amend, modify or assign the management agreement;
. waive or fail to enforce any right of the "owner" under the
management agreement;
. waive any breach or default by the manager under the management
agreement, or fail to enforce any right of the "owner" in connection
therewith;
. agree to any change in the manager or consent to any assignment by
the manager; or
. take any other action which reasonably would be expected to
materially adversely affect the lessor's rights or obligations under
the management agreement for periods following the termination of
the lease whether upon the expiration of its term or upon earlier
termination as provided for therein.
Change in manager. A lessee is permitted to change the manager or the brand
affiliation of a hotel only with the approval of the applicable lessor, which
approval may not be unreasonably withheld. Any replacement manager must be a
nationally recognized manager with substantial experience in managing hotels of
comparable quality. No such replacement can extend beyond the term of the lease
without the consent of the lessor, which consent may be withheld in the
lessor's sole discretion.
The Management Agreements
General
Upon leasing the hotels, the lessees assumed substantially all of the
obligations of our subsidiaries under the management agreements between those
entities and the subsidiaries of Marriott International and other companies
that currently manage the hotels. As a result of their assumptions of
obligations under the management agreements, the lessees have substantially all
of the rights and obligations of the "owners" of the hotels under the
management agreements for the period during which the leases are in effect,
including the obligation to pay the management and other certain fees
thereunder, and hold us harmless with respect thereto. Notwithstanding the
lessee's assumption of our obligations, however, we remain liable to the
manager for all obligations under the management agreements.
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Management services provided by Marriott International and affiliates
General. Under each management agreement related to a Marriott
International-managed hotel, the manager provides complete management services
to the applicable lessees in connection with its management of such lessee's
hotels.
Operational services. The managers have sole responsibility and exclusive
authority for all activities necessary for the day-to-day operation of the
hotels, including establishment of all room rates, the processing of
reservations, procurement of inventories, supplies and services, periodic
inspection and consultation visits to the hotels by the managers' technical and
operational experts and promotion and publicity of the hotels. The manager
receives compensation from the lessee in the form of a base management fee and
an incentive management fee, which are normally calculated as percentages of
gross revenues and operating profits, respectively.
Executive supervision and management services. The managers provide all
managerial and other employees for the hotels; review the operation and
maintenance of the hotels; prepare reports, budgets and projections; provide
other administrative and accounting support services, such as planning and
policy services, financial planning, divisional financial services, risk
planning services, product planning and development, employee planning,
corporate executive management, legislative and governmental representation and
certain in-house legal services; and protect the "Marriott" trademark and other
tradenames and service marks. The manager also provides a national reservations
system.
Chain services. The management agreements require the manager to furnish
chain services that are furnished generally on a central or regional basis to
hotels in the Marriott hotel system. These services include: (1) the
development and operation of computer systems and reservation services, (2)
regional management and administrative services, regional marketing and sales
services, regional training services, manpower development and relocation costs
of regional personnel and (3) such additional central or regional services as
may from time to time be more efficiently performed on a regional or group
level. Costs and expenses incurred in providing these services are allocated
among all hotels in the Marriott hotel system managed by the manager or its
affiliates and each applicable lessee is required to reimburse the manager for
its allocable share of these costs and expenses.
Working capital and fixed asset supplies. The lessee is required to maintain
working capital for each hotel and fund the cost of fixed asset supplies, which
principally consist of linen and similar items. The applicable lessee also is
responsible for providing funds to meet the cash needs for the operations of
the hotels if at any time the funds available from operations are insufficient
to meet the financial requirements of the hotels.
Use of affiliates. The manager employs the services of its affiliates to
provide certain services under the management agreements. Certain of the
management agreements provide that the terms of affiliates employment must be
no less favorable to the applicable lessee, in the reasonable judgment of the
manager, than those that would be available from the manager.
FF&E replacements. The management agreements generally provide that once
each year the manager will prepare a list of FF&E to be acquired and certain
routine repairs that are normally capitalized to be performed in the next year
and an estimate of the funds necessary therefor. Under the terms of the leases,
the lessor is required to provide to the applicable lessee all necessary FF&E
for the operation of the hotels, including funding any required FF&E
replacements. For purposes of funding the FF&E replacements, a specified
percentage (generally 5%) of the gross revenues of the hotel is deposited by
the manager into a book entry account. These amounts are treated under the
leases as paid by the lessees to the lessor and will be credited against their
rental obligations. If the manager determines that more than 5% of the gross
revenues of the hotel is required to fund repairs for a certain period, the
manager may increase the percentage of gross revenues to be deposited into the
FF&E reserve account for such periods. In such event, the lessor may elect to
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fund such increases through annual increases in the amount deposited by the
manager in the FF&E reserve account or to make a lump-sum contribution to the
FF&E reserve account of the additional amounts required. If the lessor adopts
the first election, the deductions are credited against the rental obligations
of the lessee. If the lessor fails to elect either option within thirty days of
the request for additional funds or fails to pay the lump-sum within 60 days of
its election to do so, the manager may terminate the management agreement.
Under certain circumstances, the manager may make repairs in addition to those
set forth on its list, but in no event may it expend more than the amount in
the FF&E reserve account without our consent and the lessee's.
Under certain of the management agreements, the lessor must approve the FF&E
replacements, including any FF&E replacements proposed by the manager that are
not contained on the annual list which was approved by the lessor and the
lessee. If the manager and the lessor agree, the lessor would acquire or
otherwise provide the FF&E replacements set forth on the approved list. If the
lessor and the manager are unable to agree on the list within 60 days of its
submission, the lessor would be required to make only those FF&E replacements
specified on such list that are no more extensive than the system standards for
FF&E replacements that the manager requires for Marriott hotels. For purposes
of funding the FF&E replacements required to be paid for by the operating
partnership, each management agreement and the lessor's loan agreements require
the lessor to deposit a designated amount into the FF&E reserve account
periodically. The lessees have no obligation to fund the FF&E reserve accounts
and any amounts deposited therein by the manager from funds otherwise due the
lessee under the management agreement will be credited against the lessee's
rental obligation. Under each lease, the lessor is responsible for the costs of
FF&E replacements and for decisions with respect thereto subject to its
obligations to the lessee under the lease.
Building alterations, improvements and renewals. The management agreements
require the manager to prepare an annual estimate of the expenditures necessary
for major repairs, alterations, improvements, renewals and replacements to the
structural, mechanical, electrical, heating, ventilating, air conditioning,
plumbing and vertical transportation elements of each hotel. Such estimate must
be submitted to the lessor and the lessee for their approval. In addition to
the foregoing, the management agreements generally provide that the manager may
propose such changes, alterations and improvements to the hotel as are
required, in the manager's reasonable judgment, to keep the hotel in a
competitive, efficient and economical operating condition or in accordance with
Marriott standards. The cost of the foregoing is paid from the FF&E reserve
account; to the extent that there are insufficient funds in such account, we
are required to pay any shortfall. Under the management agreements and the
leases, neither the lessor nor the lessee may unreasonably withhold consent to
repairs and other changes which are required under applicable law or any of the
manager's "life-safety" standards and, if the lessor and the lessee fail to
approve any of the other proposed repairs or other changes within 75 days of
the request therefor, the manager may terminate the management agreement. Under
certain of the other management agreements, if the lessor and the manager are
unable to agree on the estimate within 60 days of its submission, the lessor is
required to make only those expenditures that are no more extensive than the
manager requires for Marriott hotels generally, as the case may be. Under the
terms of the leases, the lessor is responsible for the costs of the foregoing
items and for decisions with respect thereto, subject to its, obligations to
the lessees under the leases.
Service marks. During the term of the management agreements, the service
mark "Marriott" and other symbols, logos and service marks currently used by
the manager and its affiliates may be used in the operation of the hotels.
Marriott International or its applicable affiliates intends to retain its legal
ownership of these marks. Any right to use the service marks, logo and symbols
and related trademarks at a hotel will terminate with respect to that hotel
upon termination of the management agreement with respect to that hotel.
Termination fee. Certain of the management agreements provide that if the
management agreement is terminated prior to its full term due to casualty,
condemnation or the sale of the hotel, the manager would receive a termination
fee as specified in the specific management agreement. Under the leases, the
responsibility for the payment of any such termination fee as between the
lessee and the lessor depends upon the cause for such termination.
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Termination for failure to perform. Most of the management agreements may be
terminated based upon a failure to meet certain financial performance criteria,
subject to the manager's right to prevent termination by making certain
payments to the lessee based upon the shortfall in those criteria.
Events of default. Events of default under the management agreements
include, among others, the following:
. the failure of either party to make payments pursuant to the management
agreement within ten days after written notice of such nonpayment has
been made;
. the failure of either party to perform, keep or fulfill any of the
covenants, undertakings, obligations or conditions set forth in the
management agreement and the continuance of such default for a period of
30 days after notice of said failure or, if such default is not
susceptible of being cured within 30 days, the failure to commence said
cure within 30 days or the failure thereafter diligently to pursue such
efforts to completion;
. if either party files a voluntary petition in bankruptcy or insolvency
or a petition for reorganization under any bankruptcy law or admits that
it is unable to pay its debts as they become due;
. if either party consents to an involuntary petition in bankruptcy or
fails to vacate, within 90 days from the date of entry thereof, any
order approving an involuntary petition by such party; or
. if an order, judgment or decree by any court of competent jurisdiction,
on the application of a creditor, adjudicating either party as bankrupt
or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial
part of such party's assets is entered, and such order, judgment or
decree continues unstayed and in effect for any period of 90 days.
As described above, all fees payable under the management agreements are
obligations of the lessees, to be paid by the lessees for so long as the leases
remain in effect. The lessees' obligations to pay these fees, however, could
adversely affect the ability of one or more lessees to pay base rent or
percentage rent payable under the leases, even though such amounts otherwise
are due and owing to the lessor. Moreover, we remain obligated to the manager
to the extent the lessee fails to pay these fees.
Assignment of management agreements. The management agreement applicable to
each hotel has been assigned to the applicable lessee for the term of the lease
of such hotel. The lessee is obligated to perform all of the obligations of the
lessor under the management agreement during the term of its lease, other than
certain retained obligations including, without limitation, payment of real
property taxes, property casualty insurance and ground rent, and maintaining a
reserve fund for FF&E replacements and capital expenditures, for which the
lessor retains responsibility. Although the lessee has assumed obligations of
the lessor under the management agreement, the lessor is not released from its
obligations and, if the lessee fails to perform any obligations, the manager
will be entitled to seek performance by or damages from the lessor. If the
lease is terminated for any reason, any new or successor lessee must meet
certain requirements for an "approved lessee" or otherwise be acceptable to
Marriott International. The requirements for an "approved lessee" include that
the entity:
. has sufficient financial resources and liquidity to fill the obligations
under the management agreement;
. is not in control of or controlled by persons who have been convicted of
felonies;
. is not engaged, or affiliated with any person or entity engaged in the
business of operating a branded hotel chain having 5,000 or more guest
rooms in competition with Marriott International; and
. must be a single purpose entity in which Marriott International has a
non-economic membership interest with the same rights as it has in the
current lessee.
Any new lease must be in substantially the same form as the current lease or
otherwise be acceptable to Marriott International.
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Non-competition agreements
Crestline. Pursuant to a non-competition agreement entered into in
connection with the leases, Crestline has agreed, among other things, that
until the earlier of December 31, 2008 and the date on which it is no longer a
lessee for more than 25% of the number of the hotels owned by us on December
29, 1998, it will not engage in various activities. These activities include
(1) owning, operating or otherwise controlling any full-service hotel brand or
franchise, (2) purchasing, financing or otherwise investing in full-service
hotels, (3) acting as an agent or consultant with respect to any of the
foregoing activities, (4) having a financial interest in any person or entity
which engages in any of the foregoing activities or (5) leasing or managing
full-service hotels other than hotels owned by us, in each case if its economic
return would be more similar to returns derived from ownership interests in
hotels. These prohibited activities do not preclude (a) acquisitions of
property used in hotels as to which a subsidiary of Crestline is the lessee,
(b) investments in full-service hotels which represent an immaterial portion of
a merger or similar transaction or a minimal portfolio investment in another
entity, (c) limited investments in full-service hotels as to which a subsidiary
of Crestline is the lessee or a permitted manager or (d) activities undertaken
with respect to its business of providing asset management services to hotel
owners. Crestline also will not, without our consent, manage any of the hotels
owned by us, other than to provide asset management services.
We have agreed with Crestline, among other things, that, until December 31,
2003, we will not:
(1) own, operate or manage any senior living communities,
(2) purchase, finance or otherwise invest in senior living communities,
(3) act as an agent or consultant with respect to any of those activities
in (1) or (2) except for acquisitions of communities which represent an
immaterial portion of a merger or similar transaction or for minimal
portfolio investments in other entities,
(4) have a financial interest in any person who engages in any of the
activities described in (1) through (3),
(5) until the earlier of December 31, 2008 and the date on which
subsidiaries of Crestline are no longer lessees for more than 25% of
the number of the hotels owned by us on December 29, 1998, lease or
sublease limited-or full-service hotel properties from any "real estate
investment trust" within the meaning of Sections 856 through 859 of the
Internal Revenue Code where we will not be the operator or manager of
the hotel other than through a contractual arrangement with a non-
affiliated party and where our rental payments qualify as "rents from
real property" within the meaning of Section 856(d) of the Internal
Revenue Code,
(6) act as an agent or consultant with respect to any of the foregoing
activities except for acquisitions of entities which engage in any of
the activities where the prohibited activities represent:
(a) an immaterial portion of a merger or similar transaction;
(b) minimal portfolio investments in other entities which engage in any
of the foregoing activities,
(7) purchase, finance or otherwise invest in persons or entities which
engage in any of those activities described in (5) or (6),
In addition, both Crestline and we have agreed not to hire or attempt to
hire any of the other's senior employees at any time prior to December 31,
2000.
Marriott International. We entered into a noncompetition agreement with
Marriott International that defines our rights and obligations with respect to
certain businesses operated by each of us. Crestline became an additional party
to this agreement at the time its shares were distributed to Host Marriott's
stockholders. At that time, we also entered into an agreement with Crestline
under which we agreed with Crestline about the allocation between us of the
rights to engage in certain activities permitted under the agreement with
Marriott International. In general, until October 8, 2000, we and our
subsidiaries are prohibited from entering into or acquiring any business that
competes with the hotel management business (i.e., managing, operating or
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franchising full-service or limited-service hotels) as conducted by Marriott
International. Pursuant to this agreement, we cannot:
(1) operate any hotel under a common name with any other hotel we operate
or with any hotel operated by Crestline,
(2) have a manager other than Marriott International or one of its
affiliates manage any limited-service hotel for us under a common name
with any other limited-service hotel managed by such manager for us or
for Crestline,
(3) have a manager other than Marriott International or one of its
affiliates manage more than the greater of
(a) 10 full-service hotels under a common name which is a brand other
than the existing brands of "Delta", "Four Seasons", "Holiday Inn",
"Hyatt" and "Swissotel" or
(b) 25% of any system operated by such manager under a common name
which is not an existing brand,
(4) have a manager (other than Marriott International or one of its
affiliates) manage more than the greater of
(a) 5 full-service hotels under a common name which is an existing
brand or
(b) 12.5% of any system operated by such manager under a common name
which is an existing brand,
(5) franchise as franchisor any limited-service hotel under a common name
with any other limited-service hotel for which we or Crestline is a
franchisor or
(6) franchise as franchisor more than 10 full-service hotels under a common
name.
Legal Proceedings
In connection with the REIT conversion, we assumed all liability arising
under legal proceedings filed against Host Marriott and will indemnify Host
REIT as to all such matters. We believe all of the lawsuits in which Host
Marriott is a defendant, including the following lawsuits, are without merit
and we intend to defend vigorously against such claims; however, no assurance
can be given as to the outcome of any of the lawsuits.
Texas Multi-Partnership Lawsuit. On March 16, 1998, limited partners in
several limited partnerships sponsored by us filed a lawsuit, Robert M. Haas,
Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc.,
et al., Case No. 98-CI-04092, in the 57th Judicial District Court of Bexar
County, Texas, alleging that the defendants conspired to sell hotels to the
partnerships for inflated prices and that they charged the partnerships
excessive management fees to operate the partnerships' hotels. The plaintiffs
further allege that the defendants committed fraud, breached fiduciary duties
and violated the provisions of various contracts. The plaintiffs are seeking
unspecified damages. On March 18, 1999, two limited partners in Courtyard by
Marriott Limited Partnership filed a class action petition in intervention
seeking to convert the lawsuit into a class action. The court has not yet ruled
on this petition.
Atlanta Marquis. Certain limited partners of Atlanta Marriott Marquis
Limited Partnership ("AMMLP") filed a putative class action lawsuit, Hiram and
Ruth Sturm v. Marriott Marquis Corporation, et al., Case No. 97-CV-3706, in the
U.S. District Court for the Northern District of Georgia, on December 12, 1997
against AMMLP's general partner, its directors and Host Marriott, regarding the
merger of AMMLP into a new partnership as part of the refinancing of AMMLP's
debt. The plaintiffs allege that the defendants misled the limited partners in
order to induce them to approve the AMMLP merger, violated securities
regulations and federal roll-up regulations and breached their fiduciary duties
to the partners. The plaintiffs sought to enjoin, or in the alternative,
rescind the AMMLP merger and damages. The partnership agreement includes
provisions which require AMMLP to indemnify the general partners against
losses, expenses and fees. On November 13, 1998, the court dismissed all of the
federal securities law claims and retained jurisdiction over the state law
claims for breach of fiduciary duty and breach of contract.
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Another limited partner of AMMLP sought similar relief and filed a separate
lawsuit, styled Poorvu v. Marriott Marquis Corporation, et al., Civil Action
No. 16095-NC, on December 19, 1997, in Delaware State Chancery Court. The
defendants have filed an answer to the complaint.
Courtyard II. A group of partners in Courtyard by Marriott II Limited
Partnership ("CBM II") filed a lawsuit, Whitey Ford, et al. v. Host Marriott
Corporation, et al., Case No. 96-CI-08327, on June 7, 1996, in the 285th
Judicial District Court of Bexar County, Texas, against Host Marriott, Marriott
International and others alleging breach of fiduciary duty, breach of contract,
fraud, negligent misrepresentation, tortious interference, violation of the
Texas Free Enterprise and Antitrust Act of 1983 and conspiracy in connection
with the formation, operation and management of CBM II and its hotels. The
plaintiffs are seeking unspecified damages. On January 29, 1998, two other
limited partners filed a petition in intervention seeking to convert the
lawsuit into a class action. The defendants have filed an answer, the class has
been certified, class counsel has been appointed, and discovery is underway. On
March 11, 1999, Palm Investors, L.L.C., the assignee of a number of limited
partnership units acquired through various tender offers, filed a plea in
intervention to bring additional claims relating to the 1993 split of Marriott
Corporation and to the 1995 refinancing of CBM II's indebtedness. This plea
also seeks the addition of Ernst & Young, L.L.P. and E&Y Kenneth Leventhal Real
Estate Services Co. as additional defendants for their appraisal role in the
1995 refinancing. The original plaintiffs subsequently filed a second amended
complaint on March 19, 1999.
MHP II. Limited partners of Marriott Hotel Properties II Limited Partnership
("MHP II") are asserting putative class claims in lawsuits filed in Palm Beach
County Circuit Court on May 10, 1996, Leonard Rosenblum, as Trustee of the
Sylvia Bernice Rosenblum Trust, et al. v. Marriott MHP Two Corporation, et al.,
Case No. CL-96-4087-AD, and, in Delaware State Chancery Court on April 24,
1996, Cary W. Salter, Jr., et al. v. MHP II Acquisition Corp., et al.,
respectively, against Host Marriott and certain of our affiliates alleging that
the defendants violated their fiduciary duties and engaged in fraud and
coercion in connection with the tender offer for MHP II units.
The defendants removed the Florida action to the United States District
Court for the Southern District of Florida and, after hearings on various
procedural motions, the District Court remanded the case to state court on July
25, 1998. The defendants then filed motions to dismiss Rosenblum's fifth
amended complaint or, in the alternative, to deny class certification in the
state court case. The state court held a hearing on these motions on October
27, 1998 but did not issue a ruling at that time. Thereafter, and prior to any
ruling on the defendants' motions, Rosenblum filed a motion seeking leave to
file a sixth amended complaint adding allegations relating to the partnership
merger of MHP II and adding additional plaintiffs. On February 2, 1999, the
court granted Rosenblum's motion to file an amended complaint and denied as
moot the defendants' motion to dismiss the earlier complaint.
On June 12, 1996, the Delaware Chancery Court entered an order denying the
Delaware plaintiffs' application to enjoin the tender offer for MHP II units.
The Delaware plaintiffs subsequently moved to voluntarily dismiss the Delaware
action. The Chancery Court granted this motion, but with the proviso that the
plaintiffs could only refile in the Florida federal action. After the District
Court's remand of the Rosenblum case to Florida state court, two of the three
original Delaware plaintiffs asked the Chancery Court to reconsider its order
granting their voluntary dismissal. The Chancery Court refused to allow the
plaintiffs to join the Rosenblum action in Florida and, instead, reinstated the
Delaware case, now styled In Re Marriott Hotel Properties II Limited
Partnership Unitholders Litigation, Consolidated Civil Action No. 14961. On
January 29, 1999, Cary W. Salter alone filed an Amended Consolidated Class
Action Complaint in the Delaware action, adding allegations relating to the
partnership merger of MHP II. As a result of these recent developments in the
Delaware case, the defendants filed a motion to stay the Florida action. The
Florida court denied this motion, and the defendants have appealed to the
Fourth District Court of Appeal of Florida.
Potomac Hotel Limited Partnership. On July 15, 1998, one limited partner in
Potomac Hotel Limited Partnership, or PHLP, filed a class action lawsuit styled
Michael C. deBerardinis v. Host Marriott Corporation, Civil Action No WMN 98-
2263, in the United States District Court for the District of Maryland. The
plaintiff
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alleged that Host Marriott misled PHLP's limited partners in order to induce
them into approving the sale of one of PHLP's hotels, violated the securities
regulations by issuing a false and misleading consent solicitation and breached
fiduciary duties and the partnership agreement. The complaint sought
unspecified damages. On February 16, 1999, the District Court dismissed the
federal securities claims with prejudice and the state law claims without
prejudice. On March 9, 1999, the plaintiff filed a class action complaint in
Montgomery County, Maryland Circuit Court in a case styled Michael C.
deBerardinis v. Host Marriott Corporation, Civil No. 197694-V, to further
pursue the state law claims.
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INVESTMENT AND OTHER POLICIES
We have policies with respect to investments, financing, lending,
distributions and other activities. We may amend or revise any of these
policies from time to time.
Investment Policies
Investments in real estate or interests in real estate. Our investment
objectives are to (1) achieve long-term sustainable growth in Funds from
Operations per OP Unit, (2) increase asset values by improving and expanding
our existing hotels, as appropriate, (3) acquire additional existing and newly
developed upscale and luxury full-service hotels in targeted markets, (4)
develop and construct upscale and luxury full-service hotels and (5)
potentially pursue other real estate investments. Our business is primarily
focused on upscale and luxury full-service hotels. Where appropriate, and
subject to REIT qualification rules and limitations contained in our
partnership agreement, we may sell hotels.
We may participate with other entities in property ownership through joint
ventures or other types of co-ownership. Equity investments that we make may be
subject to existing mortgage financing and other indebtedness or financing or
indebtedness may be incurred in connection with acquiring investments.
Financing or indebtedness incurred in acquiring an investment will have
priority over our equity interest in such property.
Investments in real estate mortgages. We emphasize equity real estate
investments. However, we may, in our discretion, invest in mortgages and other
similar interests. We do not intend to invest to a significant extent in
mortgages or deeds of trust, but we may acquire mortgages as a strategy for
acquiring ownership of a property or the economic equivalent thereof, subject
to the investment restrictions applicable to REITs. In addition, we may invest
in mortgage-related securities and/or may seek to issue securities representing
interests in mortgage-related securities as a method of raising additional
funds.
Securities of or interests in persons primarily engaged in real estate
activities and other issuers. Subject to the percentage ownership limitations
and gross and asset income tests necessary for REIT qualification, we may
invest in securities of other entities engaged in real estate activities or
invest in securities of other issuers, including for the purpose of exercising
control of other REITs or similar entities where such investments would be
consistent with our investment policies. We will not make such investments,
however, unless the Board of Directors of Host REIT determines that the
proposed investment would not cause either Host REIT or us to be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Financing Policies
Our partnership agreement currently contains no restrictions on incurring
debt. We do, however, have a policy of incurring debt only if upon our
incurrence of debt, the consolidated debt-to-total market capitalization of
Host REIT would be 60% or less. In addition, the indenture and credit facility
impose limitations on the incurrence of indebtedness. We may, from time to
time, reduce our outstanding indebtedness by repurchasing a portion of our
outstanding indebtedness, subject to certain restrictions contained in our
partnership agreement and the terms of our outstanding indebtedness. From time
to time we may reevaluate borrowing market values of properties, growth and
acquisition opportunities and other factors.
We may raise capital through equity offerings, debt financing or retention
of cash flow or a combination of these methods.
In the future, we may seek to extend, expand, reduce or renew our credit
facility, or obtain new credit facilities or lines of credit, subject to our
general policy relating to the ratio of debt-to-total market capitalization,
for the purpose of making acquisitions or capital improvements or providing
working capital meeting the taxable income distribution requirements for REITs
under the Internal Revenue Code.
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We have not established any limit on the number or amount of mortgages that
may be placed on any single hotel or on our portfolio as a whole, although our
objective is to reduce reliance on secured indebtedness.
Distribution Policy
We pay regular quarterly distributions to holders of OP Units. We pay these
distributions during January, April, July and October of each year.
Although the Internal Revenue Code generally requires a REIT to distribute
95% of its taxable income for each year, our policy is to make distributions at
a level that enables Host REIT to distribute to its shareholders an amount
equal to 100% of its taxable income, other than capital gains, which will be
addressed on a case-by-case basis, for each year no later than the end of
January of the following year. Our distributions are paid from cash available
for distribution. However, to the extent that cash available for distribution
is insufficient, we may borrow funds in order to make these distributions
consistent with our distribution policy.
Lending Policies
We may consider offering purchase money financing in connection with the
sale of a hotel where the provision of such financing will increase the value
received for the hotel sold.
Policies with Respect to Other Activities
We will not engage in trading, underwriting, agency distribution or sale of
securities of other issuers.
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MANAGEMENT
Executive Officers and Directors of Host REIT
As the operating partnership for Host REIT's properties, we are the employer
of the business's employees. However, we do not have officers and directors.
Rather, we are controlled by Host REIT as our sole general partner. In the
following table we set forth information with respect to persons who are the
directors and executive officers of Host REIT.
<TABLE>
<CAPTION>
Name Age Position With The Host Partnership (or Host REIT)
- ---- --- ----------------------------------------------------
<S> <C> <C>
Richard E. Marriott(1).. 60 Chairman of the Board of Directors
J.W. Marriott, Jr.(1)... 67 Director
R. Theodore Ammon....... 49 Director
Robert M. Baylis........ 60 Director
Ann Dore McLaughlin..... 57 Director
Harry L. Vincent, Jr.... 79 Director
John G. Schreiber....... 52 Director
Terence C. Golden....... 54 Director, President and Chief Executive Officer
Christopher J.
Nassetta............... 36 Executive Vice President and Chief Operating Officer
Robert E. Parsons, Jr... 43 Executive Vice President and Chief Financial Officer
Christopher G.
Townsend............... 51 Senior Vice President, General Counsel and Secretary
Donald D. Olinger....... 40 Senior Vice President and Controller
</TABLE>
- --------
(1) Richard E. Marriott and J.W. Marriott, Jr. are brothers.
Below we present a biographical summary of the experience of the persons who
are the directors and executive officers of Host REIT.
Richard E. Marriott. Mr. Richard E. Marriott has been a director of Host
Marriott since 1979 and is a director of each of Marriott International, Host
Marriott Services Corporation, Potomac Electric Power Company and the
Polynesian Cultural Center, and he is chairman of the board of First Media
Corporation. He also served as a director of subsidiaries of Host Marriott and
is a past president of the National Restaurant Association. In addition, Mr.
Marriott is the president and a trustee of the Marriott Foundation for People
with Disabilities. Mr. Marriott's term as a director of Host REIT will expire
at the 2001 annual meeting of shareholders. Mr. Marriott joined Host Marriott
in 1965 and has served in various executive capacities. In 1984, he was elected
executive vice president, and in 1986, he was elected vice chairman of the
board of directors. In 1993, Mr. Marriott was elected chairman of the board.
Mr. Marriott also has been responsible for management of Host REIT's government
affairs functions.
J.W. Marriott, Jr. Mr. J.W. Marriott, Jr. has been a director of Host
Marriott since 1964 and is chairman of the board and chief executive officer of
Marriott International, and a director of each of Host Marriott Services
Corporation, General Motors Corporation and the U.S.-Russia Business Council.
He also serves on the boards of trustees of the Mayo Foundation, Georgetown
University and the National Geographic Society. He is on the President's
Advisory Committee of the American Red Cross, the Executive Committee of the
World Travel & Tourism Council and is a member of the Business Council and the
Business Roundtable. Mr. Marriott's term as a director of Host REIT will expire
at the 2002 annual meeting of shareholders.
R. Theodore Ammon. Mr. Ammon has been a director of Host Marriott since 1992
and is a private investor and Chairman of Big Flower Holdings, Inc. He was
formerly a general partner of Kohlberg Kravis Roberts & Company (a New York and
San Francisco-based investment firm) from 1990 to 1992, and was an executive of
such firm prior to 1990. Mr. Ammon is also a member of the board of directors
of Samsonite Corporation and Culligan Water Technologies, Inc. In addition, he
serves on the boards of directors of the New York YMCA, Jazz @ Lincoln Center
and the Institute of International Education and on the board of trustees of
Bucknell University. Mr. Ammon's term as a director of Host REIT will expire at
the 2001 annual meeting of shareholders.
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Robert M. Baylis. Mr. Baylis has been a director of Host Marriott since 1996
and is a director of The International Forum, an executive education program of
the Wharton School of the University of Pennsylvania. He was formerly Vice
Chairman of CS First Boston. Mr. Baylis also serves as a director of each of
New York Life Insurance Company, Covance, Inc. and Gryphon Holdings, Inc. In
addition, he is an overseer of the University of Pennsylvania Museum of
Archeology and Anthropology. Mr. Baylis's term as a director of Host REIT will
expire at the 2000 annual meeting of shareholders.
Ann Dore McLaughlin. Ms. McLaughlin has been a director of Host Marriott
since 1993 and currently is chairman of the Aspen Institute. She formerly
served as president of the Federal City Council from 1990 until 1995. Ms.
McLaughlin has served with distinction in several U.S. administrations in such
positions as Secretary of Labor and Under Secretary of the Department of the
Interior. She also serves as a director of each of AMR Corporation, Fannie Mae,
General Motors Corporation, Kellogg Company, Nordstrom, Potomac Electric Power
Company, Union Camp Corporation, Donna Karan International, Inc., Vulcan
Materials Company, Harman International Industries, Inc. and Sedgwick Group
plc. Ms. McLaughlin's term as a director of Host REIT will expire at the 2000
annual meeting of shareholders.
Harry L. Vincent, Jr. Mr. Vincent has been a Director of Host Marriott since
1969 and is a retired vice chairman of Booz-Allen & Hamilton, Inc. He also
served as a director of Signet Banking Corporation from 1973 until 1989. Mr.
Vincent's term as a director of Host REIT will expire at the 2002 annual
meeting of shareholders.
John G. Schreiber. Mr. Schreiber has been a director of Host Marriott since
1998 and is president of Schreiber Investments, Inc. and a senior advisor and
partner of Blackstone Real Estate Advisors, L.P. Mr. Schreiber serves as a
trustee of AMLI Residential Properties Trust and as a director of each of Urban
Shopping Centers, Inc., JMB Realty Corporation and a number of mutual funds
advised by T. Rowe Price Associates, Inc. Prior to his retirement as an officer
of JMB Realty Corporation in 1990, Mr. Schreiber was chairman and CEO of
JMB/Urban Development Company and an executive vice president of JMB Realty
Corporation. Mr. Schreiber's term as a director of Host REIT will expire at the
2002 annual meeting of shareholders.
Terence C. Golden. Mr. Golden has been a director of Host Marriott since
1995 and was named president and chief executive officer of Host Marriott in
1995. Mr. Golden also served as a director of certain subsidiaries of Host
Marriott. He also serves as chairman of Bailey Realty Corporation and Bailey
Capital Corporation and various affiliated companies. In addition, Mr. Golden
is chairman of the Washington Convention Center and a director of Prime Retail,
Inc., Cousins Properties, Inc., The Morris and Gwendolyn Cafritz Foundation and
the District of Columbia Early Childhood Collaborative. He is also a member of
the executive committee of the Federal City Council. Mr. Golden's term as a
director of Host REIT will expire at the 2000 annual meeting of shareholders.
Prior to joining Host Marriott, Mr. Golden was chairman of Bailey Realty
Corporation and prior to that had served as chief financial officer of The
Oliver Carr Company. Before joining The Oliver Carr Company, he served as
administrator of the General Services Administration and as Assistant Secretary
of Treasury, and he was co-founder and national managing partner of Trammel
Crow Residential Companies.
Christopher J. Nassetta. Mr. Nassetta joined Host Marriott in October 1995
as executive vice president and was elected chief operating officer of Host
Marriott in 1997. Prior to joining Host Marriott, Mr. Nassetta served as
president of Bailey Realty Corporation from 1991 until 1995. He had previously
served as Chief Development Officer and in various other positions with The
Oliver Carr Company from 1984 through 1991.
Robert E. Parsons, Jr. Mr. Parsons joined the Corporate Financial Planning
staff of Host Marriott in 1981 and was made assistant treasurer in 1988. In
1993, Mr. Parsons was elected senior vice president and treasurer of Host
Marriott, and in 1995, he was elected executive vice president and chief
financial officer of Host Marriott. Mr. Parsons was president and an initial
director of Host REIT but resigned from such position upon the REIT conversion.
Mr. Parsons is now Executive Vice President and Chief Financial Officer of Host
REIT.
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Christopher G. Townsend. Mr. Townsend joined the Law Department of Host
Marriott in 1982 as a Senior attorney. In 1984, Mr. Townsend was made assistant
secretary of Host Marriott, and in 1986, he was made assistant general counsel.
In 1993, Mr. Townsend was elected senior vice president, corporate secretary
and deputy general counsel. In January 1997, he was elected general counsel.
Mr. Townsend was vice president and an initial director of Host REIT but
resigned from such positions prior to the REIT conversion. Mr. Townsend is now
senior vice president, general counsel and secretary of Host REIT.
Donald D. Olinger. Mr. Olinger joined Host Marriott in 1993 as director--
corporate accounting. Later in 1993, Mr. Olinger was promoted to senior
director and assistant controller. He was promoted to vice president--corporate
accounting in 1995. In 1996, he was elected senior vice president and corporate
controller. Mr. Olinger was vice president of Host REIT but resigned from such
position prior to the REIT conversion. Mr. Olinger is now senior vice president
and corporate controller of Host REIT. Prior to joining Host Marriott, Mr.
Olinger was with the public accounting firm of Deloitte & Touche.
The Board of Directors and Committees of the Board
Presently, the board of directors is composed of eight members, six of whom
are not officers or employees of Host REIT.
The board has adopted three standing committees: (1) audit, (2) compensation
policy and (3) nominating and corporate governance. The audit committee is
composed of five directors who are not employees of Host REIT, namely, R.
Theodore Ammon (Chair), Harry L. Vincent, Jr., Ann Dore McLaughlin, Robert M.
Baylis and John G. Schreiber. The audit committee meets at least three times a
year with the independent auditors, management representatives and internal
auditors; recommends to the board of directors appointment of independent
auditors; approves the scope of audits and other services to be performed by
the independent and internal auditors; considers whether the performance of any
professional service by the auditors other than services provided in connection
with the audit function could impair the independence of the outside auditors;
and reviews the results of internal and external audits, the accounting
principles applied in financial reporting, and financial and operational
controls. The independent auditors and internal auditors have unrestricted
access to the audit committee and vice versa.
The compensation policy committee is composed of six directors who are not
employees of Host REIT, namely, Harry L. Vincent, Jr. (Chair), R. Theodore
Ammon, Robert M. Baylis, J.W. Marriott, Jr., Ann Dore McLaughlin and John G.
Schreiber. The compensation policy committee's functions include
recommendations on policies and procedures relating to senior officers'
compensation and various employee stock plans, and approval of individual
salary adjustments and stock awards in those areas.
The nominating and corporate governance committee is composed of six
directors who are not employees of Host REIT, namely, Ann Dore McLaughlin
(Chair), Harry L. Vincent, Jr., R. Theodore Ammon, Robert M. Baylis, J.W.
Marriott, Jr. and John G. Schreiber. It considers candidates for election as
directors and is responsible for keeping abreast of and making recommendations
with respect to corporate governance in general. In addition, the nominating
and corporate governance committee fulfills an advisory function with respect
to a range of matters affecting the board of directors and its committees,
including the making of recommendations with respect to qualifications of
director candidates, compensation of directors, the selection of committee
chairs, committee assignments and related matters affecting the functioning of
the board.
Compensation of directors
Directors who are also officers of Host REIT receive no additional
compensation for their services as directors. Directors who are not officers
receive an annual retainer fee of $30,000 as well as an attendance fee of
$1,250 for each shareholders' meeting, meeting of the board of directors or
meeting of a committee of the board of directors, regardless of the number of
meetings held on a given day. The chair of each committee of the board of
directors receives an additional annual retainer fee of $1,000, except for the
chair of the
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<PAGE>
compensation policy committee, Mr. Vincent, who receives an annual retainer fee
of $6,000. The higher annual retainer fee paid to the chair of the compensation
policy committee relates to his additional duties which include, among other
things, the annual performance appraisal of the chief executive officer on
behalf of the board, although the final performance appraisal is determined by
the board. Any individual director receiving these fees may elect to defer
payment of all or any portion of such fees pursuant to Host REIT's executive
deferred compensation plan and/or its non-employee directors' deferred stock
compensation plan. Directors are also reimbursed for travel expenses and other
out-of-pocket costs incurred in attending meetings or in visiting Marriott or
Ritz-Carlton hotels or other properties controlled by Host REIT or by Marriott
International, Inc.
In addition, pursuant to Host REIT's non-employee directors' deferred stock
compensation plan, those directors who are not employees of Host REIT or its
affiliates (other than J.W. Marriott, Jr.) have received an annual award of 750
deferred shares of common stock. Upon the proposal of the Host REIT's senior
management, the board amended the non-employee directors' stock plan to replace
the fixed annual award of 750 deferred shares of common stock with an annual
award of deferred shares having a value equal to the amount of the annual
retainer fee paid to directors who are not employees of Host REIT or its
affiliates. The board has also amended the non-employee directors' stock plan
to permit participants under the plan to be credited with dividend equivalents
which are equal in value to the dividends paid with respect to shares of common
stock.
Executive Compensation
Summary of Compensation
In the table below we set forth a summary of the compensation paid by Host
Marriott for the last three fiscal years to the chief executive officer of Host
Marriott and the four additional most highly compensated executive officers of
Host Marriott for its fiscal year 1998.
Table I
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted
Other Annual Stock All Other
Fiscal Salary(1) Bonus(2) Compensation Awards(3)(4) Compensation(5)
Name and Principal Position Year ($) ($) ($) ($) ($)
- --------------------------- ------ --------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Marriott 1998 290,450 116,180 275,607(6)(7) 2,138,750 23,923
Chairman of the Board 1997 271,449 108,580 212,324(6)(7) 0 22,668
1996 262,951 105,180 223,162(6)(7) 0 21,439
Terence C. Golden 1998 669,782 602,804 67,489(8) 11,800,000 73,051
President and Chief
Executive Officer 1997 619,045 557,141 58,783(8) 354,693 66,105
1996 600,017 480,013 0 10,476,603 560,827(9)
Christopher J. Nassetta 1998 382,563 286,922 0 7,375,000 36,970
Executive Vice President
and Chief 1997 338,889 254,167 0 0 36,231
Operating Officer 1996 328,447 263,490 0 3,647,513 119,168(9)
Robert E. Parsons, Jr. 1998 369,583 277,187 0 6,195,000 36,970
Executive Vice President 1997 338,889 254,167 0 0 36,231
and Chief Financial
Officer 1996 328,447 263,490 0 3,658,277 26,273
Christopher G. Townsend 1998 215,904 118,747 0 1,696,250 19,683
Senior Vice President 1997 202,962 111,629 0 1,015,800 18,405
and General Counsel 1996 186,232 102,428 0 0 15,891
</TABLE>
- --------
(1) Fiscal year 1996 base salary earnings were for 53 weeks. All other fiscal
year base salary earnings were for 52 weeks. Salary amounts include base
salary earned and paid in cash during the fiscal year and the amount of
base salary deferred at the election of the named executive officer under
Host REIT's executive deferred compensation plan. An increase in base
salary for the period November 2, 1997 through the end of the fiscal year
was paid in 1998 and reported as 1997 earnings. The 1998 salary includes a
competitive pay adjustment, paid in 1999 but effective as of November 2,
1998 and reported as 1998 earnings, resulting from a compensation study
conducted by an independent consulting firm retained by the compensation
policy committee of the board of directors.
79
<PAGE>
(2) Bonus includes the amount of cash bonus earned pursuant to Host REIT's
performance-based annual incentive bonus plan and to the named individual's
performance-based bonus plan during the fiscal year and either paid
subsequent to the end of each fiscal year or deferred under the executive
deferred compensation plan.
(3) Restricted Stock. Restricted stock awards are subject to general
restrictions, such as continued employment, and performance restrictions.
Holders of restricted stock receive dividends and exercise voting rights on
their restricted shares. For the 1998 award (effective in 1999) the named
executive officers have agreed that any cash dividends on the shares of
restricted stock will, after withholding for or payment of any taxes due on
the dividends, be reinvested in shares of common stock either through a
dividend reinvestment program or otherwise. Deferred Bonus Stock. The
amount of a deferred bonus stock award generally equals 20 percent of each
individual's annual cash bonus award, based on the stock price on the last
trading day for the fiscal year. Holders of deferred bonus stock awards do
not receive dividends or exercise voting rights on their deferred bonus
stock until such stock has been distributed to them. The recipient can
designate an award as current, which is distributed in 10 annual
installments beginning one year after the award is granted, or deferred,
which is distributed in a lump sum or in up to 10 annual installments
following termination of employment. Deferred bonus stock awards
contingently vest in 10 equal annual installments beginning one year after
the award is granted.
(4) In late 1998, the compensation policy committee approved the grant of
restricted stock to certain key employees, including the Chief Executive
Officer and the four additional most highly compensated executive officers,
which became effective in 1999 and vests over a three-year period (the
"1998 Award"). Under the terms of the 1998 Award, restricted shares granted
in previous years which would have vested for time and performance periods
beginning on and after January 1, 1999, and for Mr. Marriott ending before
January 1, 2002, were forfeited and replaced by the 1998 Award. The 1998
Award reflects the dollar value of the restricted shares at the date of
grant without adjustments for any shares granted in previous years that
were forfeited and replaced. Seventy percent of the shares under the 1998
Award have performance restrictions and thirty percent have general
restrictions conditioned upon continued employment. The performance
criteria are based upon the measurement of Host REIT's annual stock
performance (Shareholder Return Performance) and the relative performance
of the stock measured against a published peer index (Relative
Performance), subject to approval by the compensation policy committee. For
shares awarded during 1996 and 1997, sixty percent of the shares awarded to
each executive officer had annual performance restrictions, and forty
percent of the shares awarded had general restrictions conditioned upon
continued employment. The total number of restricted or deferred shares
held by each named executive officer as of the end of the 1998 fiscal year
(exclusive of the 1998 Award itself, but inclusive of the shares forfeited
in connection with the 1998 Award), and the aggregate value of these shares
is as follows:
<TABLE>
<CAPTION>
Deferred Bonus Aggregate Value at
Named Executive Restricted Stock Stock 12/31/98
--------------- ---------------- -------------- ------------------
<S> <C> <C> <C>
Mr. Marriott.............. 240,000 0 $3,277,440
Mr. Golden................ 549,020 0 7,497,417
Mr. Nassetta.............. 292,475 0 3,994,039
Mr. Parsons............... 308,754 3,666 4,291,522
Mr. Townsend.............. 60,000 3,652 1,180,503
</TABLE>
The following chart shows (1) the total number of restricted shares
granted in the 1998 Award, (2) the total number of restricted shares
previously granted which were forfeited as a condition of receiving the 1998
Award, and (3) the total number of restricted shares granted in the 1998
Award as adjusted to reflect the initial earnings and profits dividend made
pursuant to the REIT conversion (including the spin-off of Crestline Capital
Corporation):
<TABLE>
<CAPTION>
1998 Restricted Stock Previous Restricted 1998 Restricted Stock
Awards Stock Awards Awards
Named Executive (before adjustment) Forfeited (as adjusted)
--------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C>
Mr. Marriott............ 145,000 120,000 150,176
Mr. Golden.............. 800,000 340,416 895,151
Mr. Nassetta............ 500,000 121,255 578,414
Mr. Parsons............. 420,000 130,986 479,837
Mr. Townsend............ 115,000 18,667 134,945
</TABLE>
(5) This column represents matching contributions made under Host REIT's
retirement and savings plan and executive deferred compensation plan for
fiscal year 1998, as follows:
<TABLE>
<CAPTION>
Retirement and Executive Deferred
Named Executive Savings Plan Compensation Plan
--------------- -------------- ------------------
<S> <C> <C>
Mr. Marriott............................... $9,600 $14,324
Mr. Golden................................. 9,600 63,451
Mr. Nassetta............................... 9,600 27,370
Mr. Parsons................................ 9,600 27,370
Mr. Townsend............................... 9,600 10,083
</TABLE>
- --------
(6) Effective beginning in 1996, Mr. Marriott waived (1) payments due to be
made to him under the executive deferred compensation plan following his
retirement and (2) common stock due to be distributed to him under Host
REIT's 1993 comprehensive stock
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<PAGE>
incentive plan following his retirement as an officer of Host REIT. In
connection with this waiver, Host REIT entered into an arrangement to
purchase life insurance policies for the benefit of a trust established by
Mr. Marriott. The cost of the life insurance policies to Host REIT has been
actuarially determined and will not exceed the projected after-tax cost
Host REIT expected to incur in connection with the payments under the
executive deferred compensation plan and the stock distributions under the
1993 stock incentive plan that were waived by Mr. Marriott.
(7) Amount also includes $97,000, $92,000, and $86,700 in 1998, 1997 and 1996,
respectively, for the allocation of personnel costs for non-company
business, and $133,626, $101,535 and $108,194 in 1998, 1997 and 1996,
respectively, for additional cash compensation to cover taxes payable for
all other compensation in this column.
(8) Amount represents reimbursement of travel expenses of Mr. Golden's spouse
when she accompanies him on Host REIT business trips, plus additional cash
compensation to cover taxes payable for such reimbursement.
(9) As part of their restricted stock agreements with the Host REIT, Mr. Golden
and Mr. Nassetta were awarded 44,910 and 8,421 shares of common stock,
respectively, on February 1, 1996. The value of the shares on the date of
grant was $516,465 for Mr. Golden and $96,842 for Mr. Nassetta.
Options/SAR grants in last fiscal year
The table below sets forth information as of December 31, 1998 concerning
the issuance of stock appreciation rights ("SARs") in the last fiscal year.
Effective as of December 29, 1998, Host REIT entered into an issuance agreement
with Mr. R.E. Marriott pursuant to which all of his outstanding options for
common stock were canceled and replaced with SARs on equivalent economic terms.
Host REIT did not grant any other options or SARs to the named executive
officers listed on the Executive Compensation Table I above in fiscal year
1998.
Table II
SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percentage
of Total Potential Realizable Value
Number of SARs at Assumed Annual Rates of Stock
Securities Granted to Market Price Appreciation for SAR Term
Underlying Employees Exercise Price on ($)
SARs in Fiscal or Base Grant Expiration ---------------------------------
Name Granted(1) Year($) Price ($) Date($) Date 0%(2) 5% 10%
---- ---------- ---------- --------- -------- ---------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R.E. Marriott........... 29,930 45.7 1.1990 13.6560 10/12/2005 372,838 533,227 744,731
R.E. Marriott........... 19,395 27.8 2.2075 13.6560 10/03/2006 222,044 340,870 512,347
R.E. Marriott........... 17,360 26.5 2.7070 13.6560 10/20/2007 190,075 311,565 501,976
------ ----- --------- ----------- -----------
Total................... 66,685 100.0 784,957 1,185,662 1,759,054
</TABLE>
- --------
(1) The SARs listed in this table replace options previously granted and
reported in the amounts of 25,000, 16,200 and 14,500, respectively, which
were canceled pursuant to the issuance agreement described above. The
number of SARs has been adjusted to reflect the distribution of all of the
outstanding common stock of Crestline Capital Corporation and the remainder
of the earnings and profits dividend in connection with the REIT
conversion.
(2) For years prior to this year's conversion of Mr. Marriott's outstanding
stock options to SARs, these amounts were reported as Exercisable under the
"Value of Unexercised In-the-Money Options" on the Aggregated Stock Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table (see
Table III).
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<PAGE>
Aggregated Stock Option Exercises and Year-End Value
The table below sets forth, on an aggregated basis, (1) information
regarding the exercise during fiscal year 1998 of options to purchase common
stock (and shares of common stock of other companies which Host REIT has
previously spun off) by each of the named executive officers listed on the
Executive Compensation table above, and (2) the value on December 31, 1998 of
all unexercised options held by such individuals. Terence C. Golden and
Christopher J. Nassetta do not have any options to purchase stock in any of the
companies listed in the following table.
Table III
Aggregated Stock Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired on Value Fiscal Year End(2)(#) Fiscal Year End(3)($)
Exercise Realized -------------------------------- -------------------------
Name Company(1) (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ---------- ----------- -------- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.E. Marriott........... HM 0 0 0 0 0 0
HMS 0 0 11,140 0 100,223 0
MI 0 0 122,634 0 3,008,980 0
TOTAL 0 0 133,525 0 3,109,203 0
R.E. Parsons, Jr........ HM 5,000 75,853 18,229 0 197,022 0
HMS 1,000 11,667 3,045 0 25,299 0
MI 1,625 104,877 0 0 0 0
TOTAL 7,625 192,397 21,274 0 222,321 0
C.G. Townsend........... HM 0 0 8,353 0 90,816 0
HMS 1,395 15,927 0 0 0 0
MI 0 0 0 0 0 0
TOTAL 1,395 15,927 8,353 0 90,816 0
</TABLE>
- --------
(1) "HM" represents options to purchase common stock. "HMS" represents options
to purchase Host Marriott Services Corporation's common stock. "MI"
represents options to purchase Marriott International's common stock.
(2) The number and terms of these options reflect several adjustments made as a
result of the spin-off of Marriott International from Host Marriott in
October 1993; the spin-off of Host Marriott Services from Host Marriott in
December 1995; the spin-off of Marriott International from Sodexho Marriott
Services Corporation in March 1998; and the REIT conversion (and the
related spin-off of Crestline Capital Corporation) in December 1998, each
in accordance with the applicable employee benefit plans covering those
options. These adjustments preserved, but did not increase or decrease, the
economic value of the options.
(3) Based on a per share price for common stock of $13.656, a per share price
for Host Marriott Services common stock of $10.344, and a per share price
for Marriott International common stock of $29.5940. These prices reflect
the average of the high and low trading prices on the New York Stock
Exchange on December 31, 1998.
Employment Arrangements
The terms and conditions of employment of Messrs. Golden, Nassetta, Parsons
and Townsend, are governed, in part, by a written "Key Executives/Termination
of Employment" policy. The policy provides a basic framework to govern the
termination of employment under specific circumstances. This policy is not a
binding contract and can be changed by Host REIT unilaterally at any time. The
terms of the policy are subject to the approval of the board of directors or
the chief executive officer/president, as applicable.
Terms and conditions of Mr. Golden's employment are also governed by a
written employment agreement which provides for an annual salary of $575,000,
which was increased to $653,000 for 1998. Under the
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<PAGE>
agreement, in the event of a "termination event" (defined as the significant
reduction in Mr. Golden's responsibilities, a requirement to relocate, a change
in control, a change in his responsibility to Host REIT's chairman or his
failure to receive a bonus equal to at least half of the maximum bonus
available to be earned for a particular year), Mr. Golden will receive a
payment equal to one year's salary and an amount equal to the maximum bonus
that could have been earned for the year in which such termination event
occurs, and the restrictions will be lifted on all remaining restricted stock
held by Mr. Golden. If terminated without cause, Mr. Golden will receive one
year's salary and bonus and the restrictions will be lifted on the restricted
stock that is not subject to performance goals. In the event of termination for
cause or resignation, Mr. Golden will receive no termination payment and
restricted stock will be canceled.
1998 Employee Benefits Allocation Agreement
As part of the REIT conversion, we entered into an employee benefits and
other employment matters allocation agreement with Host REIT and Crestline
which governs the allocation of responsibilities with respect to various
compensation, benefits and labor matters. Under the allocation agreement,
Crestline assumed liabilities relating to covered benefits and labor matters
with respect to individuals who were employed by Host REIT or its affiliates
before they became employed by Crestline or its affiliates, and we assumed
certain other liabilities relating to employee benefits and labor matters. The
allocation agreement also governs the treatment of awards under Host Marriott's
1997 comprehensive stock incentive plan, as part of the REIT conversion. The
allocation agreement required Crestline to establish its own 1998 comprehensive
stock incentive plan to grant awards of Crestline's common stock.
Limitation of Liability and Indemnification
The directors and officers of Host REIT perform actions in those capacities
for Host REIT, as our sole general partner, which could result in their
incurrence of liability. The Maryland General Corporation Law ("MGCL") permits
a Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its shareholders
for money damages except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) acts committed
in bad faith or active and deliberate dishonesty established by a final
judgment as being material to the cause of action. The charter of Host REIT
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland law.
The charter of Host REIT authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (1) any
present or former director or officer or (2) any individual who, while a
director of Host REIT and at the request of Host REIT, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim
or liability to which such person may become subject or which such person may
incur by reason of his or her status as a present or former director or officer
of Host REIT. The bylaws of Host REIT obligate it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director or officer
of Host REIT and at the request of Host REIT, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer
or partner of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity, against
any claim or liability to which he may become subject by reason of such status.
The charter and bylaws also permit Host REIT to indemnify and advance expenses
to any person who served as a predecessor of Host REIT in any of the capacities
described above and to any employee or agent of Host REIT or a predecessor of
Host REIT. The bylaws require Host REIT to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity.
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<PAGE>
The MGCL permits a Maryland corporation to indemnify and advance expenses to
its directors, officers, employees and agents. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may
be made a party by reason of their service in those or other capacities unless
it is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed in
bad faith or (2) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, under the MGCL, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation. In
accordance with the MGCL, the bylaws of Host REIT require it, as a condition to
advancing expenses, to obtain (1) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by Host REIT as authorized by the bylaws and (2)
a written statement by or on his behalf to repay the amount paid or reimbursed
by Host REIT if it will ultimately be determined that the standard of conduct
was not met.
Our partnership agreement also provides for indemnification of Host REIT and
its officers and trustees to the same extent that indemnification is provided
to officers and directors of Host REIT in its charter, and limits the liability
of Host REIT and its officers and directors to the and our respective partners
to the same extent that the liability of the officers and directors of Host
REIT to Host REIT and its shareholders is limited under Host REIT's charter.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, Host REIT has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
In the table below we set forth the beneficial ownership, as of March 29,
1999, of Host REIT's common stock and of our OP Units by the directors and
executive officers of Host REIT, and, to the best of our knowledge, by
beneficial owners of 5% or more of common stock or OP Units. Because it is our
sole general partner, Host REIT controls us and the percentage of OP Units
owned by any person does not affect us in the same manner that ownership of
common stock affects a corporation. Therefore, rather than detailing the
percentage of OP Units which are owned by the listed persons and including Host
REIT, in the following table we set forth percentages of OP Units exclusive of
those held by Host REIT and its subsidiaries (see footnote 2 below). We also
set forth percentages of Host REIT common stock which would be owned by such
persons if their OP Units were converted into common stock under the
assumptions detailed in footnotes 3 and 4.
<TABLE>
<CAPTION>
Number of % of
Shares of Shares of
Company Company % of % of
Common Common Number of % of OP OP OP
Stock Stock(1) OP Units Units(2) Units(3) Units(4)
---------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Directors
R. Theodore Ammon(5).... 17,455 * 0 * * *
Robert M. Baylis(5)..... 24,307 * 0 * * *
Terence C. Golden(6).... 1,333,970 0.59 0 * 0.59 0.46
J.W. Marriott,
Jr.(6)(7)(8)........... 13,017,492 5.72 17,055 0.03 5.73 4.46
Richard E.
Marriott(6)(8)(9)...... 13,788,787 6.06 14,402 0.02 6.07 4.73
Anne Dore
McLaughlin(5).......... 11,263 * 0 * * *
John G.
Schreiber(5)(10)....... 898 * 36,855,538 57.07 13.94 12.62
Harry L. Vincent,
Jr.(5)................. 30,063 0.01 0 * 0.01 0.01
Non-Director Executive
Officers
Christopher J.
Nassetta(6)............ 733,229 0.32 0 * 0.32 0.25
Robert E. Parsons,
Jr.(6)................. 676,662 0.30 0 * 0.30 0.23
Christopher G.
Townsend(6)............ 216,999 0.09 0 * 0.09 0.07
All Directors and
Executive Officers as a
group:
(12 persons, including
the foregoing)(6)(11).. 25,652,245 11.27 36,886,995 57.12 23.65 21.41
Certain Beneficial
Owners:
Blackstone
Entities(12)........... 0 * 43,778,760 67.79 16.14 14.99
FMR Corp.(13)........... 12,587,900 5.53 0 * 5.53 4.31
Harris Associates,
L.P.(14)............... 11,452,190 5.03 0 * 5.03 3.92
Southeastern Asset
Management, Inc.(15)... 40,249,200 17.69 0 * 17.69 13.78
</TABLE>
- --------
* Reflects ownership of less than l/l00th of 1%
(1) Any descriptions of ownership or aggregations of ownership of Host REIT's
common stock within this prospectus are based upon the disclosure
requirements of the federal securities laws, and are not an indication of
ownership of common stock under the Internal Revenue Code of 1986, as
amended, or for purposes of the ownership limitations set forth in the
Host REIT's Articles of Incorporation.
(2) Represents the number of OP Units held by the named person or entity as a
percentage of the total number of OP Units held by persons or entities
other than Host REIT and its subsidiaries (64,578,687 OP Units). As of
March 29, 1999, Host REIT and its subsidiaries held an aggregate of
227,520,088 OP Units, but such OP Units do not figure into any of the
totals or calculations used in this table.
(3) Assumes that all OP Units held by the named person or entity are redeemed
for shares of common stock on a one-for-one basis, but that none of the OP
Units held by other persons or entities are redeemed for shares of common
stock.
(4) Assumes that all outstanding OP Units held by persons or entities other
than the Company and its subsidiaries are redeemed for shares of common
stock on a one-for-one basis, which would bring the total number of shares
of common stock to 292,098,775 when added to the number of shares of
common stock outstanding as of March 29, 1999.
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(5) The number of shares of common stock includes the deferred shares awarded
annually to non-employee directors under Host REIT's non-employee
directors' deferred stock compensation plan and, for Mr. Ammon, Mr.
Baylis, Ms. McLaughlin and Mr. Vincent, the special one-time award of
deferred shares under such plan in 1997.
(6) Includes (a) the shares of restricted stock granted under Host REIT's 1993
and 1997 comprehensive stock incentive plans, which are voted by the
holder thereof, and (b) the following number of shares which could be
acquired by the named persons through the exercise of stock options within
60 days of March 29, 1999: for J.W. Marriott, Jr., 209,508 shares; for Mr.
Parsons, 18,229 shares; for Mr. Townsend, 6,676 shares; and for all
Directors and executive officers as a group, 260,573 shares. For
additional information regarding these and other matters you should see
Tables I and II under the caption "Executive Officer Compensation" in the
"Management" section. Does not include any other shares reserved,
contingently vested or awarded under the above-named plans.
(7) Includes: (a) 2,046,181 shares held in trust for which J.W. Marriott, Jr.
is the trustee or a co-trustee; (b) 68,426 shares held by the wife of J.W.
Marriott, Jr.; (c) 765,847 shares held in trust for which the wife of J.W.
Marriott, Jr. is the trustee or a co-trustee; (d) 2,665,091 shares held by
the J. Willard and Alice S. Marriott Foundation of which J.W. Marriott,
Jr. is a co-trustee; (e) 2,707,590 shares held by a limited partnership
whose general partner is a corporation of which J.W. Marriott, Jr. is the
controlling shareholder; and (f) 80,000 shares held by a limited
partnership whose general partner is J.W. Marriott, Jr. Does not include
shares held by the adult children of J.W. Marriott, Jr.; J.W. Marriott,
Jr. disclaims beneficial ownership of all such shares.
(8) J.W. Marriott, Jr., Richard E. Marriott, their mother Alice S. Marriott
and other members of the Marriott family and various trusts established by
members of the Marriott family owned beneficially an aggregate of
25,201,621 shares, or 11.08% of the total shares outstanding of common
stock, as of March 29, 1999.
(9) Includes: (a) 1,903,440 shares held in trust for which Richard E. Marriott
is the trustee or a co-trustee; (b) 74,154 shares held by the wife of
Richard E. Marriott; (c) 603,828 shares held in trust for which the wife
of Richard E. Marriott is the trustee or a co-trustee; (d) 2,665,091
shares held by the J. Willard and Alice S. Marriott Foundation of which
Richard E. Marriott is a co-trustee; and (e) 2,503,066 shares held by a
corporation of which Richard E. Marriott is the controlling shareholder.
Does not include shares held by the adult children of Richard E. Marriott;
Richard E. Marriott disclaims beneficial ownership of all such shares.
(10) With respect to the calculations regarding OP Units, the listed figures
represent the number of OP Units deemed beneficially owned by Mr.
Schreiber as the result of his sharing dispositive power over such OP
Units which are held by several of the Blackstone Entities (as defined in
footnote 12 below). Mr. Schreiber has reported in a Schedule 13D under the
Exchange Act, filed with the Commission, shared dispositive power over
34,768,246 OP Units and no voting power over any of the OP Units.
Additional OP Units were issued to the Blackstone Entities following the
filing of the Schedule 13D by the Blackstone Entities and Mr. Schreiber,
and the number of OP Units listed in the table as being beneficially owned
by Mr. Schreiber reflects the adjustment made to the OP Units over which
he had reported shared dispositive power. The OP Units which are listed in
the table as being beneficially owned by Mr. Schreiber are also included
in the total and calculations for the Blackstone Entities elsewhere in the
table.
(11) Includes the total number of shares held by trusts for which both J.W.
Marriott, Jr. and Richard E. Marriott are co-trustees. Beneficial
ownership of such shares is attributable to each of J.W. Marriott, Jr. and
Richard E. Marriott in the table above under the Director subheading, but
such shares are included only once in reporting the total number of shares
owned by all directors and executive officers as a group. All directors
and executive officers as a group (other than members of the Marriott
family) owned beneficially an aggregate of 3,154,808 shares, or 1.39% of
the total shares outstanding of common stock as of March 29, 1999. In
addition, Host REIT's retirement and savings plan owned 83,456 shares, or
0.04% of the total shares outstanding of common stock as of March 29,
1999.
(12) The Blackstone Entities constitute The Blackstone Group L.P. and a series
of partnerships, persons and other entities affiliated with Blackstone
Real Estate Associates. The Blackstone Entities, as a group, have reported
in a Schedule 13D under the Exchange Act, filed with the Commission,
beneficial ownership of
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an aggregate of 40,463,844 OP Units, with varying levels of dispositive
power and voting power over such OP Units depending upon the partnership,
person or entity involved. Additional OP Units were issued to the
Blackstone Entities following the filing of the Schedule 13D by the
Blackstone Entities, and the number of OP Units listed in the table as
being beneficially owned by the Blackstone Entities includes such
additional OP Units. The principal business address of the Blackstone
Entities is 345 Park Avenue, 31st Floor, New York, New York 10154.
(13) Represents shares of common stock held by FMR Corp. ("FMR") and its
subsidiary, Fidelity Management & Research Company ("FM&R"), as derived
from information that FMR has reported in a Schedule 13G under the
Exchange Act, filed with the Commission. Such Schedule 13G indicates that
FMR, through its control of FM&R and certain investment funds for which
FM&R acts as an investment adviser, has sole power to dispose of
12,587,900 shares of common stock owned by such investment funds,
including the 12,528,400 shares of common stock (or 5.51% of the total
shares outstanding of common stock as of March 29, 1999) held by the
Fidelity Magellan Fund. FMR has no power to vote or direct the voting of
the shares of common stock owned by the investment funds, which power
resides with the Board of Trustees of such investment funds. The Schedule
13G filed by FMR also indicates that its investment funds own an
aggregate of 893,600 shares of the Host REIT's convertible preferred
securities, which would be convertible under certain circumstances into
2,677,045 shares of common stock. The principal business address for FMR
and FM&R is 82 Devonshire Street, Boston, Massachusetts 02109-3614.
(14) Represents shares of common stock held by Harris Associates L.P. and
Harris Associates, Inc., its general partner (collectively, "Harris").
Harris has reported in a Schedule 13G under the Exchange Act, filed with
the Commission, sole dispositive power over 7,499,990 shares and shared
dispositive power over 3,952,200 shares. Of these shares, Harris has
reported no sole voting power over any of the shares and shared voting
power over all 11,452,190 shares. The principal business address of
Harris is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602-
3790.
(15) Represents shares of common stock held by Southeastern Asset Management,
Inc. ("Southeastern"), which acts as an investment adviser for certain
investment funds. Southeastern has reported in a Schedule 13G under the
Exchange Act, filed with the Commission, sole dispositive power over
23,956,200 shares, shared dispositive power over 16,234,000 shares and no
dispositive power over 59,000 shares. Of these shares, Southeastern has
reported sole voting power over 19,876,600 shares, shared voting power
over 16,234,000 shares and no voting power over 4,138,600 shares. The
principal business address of Southeastern is 6410 Poplar Avenue, Suite
900, Memphis, Tennessee 38119.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Crestline Capital Corporation
Christopher J. Nassetta, an executive vice president and the chief operating
officer of Host REIT, is a director of Crestline. J.W. Marriott, Jr., a Host
REIT director, beneficially owns approximately 5.6% of the outstanding shares
of common stock of Crestline.
In connection with the distribution of Crestline by Host Marriott to its
stockholders, we entered into various agreements and relationships with
Crestline including, leases for substantially all of our full-service hotels,
subleases for our limited-service hotels, an asset management agreement and a
non-competition agreement. The material terms of these agreements and others
are summarized in the "Business" section of this prospectus.
We believe that the agreements are fair to both parties and contain terms
which are generally comparable to those which would have been reached in arm's-
length negotiations with unaffiliated parties.
Relationship with The Blackstone Group and its Affiliates
In December 1998, we acquired 12 upscale and luxury full-service hotels, a
mortgage loan secured by a thirteenth hotel, and certain other assets from The
Blackstone Group L.P. and a series of partnerships, persons and other entities
affiliated with Blackstone Real Estate Associates. We refer to these persons
and entities collectively as the Blackstone entities. As part of the Blackstone
acquisition, we entered into a contribution agreement with Host REIT and the
Blackstone entities. The contribution agreement provides, among other things,
that for so long as the Blackstone entities own at least 5% of all of the
outstanding OP Units (including those OP Units held by Host REIT and its
subsidiaries), an affiliate of the Blackstone entities will have the right to
designate one person to be included in the slate of directors nominated for
election to the board of directors of Host REIT. John G. Schreiber, a director
of Host REIT, has been so designated. Mr. Schreiber is a senior advisor and
partner of Blackstone Real Estate Advisors L.P., an affiliate of the Blackstone
entities.
In addition, the contribution agreement provides that the OP Units
beneficially owned by the Blackstone entities are redeemable for cash or, at
Host REIT's election, Host REIT's common stock. These redemptions may be made
according to the following schedule: (1) up to 50% of their OP Units may be
redeemed beginning July 1, 1999, (2) an additional 25% of their OP Units may be
redeemed beginning October 1, 1999 and (3) the remaining 25% of their OP Units
may be redeemed beginning January 1, 2000.
The contribution agreement also grants the Blackstone entities an exemption
from the ownership limitations contained in our partnership agreement and
contains standstill provisions which prohibit certain activities of the
Blackstone entities with respect to Host REIT and us. These provisions provide
generally that the Blackstone entities may not take any actions in opposition
to Host REIT's board of directors and place certain restrictions on the
Blackstone entities' acquisition and disposition of Host REIT's voting
securities.
Relationship with Marriott International, Inc.
Richard E. Marriott, Host REIT's chairman of the board, and J.W. Marriott,
Jr., a Host REIT director, beneficially own approximately 10.6% and 10.9%,
respectively, of the outstanding shares of common stock of Marriott
International. J.W. Marriott, Jr. and Richard E. Marriott serve as chairman and
a director, respectively, of Marriott International.
Host REIT entered into a distribution agreement with Marriott International
which provided for, among other things, the assumption of liabilities and
cross-indemnities designed to allocate to the appropriate company financial
responsibility for the liabilities arising out of or in connection with their
respective businesses. Under this distribution agreement, Marriott
International obtained a right, until June 2017, to purchase up to 20% of each
class of Host REIT's voting stock at its then fair market value, based on an
average of trading prices
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during a specified period, upon the occurrence of certain specified events
generally involving a change in control of Host REIT. Host REIT has granted
Marriott International an exception to the ownership limitations in its charter
to permit the full exercise of the purchase right, but the purchase right
remains subject to certain ownership limitations applicable to REITs generally.
For the purpose of governing the ongoing relationships between Host REIT and
Marriott International, as well as in the ordinary course of business, Host
REIT and Marriott International have entered into other agreements and
relationships which are material to our business and properties, including
management and franchise agreements and a non-competition agreement. The
material terms of these agreements and others are summarized in the "Business"
section of this prospectus. We believe that the agreements are fair to both
parties and contain terms which are generally comparable to those which would
have been reached in arm's length negotiations with unaffiliated parties.
Relationship with Host Marriott Services Corporation
Prior to December 29, 1995, Host Marriott and Host Marriott Services
Corporation were operated as a single consolidated company. On December 29,
1995, Host Marriott issued a special dividend which split the consolidated
company's businesses between Host Marriott and Host Marriott Services.
Thereafter, Host Marriott retained the capital intensive lodging real estate
business, while Host Marriott Services took over the airport/tollroad
concessions business.
Richard E. Marriott, Host REIT's chairman of the board, and J.W. Marriott,
Jr., a director of Host REIT, beneficially own approximately 7.4% and 7.6%,
respectively, of the outstanding shares of common stock of Host Marriott
Services. Richard E. Marriott and J.W. Marriott, Jr. serve as directors of Host
Marriott Services.
In connection with the Host Marriott Services special dividend, Host
Marriott and Host Marriott Services entered into a distribution agreement,
which provided for, among other things, the assumption of liabilities and
cross-indemnities designed to allocate to the appropriate company financial
responsibility for the liabilities arising out of or in connection with their
respective businesses.
For the purpose of governing the ongoing relationships between Host REIT and
Host Marriott Services, Host REIT and Host Marriott Services have entered into
other agreements. We believe that the agreements are fair to both parties and
contain terms which are generally comparable to those which would have been
reached in arm's-length negotiations with unaffiliated parties. Among such
other agreements between Host REIT and Host Marriott Services are:
1. Tax Sharing Agreement. Host REIT and Host Marriott Services are parties
to a tax sharing agreement that defines the parties' rights and
obligations with respect to deficiencies and refunds of federal, state
and other income or franchise taxes relating to Host Marriott's
businesses for tax years prior to the Host Marriott Services special
dividend and with respect to certain tax attributes of Host Marriott
after the Host Marriott Services special dividend. Host REIT and Host
Marriott Services have agreed to cooperate with each other and to share
information in preparing tax returns and in dealing with other tax
matters.
2. Guarantees of Concession Agreements. Host REIT and Host Marriott
Services are parties to agreements pursuant to which we are required to
guarantee Host Marriott Services' performance in connection with certain
tollroad concessions operated by Host Marriott Services. We have not
been required to make any payment pursuant to the guarantees and we do
not anticipate making any such payment in 1999. These agreements were
entered in connection with the spin-off of Host Marriott Services from
Host Marriott in 1995.
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THE EXCHANGE OFFER
Purpose and effect
We sold the Series D senior notes on February 25, 1999. In connection with
that issuance, we entered into the registration rights agreement, which
requires us to file a registration statement under the Securities Act of 1933
with respect to the Series E senior notes. Upon the effectiveness of that
registration statement, we are required to offer to the holders of the Series D
senior notes the opportunity to exchange their Series D senior notes for a like
principal amount of Series E senior notes, which will be issued without a
restrictive legend and which generally may be reoffered and resold by the
holder without registration under the Securities Act of 1933.
The registration rights agreement further provides that we must use our
reasonable best efforts to consummate the exchange offer on or before the 190th
day following the date on which we issued the Series D senior notes.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the Series D senior notes and
the Series E senior notes will terminate. A copy of the registration rights
agreement has been filed as an exhibit to the registration statement, of which
this prospectus is a part, and the summary in this prospectus of its material
provisions is not complete and is qualified in its entirety by reference to the
actual agreement. Except as set forth below, following the completion of the
exchange offer holders of Series D senior notes not tendered will not have any
further registration rights and those Series D senior notes will continue to be
subject to restrictions on transfer. Accordingly, the liquidity of the market
for the Series D senior notes could be adversely affected upon consummation of
the exchange offer.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
. the Series E senior notes you acquire pursuant to the exchange offer are
being obtained in the ordinary course of your business;
. you are not engaging in and do not intend to engage in a distribution of
the Series E senior notes;
. you do not have an arrangement or understanding with any person to
participate in a distribution of the Series E senior notes; and
. you are not our "affiliate," as defined under Rule 405 promulgated under
the Securities Act of 1933.
Pursuant to the registration rights agreement we will be required to file a
"shelf" registration statement for a continuous offering pursuant to Rule 415
under the Securities Act of 1933 in respect of the Series D senior notes if:
. we determine that we are not permitted to effect the exchange offer as
contemplated hereby because of any change in applicable law or
Securities and Exchange Commission policy; or
. we have commenced and not consummated the exchange offer within 190 days
following the date on which we issued the Series D senior notes for any
reason.
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Other than as set forth above, no holder will have the right to participate
in the shelf registration statement or to otherwise require that we register
their Series D senior notes under the Securities Act of 1933.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to us, we believe that, with the
exceptions set forth below, Series E senior notes issued to you pursuant to the
exchange offer in exchange for Series D senior notes may be offered for resale,
resold and otherwise transferred by you, unless you are our "affiliate" within
the meaning of Rule 405 promulgated under the Securities Act of 1933 or a
broker-dealer who purchased unregistered notes directly from us to resell
pursuant to Rule 144A or any other available exemption promulgated under the
Securities Act of 1933, without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933; provided that the Series E
senior notes are acquired in the ordinary course of business of the holder and
the holder does not have an arrangement or understanding with any person to
participate in the distribution of Series E senior notes.
If you tender in the exchange offer for the purpose of participating in a
distribution of the Series E senior notes, you cannot rely on this
interpretation by the Commission's staff and you must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with a secondary resale transaction. If you are a broker-dealer
that receives Series E senior notes for your own account in exchange for Series
E senior notes, where those notes were acquired by you as a result of market-
making activities or other trading activities, you must acknowledge that you
will deliver a prospectus in connection with any resale of such Series E senior
notes. If you are a broker-dealer who acquired Series D senior notes directly
from us and not as a result of market-making activities or other trading
activities, you may not rely on the staff's interpretations discussed above or
participate in the exchange offer and must comply with the prospectus delivery
requirements of the Securities Act of 1933 in order to sell the Series E senior
notes.
Consequences of failure to exchange
Following the completion of the exchange offer, you will not have any
further registration rights for Series D senior notes that you did not tender.
All Series D senior notes not tendered in the exchange offer will continue to
be subject to restrictions on transfer. Accordingly, the liquidity of the
market for Series D senior notes could be adversely affected upon completion of
the exchange offer.
Terms of the exchange offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all Series D senior
notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on [ ], 1999, or such date and time to which we extend the offer. We
will issue $1,000 principal amount of Series E senior notes in exchange for
each $1,000 principal amount of outstanding Series D senior notes accepted in
the exchange offer. Holders may tender some or all of their Series D senior
notes pursuant to the exchange offer. However, Series D senior notes may be
tendered only in integral multiples of $1,000 in principal amount.
The form and terms of the Series E senior notes are substantially the same
as the form and terms of the Series D senior notes except that the Series E
senior notes have been registered under the Securities Act of
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1933 and will not bear legends restricting their transfer. The Series E senior
notes will evidence the same debt as the Series D senior notes and will be
issued pursuant to, and entitled to the benefits of, the same indenture
pursuant to which the Series D senior notes were issued.
As of the date of this prospectus, Series D senior notes representing $300
million in aggregate principal amount were outstanding and there was one
registered holder, a nominee of the DTC. This prospectus, together with the
letter of transmittal, is being sent to that registered holder and to you and
others based on our belief that you have beneficial interests in the Series D
senior notes. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations of the Securities and Exchange Commission.
We will be deemed to have accepted validly tendered Series D senior notes
when, as, and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as your agent for the purpose of receiving
the Series E senior notes from us. If any of your tendered Series D senior
notes are not accepted for exchange because of an invalid tender, the
occurrence of the other events set forth in this prospectus or otherwise,
certificates for any such unaccepted Series D senior notes will be returned,
without expense, to you as promptly as practicable after [ ], 1999, unless
we extend the exchange offer.
If you tender Series D senior notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Series D senior notes pursuant to the exchange offer. We will pay all charges
and expenses, other than certain applicable taxes, in connection with the
exchange offer.
Expiration date; extensions; amendments
The expiration date will be 5:00 p.m., New York City time, on [ ], 1999,
unless, in our sole discretion, we extend the exchange offer, in which case the
expiration date will mean the latest date and time to which the exchange offer
is extended. In order to extend the exchange offer, we will notify the exchange
agent and each registered holder of any extension by oral or written notice
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting any Series D senior notes, to extend the exchange
offer or, if any of the conditions to the exchange offer set forth below
under "--Conditions to Exchange Offer" have not been satisfied, to
terminate the exchange offer, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
In the event that we make a material or fundamental change to the terms of
the exchange offer, we will file a post-effective amendment to the registration
statement.
Procedures for tendering
Only a holder of Series D senior notes may tender the Series D senior notes
in the exchange offer. To tender in the exchange offer you must either (1)
complete, sign, and date the letter of transmittal, or a copy thereof, have the
signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver the letter of transmittal or copy to the exchange
agent prior to the expiration date or (2) comply with the book-entry
requirements which are discussed below under "--Book Entry Transfer". In
addition:
. certificates for Series D senior notes must be received by the exchange
agent along with the letter of transmittal prior to the expiration date;
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. a timely confirmation of a book-entry transfer of those Series D senior
notes, if that procedure is available, into the exchange agent's account
at DTC pursuant to the procedure for book-entry transfer described
below, must be received by the exchange agent prior to the expiration
date; or
. you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the exchange agent prior to the expiration date.
Its address is given below under "--Exchange Agent".
A tender of your Series D senior notes that is not withdrawn before the
expiration date will constitute an agreement between you and us in accordance
with the terms and subject to the conditions set forth in this prospectus and
in the letter of transmittal.
The method of delivery of Series D senior notes and the letter of
transmittal and all other required documents to the exchange agent is at your
election and risk. Instead of delivery by mail, we recommend that you use an
overnight or hand delivery service. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send any letter of transmittal or Series D senior notes to us. You
may request your respective brokers, dealers, commercial banks, trust companies
or nominees to effect these transactions for you.
If you are a beneficial owner whose Series D senior notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender should contact the registered holder promptly and
instruct the registered holder to tender on your behalf. If you wish to tender
on your own behalf, you must, prior to completing and executing the letter of
transmittal and delivering your Series D senior notes, either make appropriate
arrangements to register ownership of the unregistered notes in your name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution unless the Series D
senior notes tendered pursuant thereto are tendered:
. by a registered holder who has not completed the box entitled "Special
Registration Instruction" or "Special Delivery Instructions" on the
letter of transmittal; or
. for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by any
eligible guarantor institution that is a member of, or participant in, the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, referred to
as an "eligible institution".
If the letter of transmittal is signed by a person other than the registered
holder of any Series D senior notes listed therein, the Series D senior notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered holder as that registered holder's name appears on the Series D
senior notes.
If the letter of transmittal or any Series D senior notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal unless waived by us.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series D senior notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Series D senior
notes not properly tendered or any Series D senior notes that would, in the
opinion of counsel, be unlawful to accept. We also
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reserve the right to waive any defects, irregularities or conditions of tender
as to particular Series D senior notes. Our interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Series D senior notes
must be cured within such time as we will determine. Although we intend to
notify you of defects or irregularities with respect to tenders of Series D
senior notes, neither we, the exchange agent, nor any other person will incur
any liability for failure to give such notification. Your tender of Series D
senior notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Series D senior notes received by
the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the
exchange agent to you, unless otherwise provided in the letter of transmittal,
as soon as practicable following [ ] , 1999, unless we extend the exchange
offer.
In addition, we reserve the right in our sole discretion to purchase or make
offers for any Series D senior notes that remain outstanding after the
expiration date or to terminate the exchange offer and, to the extent permitted
by applicable law, purchase Series D senior notes in the open market, in
privately negotiated transactions, or otherwise. The terms of any such
purchases or offers could differ from the terms of the exchange offer.
In all cases, issuance of Series E senior notes for Series D senior notes
that are accepted for exchange pursuant to the exchange offer will be made only
after timely receipt by the exchange agent of certificates for the notes or a
timely book-entry confirmation of such Series D senior notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal (or, with respect to the DTC and its participants, electronic
instructions in which you acknowledge your receipt of and agreement to be bound
by the letter of transmittal) and all other required documents. If any tendered
Series D senior notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if unregistered notes are submitted for
a greater principal amount than you desire to exchange, such unaccepted or non-
exchanged notes will be returned without expense to you (or, in the case of
Series D senior notes tendered by book-entry transfer into the exchange agent's
account at the DTC pursuant to the book-entry transfer procedures described
below, such nonexchanged notes will be credited to an account maintained with
DTC) as promptly as practicable after the expiration or termination of the
exchange offer.
If you are a broker-dealer that receives Series E senior notes for your own
account in exchange for Series D senior notes, where your Series D senior notes
were acquired by you as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of those Series E senior notes.
Book-entry transfer
The exchange agent will make a request to establish an account in respect of
the Series D senior notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of Series D
senior notes being tendered by causing DTC to transfer the Series D senior
notes into the exchange agent's account at DTC in accordance with its transfer
procedures. However, although delivery of Series D senior notes may be
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effected through book-entry transfer at DTC, the letter of transmittal or copy
thereof, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following
paragraph, be transmitted to and received by the exchange agent on or prior to
the expiration date or the guaranteed delivery procedures described below must
be complied with.
DTC's Automated Tender Offer Program, or "ATOP", is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through
DTC's communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender Series D senior notes through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the exchange
agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by the letter of transmittal.
Guaranteed delivery procedures
If you are a registered holder of the Series D senior notes and you desire
to tender your notes and the notes are not immediately available, or time will
not permit your Series D senior notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, you may effect a tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth your name and
address and the amount of Series D senior notes tendered, stating that
the tender is being made thereby and guaranteeing that within three New
York Stock Exchange, Inc. trading days after the date of execution of
the notice of guaranteed delivery, the certificates for all physically
tendered unregistered notes, in proper form for transfer, or a book-
entry confirmation, as the case may be, will be deposited by the
eligible institution with the exchange agent; and
. the certificates for all physically tendered Series D senior notes, in
proper form for transfer, or a book-entry confirmation, as the case may
be, are received by the exchange agent within three NYSE trading days
after the date of execution of the notice of guaranteed delivery.
Withdrawal rights
You may withdraw tenders of Series D senior notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal of your tender of Series D senior notes to be effective, a
written or (for DTC participants) electronic ATOP transmission notice of
withdrawal must be received by the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date. Any notice of withdrawal must:
. specify the name of the person having deposited the Series D senior
notes to be withdrawn;
. identify the Series D senior notes to be withdrawn, including the
certificate number or numbers and principal amount of the Series D
senior notes;
. in the case of a written notice of withdrawal, be signed in the same
manner as the original signature on the letter of transmittal by which
the Series D senior notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee register the transfer of the Series D
senior notes into the name of the person withdrawing the tender; and
. specify the name in which any Series D senior notes are to be
registered, if different from that of the person having deposited the
Series D senior notes.
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All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us. Our determination will be
final and binding on all parties. Any Series D senior notes so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any Series D senior notes which you tender for exchange but
which are not exchanged for any reason will be returned to you without cost to
you as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. Properly withdrawn Series D senior notes may
be retendered by following one of the procedures discussed above under "--
Procedures for Tendering" at any time on or prior to the expiration date.
Conditions to the exchange offer
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue Series E senior notes in exchange
for, any Series D senior notes and may terminate or amend the exchange offer
if, at any time before the acceptance of Series D senior notes for exchange or
Series E senior notes for Series D senior notes, (1) we determine that the
exchange offer violates applicable law, any applicable interpretation of the
staff of the Commission or any order of any governmental agency or court of
competent jurisdiction, (2) any action or proceeding has been instituted or
threatened in any court or before any governmental agency with respect to the
exchange offer which, in our judgment, might impair our ability to proceed with
the exchange offer or have a material adverse effect on us, or (3) we determine
that there has been a material change in our business or financial affairs
which, in our judgment, would materially impair our ability to consummate the
exchange offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure to exercise any of the foregoing rights at any time
will not be deemed a waiver of any such right and each such right will be
deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any Series D senior notes
tendered, and no Series E senior notes will be issued in exchange for any
Series D senior notes, if at such time any stop order will be threatened or in
effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939, as amended. In any such event we are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
Exchange Agent
All executed letters of transmittal should be directed to the exchange
agent. HSBC Bank USA, formerly known as Marine Midland Bank, has been appointed
as exchange agent for the exchange offer. Questions, requests for assistance
and requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent addressed as follows:
HSBC Bank USA
By Hand Or Overnight Delivery:
By Registered Or Certified Mail:
140 Broadway
140 Broadway A Level
A Level New York, N.Y. 10005-1180
New York, N.Y. 10005- Attn: Corporate Trust Services
1180
Attn: Corporate Trust
Services
By facsimile:
(eligible institutions only)
(212) 658-2292
Attn: Anthony Bufinsky
For information or
confirmation by telephone:
(212) 658-5931
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Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
Fees and expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees. We will pay the estimated cash expenses to be
incurred in connection with the exchange offer. We estimate such expenses to be
$300,000, which includes fees and expenses of the exchange agent, accounting,
legal, printing and related fees and expenses.
Transfer taxes
You will not be obligated to pay any transfer taxes in connection with your
tender of Series D senior notes. However, if you instruct us to register Series
E senior notes in the name of, or request that Series D senior notes not
tendered or not accepted in the exchange offer be returned to, a person other
than yourself, you will be responsible for the payment of any applicable
transfer tax thereon.
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DESCRIPTION OF NOTES
We will issue the Series E senior notes pursuant to an indenture dated as of
August 5, 1998, as supplemented, by and among us (as the successor by merger to
HMH Properties), the Subsidiary Guarantors (as defined in this section)as
defined signatory thereto and Marine Midland Bank, as trustee, as amended or
supplemented from time to time. The terms of the indenture include those made
part of the indenture by reference to the Trust Indenture Act of 1939, as
amended. The following description is a summary of the material provisions of
the indenture and the related pledge and security agreement, dated as of August
5, 1998, which governs property securing, among other things, the obligations
on the notes. It does not restate those agreements in their entirety. We urge
you to read the indenture and the pledge agreement because they, and not this
description, define your rights as holders of these notes. You may obtain
copies of the indenture and the pledge agreement from us upon request. The
indenture and the pledge agreement are also listed as exhibits to a
registration statement on Form S-3 of HMH Properties, file no. 333-50729. You
can find out how to obtain these documents by looking at the section of this
offering memorandum titled "Where You Can Find More Information" on page 143.
You can find the definitions of certain terms used in this description under
the subheading "--Certain Definitions".
General
The Series E senior notes will be limited to $300,000,000 aggregate
principal amount and will mature on February 15, 2006. Interest on the Series E
senior notes will accrue at the rate of 8 3/8% per annum and will be payable
every six months in arrears on March 15 and September 15, commencing on
September 15, 1999. We will make each interest payment to the holders of record
of the Series E senior notes on the immediately preceding March 1 and September
1.
The Series A senior notes, Series B senior notes, Series C senior notes and
Series D senior notes are, and the Series E senior notes offered hereby will
be, senior, general obligations of ours. The Series A senior notes, Series B
senior notes, Series C senior notes and Series D senior notes are currently,
and the Series E senior notes offered hereby will be initially secured by a
pledge of all the Capital Stock of certain of our subsidiaries, which Capital
Stock also equally and ratably secures our obligation under the Credit
Facility, the Series A senior notes, the Series B senior notes, the Series C
senior notes, Series D senior notes and certain other Indebtedness ranking on
an equitable and ratable basis with the Series E senior notes. See "--
Security". The Series A senior notes, Series B senior notes, Series C senior
notes and Series D senior notes are, and the Series E senior notes offered
hereby will be, pari passu with all other existing and future unsubordinated
Indebtedness of ours and will rank senior to all subordinated obligations of
ours. The Series A senior notes, Series B senior notes, Series C senior notes
and Series D senior notes are, and the Series E senior notes offered hereby
will be, jointly and severally guaranteed on a senior basis by the Subsidiary
Guarantors. The Guarantee of the Subsidiary Guarantors with respect to the
notes, and the pledges of equity interests, are subject to release upon
satisfaction of certain conditions.
Interest on any series of notes issued under the indenture is or will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. Principal of, premium,
if any, and interest on the notes will be payable at our office or agency
maintained for such purpose, in the Borough of Manhattan, The City of New York.
Except as provided below, at our option, payment of interest may be made by
check mailed to the holders of any notes at the addresses set forth upon our
registry books; provided, however, holders of certificated notes will be
entitled to receive interest payments (other than at maturity) by wire transfer
of immediately available funds, if appropriate wire transfer instructions have
been received in writing by the trustee not less than 15 days prior to the
applicable interest payment date. Such wire instructions, upon receipt by the
trustee, will remain in effect until revoked by such holder. No service charge
will be made for any registration of transfer or exchange of notes, but we may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until we designate otherwise, our
office or
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agency will be the corporate trust office of the trustee presently located at
140 Broadway, New York, New York 10005-1180.
Guarantees
The Series A senior notes, Series B senior notes, Series C senior notes and
Senior D senior notes are and the Series E senior notes offered hereby will be
fully and unconditionally guaranteed as to principal, premium, if any, and
interest, jointly and severally, by the Subsidiary Guarantors. If the
partnership defaults in the payment of the principal of, or premium, if any, or
interest on, a guaranteed series of notes issued under the indenture when and
as the same will become due, whether upon maturity, acceleration, call for
redemption, Change of Control, offer to purchase or otherwise, without the
necessity of action by the trustee or any holder, the Subsidiary Guarantors
will be required promptly to make such payment in full. The indenture provides
that the Subsidiary Guarantors will be released from their obligations as
guarantors under such series of notes under certain circumstances. The
obligations of the Subsidiary Guarantors will be limited in a manner intended
to avoid such obligations being construed as fraudulent conveyances under
applicable law.
Each current and future Restricted Subsidiary of ours that subsequently
guarantees any Indebtedness (the "Guaranteed Indebtedness") of ours (each a
"Future Subsidiary Guarantor") will be required to guarantee the Series E
senior notes offered hereby and any other series of notes guaranteed under the
indenture. If the Guaranteed Indebtedness is (A) pari passu in right of payment
with the notes, then the guarantee of such Guaranteed Indebtedness will be pari
passu in right of payment with, or subordinated in right of payment to, the
Subsidiary guarantee or (B) subordinated in right of payment to the notes, then
the guarantee of such Guaranteed Indebtedness will be subordinated in right of
payment to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated in right of payment to the notes.
Subject to compliance with the preceding paragraph, the indenture also
provides that any guarantee by a Subsidiary Guarantor will be automatically and
unconditionally released upon (1) the sale or other disposition of Capital
Stock of the Subsidiary Guarantor, if, as a result of such sale or disposition,
such Subsidiary Guarantor ceases to be a Subsidiary of the partnership, (2) the
consolidation or merger of any such Subsidiary Guarantor with any Person other
than the partnership or a Subsidiary of the partnership, if, as a result of
such consolidation or merger, such Subsidiary Guarantor ceases to be Subsidiary
of the partnership, (3) a Legal Defeasance or Covenant Defeasance, or (4) the
unconditional and complete release of such Subsidiary Guarantor from its
guarantee of all Guaranteed Indebtedness.
Security
Our obligations to pay the principal of, premium, if any, and interest on
the Series E senior notes is secured by a pledge of the Capital Stock of
certain of the direct and indirect subsidiaries of ours, which pledge is, and
will be, shared equally and ratably with the credit facility, the Series A
senior notes, Series B senior notes, Series C senior notes, Series D senior
notes and certain other Indebtedness of ours ranking pari passu in right of
payment with the Series E senior notes, including, unless otherwise provided
for in the applicable supplemental indenture, any series of notes issued under
the indenture in the future. The indenture also provides that, unless otherwise
provided in a supplemental indenture with respect to a series of notes, the
Capital Stock of each Restricted Subsidiary that is subsequently pledged to
secure the credit facility will also be pledged to secure each such series of
notes on an equal and ratable basis with respect to the Liens securing the
credit facility and any other pari passu Indebtedness secured by such Capital
Stock, provided, however, that any shares of the Capital Stock of any
Restricted Subsidiary will not be and will not be required to be pledged to
secure any such series of notes if the pledge of or grant of a security
interest in such shares is prohibited by law. Bankers Trust Company (the
administrative agent under the credit facility) currently serves as the
collateral agent with respect to such stock pledge, subject to replacement in
certain circumstances. So long as the credit facility is in effect, the lenders
under the credit facility will have the right to direct the manner and method
of enforcement of remedies with respect to the stock pledge. Any proceeds
realized on a sale or disposition of collateral would be applied first to
expenses of, and other obligations owed to, the collateral
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agent, second, pro rata to outstanding principal and interest of the secured
Indebtedness, and third, pro rata to other secured obligations.
Upon the complete and unconditional release of the pledge of any such
Capital Stock in favor of the credit facility, the pledge of such Capital Stock
as collateral securing the notes will be released; provided that should the
obligations of the partnership under the credit facility subsequently be
secured by a pledge of such Capital Stock at any time, the partnership must
cause such Capital Stock to be pledged ratably and with at least the same
priority for the benefit of holders of the notes.
Ranking
The Series A senior notes, Series B senior notes, Series C senior notes and
Senior D senior notes are, and the Series E senior notes offered hereby will
be, senior, general obligations of the partnership, ranking pari passu in right
of payment with any other outstanding or future unsubordinated Indebtedness of
the partnership, including, without limitation, the obligations of the
partnership under the credit facility. The Series A senior notes, Series B
senior notes, Series C senior notes and Series D senior notes are, and the
Series E senior notes offered hereby will be, senior to all subordinated
obligations of the partnership. Each of the Subsidiary guarantees of the Series
A senior notes, Series B senior notes, Series C senior notes, Series D senior
notes and any other series of guaranteed notes, including the Series E senior
notes offered hereby, will rank pari passu with all current and future
unsubordinated Indebtedness, and senior to all current and future subordinated
Indebtedness, of the Subsidiary Guarantors. Holders of the notes will be direct
creditors of the Subsidiary Guarantors by virtue of such guarantees of the
notes.
Optional redemption
We will not have the right to redeem any Series E senior notes prior to
maturity.
Certain Definitions
Set forth below are certain defined terms used in the covenants and other
provisions of the indenture. Reference is made to the indenture for the full
definition of all such terms as well as any other capitalized term used herein
for which no definition is provided.
"Acquired Indebtedness" means Indebtedness or Disqualified Stock of a
Person:
1. existing at the time such Person becomes a Restricted Subsidiary of
the Company, or
2. assumed in connection with an Asset Acquisition and not incurred in
connection with or in contemplation or anticipation of such event
provided that Indebtedness of such Person which is redeemed, defeased
(including the deposit of funds in a valid trust for the exclusive benefit of
holders and the trustee thereof, sufficient to repay such Indebtedness in
accordance with its terms), retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes
a Restricted Subsidiary or such Asset Acquisition will not be Acquired
Indebtedness.
"Adjusted Total Assets" means, for any Person, the Total Assets for such
Person and its Restricted Subsidiaries as of any Transaction Date, as adjusted
to reflect the application of the proceeds of the Incurrence of Indebtedness
and issuance of Disqualified Stock on the Transaction Date.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise; provided that:
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1. a beneficial owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or
trustees, as applicable, will for such purposes be deemed to
constitute control;
2. the right to designate a member of the Board of a Person or a Parent
of that Person will not, by itself, be deemed to constitute control;
and
3. Marriott International and its Subsidiaries will not be deemed to be
Affiliates of the Company or its Parent or Restricted Subsidiaries.
"Asset Acquisition" means:
1. an investment by the Company or any of its Restricted Subsidiaries
in any other Person pursuant to which such Person will become a
Restricted Subsidiary or will be merged or consolidated into or with
the Company or any of its Restricted Subsidiaries or
2. an acquisition by the Company or any of its Restricted Subsidiaries
from any other Person that constitutes all or substantially all of a
division or line of business, or one or more real estate properties,
of such Person.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of:
1. all or any of the Capital Stock of any Restricted Subsidiary
(including by issuance of such Capital Stock);
2. all or substantially all of the property and assets of an operating
unit or business of the Company or any of its Restricted
Subsidiaries; or
3. any other property and assets of the Company or any of its
Restricted Subsidiaries (other than Capital Stock of a Person which
is not a Restricted Subsidiary) outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each
case, that is not governed by the covenant of the indenture entitled
"Consolidation, Merger and Sale of Assets";
provided that "Asset Sale" will not include:
a. sales or other dispositions of inventory, receivables and other
current assets;
b. sales, transfers or other dispositions of assets with a fair
market value not in excess of $10 million in any transaction or
series of related transactions;
c. leases of real estate assets;
d. Permitted Investments (other than Investments in Cash
Equivalents) or Restricted Investments made in accordance with
the "Limitation on Restricted Payments" covenant;
e. any transaction comprising part of the REIT Conversion; and
f. any transactions that, pursuant to the "Limitation of Asset
Sales" covenant, are defined not to be an "Asset Sale".
"Average Life" means at any date of determination with respect to any debt
security, the quotient obtained by dividing:
1. the sum of the products of:
a. the number of years (calculated to the nearest one-twelfth) from
such date of determination to the date of each successive
scheduled principal (or redemption) payment of such debt
security, and
b. the amount of such principal (or redemption) payment by
2. the sum of all such principal (or redemption) payments.
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"Blackstone Acquisition" means the acquisition by the Operating Partnership
from The Blackstone Group, a Delaware limited partnership, and a series of
funds controlled by Blackstone Real Estate Partners, a Delaware limited
partnership, of certain hotel properties, mortgage loans and other assets
together with the assumption of related Indebtedness.
"Board" means:
1. with respect to any corporation, the board of directors of such
corporation or any committee of the board of directors of such
corporation authorized, with respect to any particular matter, to
exercise the power of the board of directors of such corporation;
2. with respect to any partnership, any partner (including, without
limitation, in the case of any partner that is a corporation, the
board of directors of such corporation or any authorized committee
thereof) with the authority to cause the partnership to act with
respect to the matter at issue;
3. in the case of a trust, any trustee or board of trustees with the
authority to cause the trust to act with respect to the matter at
issue;
4. in the case of a limited liability company (an "LLC"), the managing
member, management committee or other Person or group with the
authority to cause the LLC to act with respect to the matter at
issue; and
5. with respect to any other entity, the Person or group exercising
functions similar to a board of directors of a corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Contribution" means any contribution to the equity of the Company
for which no consideration is given, or if given, consists only of the issuance
of Qualified Capital Stock (or, if other consideration is given, only the value
of the contribution in excess of such other consideration).
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether general or
limited, in the equity of such Person, whether outstanding on the Closing Date
or issued thereafter, including, without limitation, all Common Stock,
Preferred Stock and Units.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease as reflected on the balance sheet
of such Person in accordance with GAAP.
"Cash Equivalent" means:
1. securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of
America are pledged in support thereof);
2. time deposits, bankers acceptances and certificates of deposit and
commercial paper issued by the Parent of any domestic commercial
bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-
2 or the equivalent thereof by S&P or at least P-2 or the equivalent
thereof by Moody's;
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3. marketable direct obligations issued by the District of Columbia or
any state of the United States of America or any political
subdivision or public instrumentality thereof bearing (at the time of
investment therein) one of the two highest ratings obtainable from
either S&P or Moody's; and
4. liquid investments in money market funds substantially all of the
assets of which are securities of the type described in clauses (1)
through (3) inclusive;
provided that the securities described in clauses (1) through (3) inclusive
have a maturity of one year or less after the date of acquisition.
"Change of Control" means:
1. any sale, transfer or other conveyance, whether direct or indirect,
of all or substantially all of the assets of the Company or Host or
Host REIT (for so long as Host or Host REIT is a Parent of the
Company immediately prior to such transaction or series of related
transactions), on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect
to such transaction, any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable) other than an Excluded Person is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate normally entitled to vote in the
election of directors, managers, or trustees, as applicable, of the
transferee;
2. any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) other than an Excluded Person is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate of all classes of Capital Stock
of the Company (or Host or Host REIT for so long as Host or Host REIT
is a Parent of the Company immediately prior to such transaction or
series of related transactions) then outstanding normally entitled to
vote in elections of directors, managers or trustees, as applicable;
3. during any period of 12 consecutive months after the Issue Date (for
so long as Host or Host REIT is a Parent of the Company immediately
prior to such transaction or series of related transactions), Persons
who at the beginning of such 12-month period constituted the Board of
Host or Host REIT (together with any new Persons whose election was
approved by a vote of a majority of the Persons then still comprising
the Board who were either members of the Board at the beginning of
such period or whose election, designation or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Host or Host REIT, as applicable, then in
office; or
4. Host REIT ceases to be a general partner of the Operating Partnership
or ceases to control the Company;
provided, however, that neither
(x) the pro rata distribution by Host to its shareholders of shares of
the Company or shares of any of Host's or Host REIT's other
Subsidiaries, nor
(y) the REIT Conversion (or any element thereof)
will, in and of itself, constitute a Change of Control for purposes of this
definition.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Closing Date" means August 5, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting), which have no preference on liquidation or with respect
to distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.
"Company" means Host Marriott, L.P., and its successors and assigns (and,
from the Issue Date to the consummation of the Merger, HMH Properties, Inc.,
and its successors and assigns).
"Consolidated" or "consolidated" means, with respect to any Person, the
consolidation of the accounts of the Restricted Subsidiaries (including those
of the Non-Consolidated Restricted Entities) of such Person with those of such
Person; provided that:
1. "consolidation" will not include consolidation of the accounts of
any other Person other than a Restricted Subsidiary of such Person
with such Person; and
2. "consolidation" will include consolidation of the accounts of any
Non-Consolidated Restricted Entities, whether or not such
consolidation would be required or permitted under GAAP
(it being understood that the accounts of such Person's Consolidated
Subsidiaries will be consolidated only to the extent of such Person's
proportionate interest therein).
The terms "consolidated" and "consolidating" have correlative meanings to the
foregoing.
"Consolidated Coverage Ratio" of any Person on any Transaction Date means
the ratio, on a pro forma basis, of
1. the aggregate amount of Consolidated EBITDA of such Person
attributable to continuing operations and businesses (exclusive of
amounts attributable to operations and businesses permanently
discontinued or disposed of) for the Reference Period;
to
2. the aggregate Consolidated Interest Expense of such Person
(exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of, but only to the extent that
the obligations giving rise to such Consolidated Interest Expense
would no longer be obligations contributing to such Person's
Consolidated Interest Expense subsequent to the Transaction Date)
during the Reference Period;
provided that for purposes of such calculation:
a. acquisitions of operations, businesses or other income-producing
assets (including any reinvestment of disposition proceeds in
income-producing assets held as of and not disposed on the
Transaction Date) which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the
Transaction Date will be transactions giving rise to the need to
calculate the Consolidated Coverage Ratio will be assumed to have
occurred on the first day of the Reference Period;
b. the incurrence of any Indebtedness or issuance of any
Disqualified Stock during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date (and
the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness or invested in income-
producing assets held as of and not disposed on the Transaction
Date) will be assumed to have occurred on the first day of such
Reference Period; and
c. the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness or dividends on any Disqualified
Stock bearing a floating interest (or dividend)
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rate will be computed on a pro forma basis as if the average rate
in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party
to an Interest Swap or Hedging Obligation (which will remain in
effect for the 12-month period immediately following the
Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether
higher or lower) will be used.
"Consolidated EBITDA" means, for any Person and for any period, the
Consolidated Net Income of such Person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication:
1. the sum of:
a. Consolidated Interest Expense;
b. provisions for taxes based on income (to the extent of such
Person's proportionate interest therein);
c. depreciation and amortization expense (to the extent of such
Person's proportionate interest therein);
d. any other noncash items reducing the Consolidated Net Income of
such Person for such period (to the extent of such Person's
proportionate interest therein);
e. any dividends or distributions during such period to such Person
or a Consolidated Subsidiary (to the extent of such Person's
proportionate interest therein) of such Person from any other
Person which is not a Restricted Subsidiary of such Person or
which is accounted for by such Person by the equity method of
accounting (other than a Non-Consolidated Restricted Entity), to
the extent that:
(1) such dividends or distributions are not included in the
Consolidated Net Income of such Person for such period; and
(2) the sum of such dividends and distributions, plus the
aggregate amount of dividends or distributions from such
other Person since the Issue Date that have been included in
Consolidated EBITDA pursuant to this clause (e), do not
exceed the cumulative net income of such other Person
attributable to the equity interests of the Person (or
Restricted Subsidiary of the Person) whose Consolidated
EBITDA is being determined;
f. any cash receipts of such Person or a Consolidated Subsidiary of
such Person (to the extent of such Person's proportionate
interest therein) during such period that represent items
included in Consolidated Net Income of such Person for a prior
period which were excluded from Consolidated EBITDA of such
Person for such prior period by virtue of clause (2) of this
definition; and
g. any nonrecurring expenses incurred in connection with the REIT
Conversion;
minus,
2. the sum of:
a. all non-cash items increasing the Consolidated Net Income of such
Person (to the extent of such Person's proportionate interest
therein) for such period; and
b. any cash expenditures of such Person (to the extent of such
Person's proportionate interest therein) during such period to
the extent such cash expenditures did not reduce the Consolidated
Net Income of such Person for such period and were applied
against reserves or accruals that constituted noncash items
reducing the Consolidated Net Income of such Person (to the
extent of such Person's proportionate interest therein) when
reserved or accrued;
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all as determined on a consolidated basis for such Person and its Consolidated
Subsidiaries (it being understood that the accounts of such Person's
Consolidated Subsidiaries will be consolidated only to the extent of such
Person's proportionate interest therein).
"Consolidated Interest Expense"of any Person means, for any period, the
aggregate amount (without duplication and determined in each case on a
consolidated basis) of:
1. interest expensed or capitalized, paid, accrued, or scheduled to be
paid or accrued (including, in accordance with the following
sentence, interest attributable to Capitalized Lease Obligations but
excluding the amortization of fees or expenses incurred in order to
consummate the sale of the notes issued under the indenture or to
establish the Credit Facility) of such Person and its Consolidated
Subsidiaries during such period, including:
a. original issue discount and noncash interest payments or accruals
on any Indebtedness;
b. the interest portion of all deferred payment obligations; and
c. all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings
and Interest Swap and Hedging Obligations, in each case to the
extent attributable to such period; and
2. dividends accrued or payable by such Person or any of its
Consolidated Subsidiaries in respect of Disqualified Stock (other
than by Restricted Subsidiaries of such Person to such Person or, to
the extent of such Person's proportionate interest therein, such
Person's Restricted Subsidiaries);
provided, however, that any such interest, dividends or other payments or
accruals (referenced in clauses (1) or (2)) of a Consolidated Subsidiary that
is not Wholly Owned will be included only to the extent of the proportionate
interest of the referent Person in such Consolidated Subsidiary.
For purposes of this definition:
(x) interest on a Capitalized Lease Obligation will be deemed to accrue
at an interest rate reasonably determined by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP; and
(y) interest expense attributable to any Indebtedness represented by
the guaranty by such Person or a Restricted Subsidiary of such
Person of an obligation of another Person will be deemed to be the
interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries for
such period, determined on a consolidated basis (it being understood that the
net income of Consolidated Subsidiaries will be consolidated with that of a
Person only to the extent of the proportionate interest of such Person in such
Consolidated Subsidiaries); provided that:
1. net income (or loss) of any other Person which is not a Restricted
Subsidiary of the Person, or that is accounted for by such specified
Person by the equity method of accounting (other than a Non-
Consolidated Restricted Entity), will be included only to the extent
of the amount of dividends or distributions paid to the specified
Person or a Restricted Subsidiary of such Person;
2. the net income (or loss) of any other Person acquired by such
specified Person or a Restricted Subsidiary of such Person in a
pooling of interests transaction for any period prior to the date of
such acquisition will be excluded;
3. all gains and losses which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring
(including any gain from the sale or other disposition of assets or
from the issuance or sale of any Capital Stock) will be excluded;
and
4. the net income, if positive, of any of such Person's Consolidated
Subsidiaries other than Consolidated Subsidiaries that are not
Subsidiary Guarantors to the extent that the declaration or
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payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Consolidated
Subsidiary
will be excluded; provided, however, in the case of exclusions from
Consolidated Net Income set forth in clauses (2), (3) and (4), such amounts
will be excluded only to the extent included in computing such net income (or
loss) on a consolidated basis and without duplication.
"Consolidated Subsidiary" means, for any Person, each Restricted Subsidiary
of such Person (including each Non-Consolidated Restricted Entity).
"Conversion Date" means December 29, 1998.
"Credit Facility"means the credit facility established pursuant to the
Credit Agreement, dated as of August 5, 1998 among the Company, Host, certain
other Subsidiaries party thereto, the lenders party thereto, Bankers Trust
Company, as Arranger and Administrative Agent, and Wells Fargo Bank, N.A., The
Bank of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers,
together with all other agreements, instruments and documents executed or
delivered pursuant thereto or in connection therewith, in each case as such
agreements, instruments or documents may be amended, supplemented, extended,
renewed, replaced or otherwise modified or restructured from time to time
(including by way of adding Subsidiaries of the Company as additional borrowers
or guarantors thereof), whether by the same or any other agent, lender or group
of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means except as set forth below, with respect to any
Person, Capital Stock of that Person that by its terms or otherwise is:
1. required to be redeemed on or prior to the Stated Maturity of the
notes for cash or property other than Qualified Capital Stock;
2. redeemable for cash or property other than Qualified Capital Stock
at the option of the holder of such class or series of Capital Stock
at any time prior to the Stated Maturity of the notes; or
3. convertible into or exchangeable mandatorily or at the option of the
holder for Capital Stock referred to in clause (1) or (2) above or
Indebtedness of the Company or a Restricted Subsidiary having a
scheduled maturity prior to the Stated Maturity of the notes;
provided that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the notes will not constitute Disqualified Stock if the "asset sale" or "change
of control" provisions applicable to such Capital Stock are no more favorable
to the holders of such Capital Stock than the provisions contained in
"Limitation on Asset Sales" and "Repurchase of Notes at the Option of Holders
upon a Change of Control Triggering Event" covenants described below and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes at the Option of Holders
upon a Change of Control Triggering Event" covenants described below.
With respect to Capital Stock of a Restricted Subsidiary, only the amount
thereof issued to Persons (other than the Company or any of its Restricted
Subsidiaries) in excess of such Persons' Pro Rata Share of such
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Capital Stock will be deemed to be Disqualified Stock for purposes of
determining the amount of Disqualified Stock of the Company and its Restricted
Subsidiaries.
Notwithstanding anything to the contrary contained in this definition:
1. the QUIPS are not Disqualified Stock;
2. any Capital Stock issued by the Operating Partnership to Host
REIT will not be deemed to be Disqualified Stock solely by reason
of a right by Host REIT to require the Company to make a payment
to it sufficient to enable Host REIT to satisfy its concurrent
obligation with respect to Capital Stock of Host REIT, provided
such Capital Stock of Host REIT would not constitute Disqualified
Stock; and
3. no Capital Stock will be deemed to be Disqualified Stock as the
result of the right of the holder thereof to request redemption
thereof if the issuer of such Capital Stock (or the Parent of
such issuer) has the right to satisfy such redemption obligations
by the issuance of Qualified Capital Stock to such holder.
"E&P Distribution" means:
1. one or more distributions to the shareholders of Host and/or Host
REIT of:
a. shares of SLC; and
b. cash, securities or other property, with a cumulative
aggregate value equal to the amount estimated in good faith
by Host or Host REIT from time to time as being necessary to
assure that Host and Host REIT have distributed the
accumulated earnings and profits (as referenced in Section
857(a)(2)(B) of the Code) of Host as of the last day of the
first taxable year for which Host REIT's election to be taxed
as a REIT is effective; and
2. the distributions from the Operating Partnership to:
a. Host REIT necessary to enable Host REIT to make the
distributions described in clause (1); and
b. holders of Units (other than Host REIT) required as a result
of or a condition to such distributions made pursuant to
clause (2)(a).
"Excluded Person" means, in the case of the Company, Host, Host REIT or any
Wholly Owned Subsidiary of Host or Host REIT.
"Exempted Affiliate Transaction" means:
1. employee compensation arrangements approved by a majority of
independent (as to such transactions) members of the Board of the
Company;
2. payments of reasonable fees and expenses to the members of the
Board;
3. transactions solely between the Company and any of its
Subsidiaries or solely among Subsidiaries of the Company;
4. Permitted Tax Payments;
5. Permitted Sharing Arrangements;
6. Procurement Contracts;
7. Operating Agreements;
8. Restricted Payments permitted under the "Limitation on Restricted
Payments" covenant; and
9. any and all elements of the REIT Conversion.
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"Existing Senior Notes" means amounts outstanding from time to time of:
10. the 9 1/2% Senior Secured Notes due 2006 of the Company;
11. the 8 7/8% Senior Notes due 2007 of the Company; and
12. the 9% Senior Notes due 2007 of the Company;
in each case not in excess of amounts outstanding immediately following the
Issue Date, less amounts retired from time to time.
"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined:
1. in good faith by the Board of the Company or the applicable
Subsidiary involved in such transaction; or
2. by an appraisal or valuation firm of national or regional
standing selected by the Company or such Subsidiary, with
experience in the appraisal or valuation of properties or assets
of the type for which fair market value is being determined.
"Fifty Percent Venture" means a Person:
1. in which the Company owns (directly or indirectly) at least 50%
of the aggregate economic interests;
2. in which the Company or a Restricted Subsidiary participates in
control as a general partner, a managing member or through
similar means; and
3. which is not consolidated for financial reporting purposes with
the Company under GAAP.
"FF&E" means furniture, fixtures and equipment, and other tangible personal
property other than real property.
"Funds From Operations" for any period means the Consolidated Net Income of
the Company and its Restricted Subsidiaries for such period excluding gains or
losses from debt restructurings and sales of property, plus depreciation of
real estate assets and amortization related to real estate assets, deferred
taxes and other non-cash charges related to real estate assets, after
adjustments for unconsolidated partnerships and joint ventures plus minority
interests, if applicable (it being understood that the accounts of such
Person's Consolidated Subsidiaries will be consolidated only to the extent of
such Person's proportionate interest therein).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States of America.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly Guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
1. to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising
by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services (unless such
purchase arrangements are on arm's-length terms and are entered into
in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise); or
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2. entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HMH Properties" means HMH Properties, Inc., a Delaware corporation, which
was merged into Host Marriott, L.P. on December 16, 1998.
"Host" means Host Marriott Corporation, a Delaware corporation and the
indirect Parent of the Company on the Issue Date, and its successors and
assigns.
"Host REIT" means Host Marriott Corporation, a Maryland corporation, which
is the sole general partner of Host Marriott, L.P. following the REIT
Conversion, and its successors and assigns.
"Host REIT Merger" means the merger of Host with and into Host REIT, with
Host REIT surviving the merger, which merger occurred on December 29, 1998.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to (including
as a result of an acquisition), or become responsible for, the payment of,
contingently or otherwise, such Indebtedness (including Acquired Indebtedness);
provided that neither the accrual of interest nor the accretion of original
issue discount will be considered an Incurrence of Indebtedness.
"Indebtedness" of any Person means, without duplication:
1. all liabilities and obligations, contingent or otherwise, of such
Person:
a. in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof);
b. evidenced by bonds, notes, debentures or similar instruments;
c. representing the balance deferred and unpaid of the purchase
price of any property or services, except those incurred in the
ordinary course of its business that would constitute ordinarily
a trade payable to trade creditors;
d. evidenced by bankers' acceptances;
e. for the payment of money relating to a Capitalized Lease
Obligation; or
f. evidenced by a letter of credit or a reimbursement obligation of
such Person with respect to any letter of credit;
2. all net obligations of such Person under Interest Swap and Hedging
Obligations; and
3. all liabilities and obligations of others of the kind described in
the preceding clause (1) or (2) that such Person has guaranteed or
that is otherwise its legal liability or which are secured by any
assets or property of such Person.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
the Indenture, the amount of such obligations will be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such obligations will be the net amount so determined, plus any
premium due upon default by such Person.
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"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including without limitation by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the consolidated balance sheet of the Company and its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property (tangible or intangible) to others or any payment for property
or services solely for the account or use of others, or otherwise), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and will include the designation of
a Restricted Subsidiary to be an Unrestricted Subsidiary or a Non-Consolidated
Entity.
For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant described below:
1. "Investment" will include the proportionate share of the Company and
its Restricted Subsidiaries in the fair market value of the assets
(net of liabilities (other than liabilities to the Company or any of
its Restricted Subsidiaries)) of any Restricted Subsidiary at the
time such Restricted Subsidiary is designated an Unrestricted
Subsidiary or Non-Consolidated Entity;
2. the proportionate share of the Company and its Restricted
Subsidiaries in the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Unrestricted Subsidiary or Non-
Consolidated Entity at the time that such Unrestricted Subsidiary or
Non-Consolidated Entity is designated a Restricted Subsidiary will
be considered a reduction in outstanding Investments; and
3. any property transferred to or from an Unrestricted Subsidiary or
Non-Consolidated Entity will be valued at its fair market value at
the time of such transfer.
"Investment Grade" means a rating of the notes by both S&P and Moody's, each
such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e., currently BBB- (or the
equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by
Moody's); provided in each case such ratings are publicly available; provided,
further, that in the event Moody's or S&P is no longer in existence for
purposes of determining whether the notes are rated "Investment Grade," such
organization may be replaced by a nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) designated by
the Company, notice of which will be given to the Trustee.
"Issue Date" means August 5, 1998.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
privilege, hypothecation, other encumbrance or charge of any kind (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof or any agreement to give any security interest)
upon or with respect to any property of any kind now owned or hereinafter
acquired.
"Limited Partner Note" means an unsecured note of the Operating Partnership
which a limited partner of a Public Partnership elected to receive at the time
of the Partnership Mergers instead of or in exchange for Units.
"Merger" means the merger of HMH Properties with and into the Operating
Partnership, with the Operating Partnership as the surviving entity, which
merger occurred on December 16, 1998.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
1. with respect to any Asset Sale other than the sale of Capital Stock
of a Restricted Subsidiary, the proceeds of such Asset Sale in the
form of cash or Cash Equivalents, including payments in
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respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received
in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
of its Restricted Subsidiaries) and proceeds from the conversion of
other property received when converted to cash or Cash Equivalents,
net of:
a. brokerage commissions and other fees and expenses (including fees
and expenses of counsel and investment bankers) related to such
Asset Sale;
b. provisions for all Taxes (including Taxes of Host REIT) actually
paid or payable as a result of such Asset Sale by the Company and
its Restricted Subsidiaries, taken as a whole;
c. payments made to repay Indebtedness (other than Indebtedness
subordinated in right of payment to the notes or a Subsidiary
Guarantee) or any other obligations outstanding at the time of
such Asset Sale that either (I) is secured by a Lien on the
property or assets sold; or (II) is required to be paid as a
result of such sale;
d. amounts reserved by the Company and its Restricted Subsidiaries
against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated
with such Asset Sale, all as determined on a consolidated basis
in conformity with GAAP; and
e. unless Taxes thereon are paid by Host REIT as set forth in clause
(b) above, amounts required to be distributed as a result of the
realization of gains from Asset Sales in order to maintain or
preserve Host REIT's status as a REIT;
(provided, however, that with respect to an Asset Sale by any Person other
than the Company or a Wholly Owned Subsidiary, Net Cash Proceeds will be the
above amount multiplied by the Company's (direct or indirect) percentage
ownership interest in such Person); and
2. with respect to any issuance or sale of Capital Stock, the proceeds
of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or Cash
Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any of its Restricted
Subsidiaries) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of
attorney's fees, accountant's fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net
of tax paid or payable as a result thereof (provided, however, that
with respect to an issuance or sale by any Person other than the
Company or a Wholly Owned Subsidiary, Net Cash Proceeds will be the
above amount multiplied by the Company's (direct or indirect)
percentage ownership interest in such Person).
"Net Investments" means, with respect to any referenced category or group
of Investments:
1. the aggregate amount of such Investments made by the Company and its
Restricted Subsidiaries (to the extent of the Company's
proportionate interest in such Restricted Subsidiaries) on or
subsequent to the Issue Date,
minus
2. the aggregate amount of any dividends, distributions, sales proceeds
or other amounts received by the Company and its Restricted
Subsidiaries (to the extent of the Company's proportionate
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interest in such Restricted Subsidiaries) in respect of such
Investments on or subsequent to the Issue Date;
and, in the event that any such Investments are made, or amounts are received,
in property other than cash, such amounts will be the fair market value of
such property.
"Non-Conforming Assets" means various assets (principally comprising
partnership or other interests in hotels which are not leased, certain
international hotels in which Host or its Subsidiaries own interests, and
certain FF&E relating to hotels owned by the Operating Partnership and its
Subsidiaries) which assets, if owned by the Operating Partnership, could
jeopardize Host REIT's status as a REIT.
"Non-Consolidated Entity" means a Non-Controlled Entity or a Fifty Percent
Venture which is neither a Non-Consolidated Restricted Entity nor an
Unrestricted Subsidiary.
"Non-Consolidated Restricted Entity" means a Non-Controlled Entity or a
Fifty Percent Venture which has been designated by the Company (by notice to
the Trustee) as a Restricted Subsidiary and which designation has not been
revoked (by notice to the Trustee). Revocation of a previous designation of a
Non-Controlled Entity or a Fifty Percent Venture as a Non-Consolidated
Restricted Entity will be deemed to be a designation of such entity to be a
Non-Consolidated Entity.
"Non-Controlled Entity" means a taxable corporation in which the Operating
Partnership owns (directly or indirectly) 90% or more of the economic interest
but no more than 9.9% of the Voting Stock and whose assets consist primarily
of Non-Conforming Assets.
"Offering" means the offering of the notes for sale by the Company.
"Officer's Certificate" means a certificate signed on behalf of the
Company, a Guarantor or Subsidiary Guarantor, as applicable, by an officer of
the Company, a Guarantor or Subsidiary Guarantor, as applicable, who must be
the principal executive officer, the principal financial officer, the
treasurer or the principal accounting officer of the Company, Guarantor or
Subsidiary Guarantor, as applicable.
"Old notes" means the approximately $35 million aggregate principal amount
of four series of Indebtedness of Host outstanding on the Issue Date.
"Operating Agreements" means the asset or property management agreements,
franchise agreements, lease agreements and other similar agreements between
the Company, any Subsidiary Guarantor or any of their respective Restricted
Subsidiaries, on the one hand, and Marriott International, SLC or another
entity engaged in and having pertinent experience with the operation of such
similar properties, on the other, relating to the operation of the real estate
properties owned by the Company, any Subsidiary Guarantor or any of their
respective Restricted Subsidiaries, provided that the management of the
Company determines in good faith that such arrangements are fair to the
Company and to such Restricted Subsidiary.
"Operating Partnership" means Host Marriott, L.P., a Delaware limited
partnership.
"Parent" of any Person means a corporation which at the date of
determination owns, directly or indirectly, a majority of the Voting Stock of
such Person or of a Parent of such Person.
"Partnership Mergers" means the merger of one of more Subsidiaries of the
Operating Partnership into one or more of the Public Partnerships.
"Paying Agent" means, until otherwise designated, the Trustee.
"Permitted Investment" means any of the following:
1. an Investment in Cash Equivalents;
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2. Investments in a Person substantially all of whose assets are of a
type generally used in a Related Business (an "Acquired Person") if,
as a result of such Investments:
a. the Acquired Person immediately thereupon is or becomes a
Restricted Subsidiary of the Company; or
b. the Acquired Person immediately thereupon either (I) is merged or
consolidated with or into the Company or any of its Restricted
Subsidiaries and the surviving Person is the Company or a
Restricted Subsidiary of the Company or (II) transfers or conveys
all or substantially all of its assets to, or is liquidated into,
the Company or any of its Restricted Subsidiaries;
3. an Investment in a Person, provided that:
a. such Person is principally engaged in a Related Business;
b. the Company or one or more of its Restricted Subsidiaries
participates in the management of such Person, as a general
partner, member of such Person's governing board or otherwise;
and
c. any such Investment will not be a Permitted Investment if, after
giving effect thereto, the aggregate amount of Net Investments
outstanding made in reliance on this clause (3) subsequent to the
Issue Date would exceed 5% of Total Assets;
4. Permitted Sharing Arrangement Payments;
5. securities received in connection with an Asset Sale so long as such
Asset Sale complied with the Indenture including the covenant
"Limitation on Asset Sales" (but, only to the extent the fair market
value of such securities and all other non-cash and non-Cash
Equivalent consideration received complies with clause (2) of the
first paragraph of the "Limitation on Asset Sales" covenant);
6. Investments in the Company or in Restricted Subsidiaries of the
Company;
7. Permitted Mortgage Investments;
8. any Investments constituting part of the REIT Conversion; and
9. any Investments in a Non-Consolidated Entity, provided that (after
giving effect to such Investment) the total assets (before depreciation
and amortization) of all Non-Consolidated Entities attributable to the
Company's proportionate ownership interest therein, plus an amount equal
to the Net Investments outstanding made in reliance upon clause (3)
above, does not exceed 20% of the total assets (before depreciation and
amortization) of the Company and its Consolidated Subsidiaries (to the
extent of the Company's proportionate ownership interest therein).
"Permitted Lien" means any of the following:
1. Liens imposed by governmental authorities for taxes, assessments or
other charges where nonpayment thereof is not subject to penalty or
which are being contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
2. statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law
in the ordinary course of business, provided that:
a. the underlying obligations are not overdue for a period of more
than 30 days;
b. such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
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3. Liens securing the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
4. easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the
aggregate, do not in any case materially detract from the value of
the property, subject thereto (as such property is used by the
Company or any of its Restricted Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
5. Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
6. pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation; and
7. Liens securing on an equal and ratable basis the notes and any other
Indebtedness.
"Permitted Mortgage Investment" means an Investment in Indebtedness secured
by real estate assets or Capital Stock of Persons (other than the Company or
its Restricted Subsidiaries) owning such real estate assets; provided that:
1. the Company is able to consolidate the operations of the real estate
assets in its GAAP financial statements;
2. such real estate assets are owned by a partnership, LLC or other
entity which is controlled by the Company or a Restricted Subsidiary
as a general partner, managing member or through similar means;
3. the aggregate amount of such Permitted Mortgage Investments
(excluding those referenced in clauses (1) and (2) above),
determined at the time each such Investment was made, does not
exceed 10% of Total Assets after giving effect to such Investment.
"Permitted REIT Distributions" means a declaration or payment of any
dividend or the making of any distribution:
1. to Host REIT that is necessary to maintain Host REIT's status as a
REIT under the Code or to satisfy the distributions required to be
made by reason of Host REIT's making of the election provided for in
Notice 88-19 (or Treasury regulations issued pursuant thereto), if:
a. the aggregate principal amount of all outstanding Indebtedness
(other than the QUIPs Debt) of the Company and its Restricted
Subsidiaries on a consolidated basis at such time is less than
80% of Adjusted Total Assets of the Company; and
b. no Default or Event of Default will have occurred and be
continuing; and
2. to any Person in respect of any Units, which distribution is
required as a result of or a condition to the distribution or
payment of such dividend or distribution to Host REIT; provided that
such Person's investment in the Operating Partnership in
consideration of which such Person received such Units will have
been consummated in a transaction determined by the Company to be
fair to the Operating Partnership as set forth in an Officer's
Certificate for Investments in an amount less than $50 million and
as set forth in a Board Resolution for Investments equal to or
greater than such amount.
"Permitted REIT Payments" means, without duplication, payments to Host REIT
and its Subsidiaries that hold only Qualified Assets in an amount necessary and
sufficient to permit Host REIT and such Subsidiaries to pay all of their
operating expenses and other general corporate expenses and liabilities
(including any reasonable professional fees and expenses).
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"Permitted Sharing Arrangements" means any contracts, agreements or other
arrangements between the Company and/or one or more of its Subsidiaries and a
Parent of the Company and/or one or more Subsidiaries of such Parent, pursuant
to which such Persons share centralized services, establish joint payroll
arrangements, procure goods or services jointly or otherwise make payments
with respect to goods or services on a joint basis, or allocate corporate
expenses (other than taxes based on income) (provided that (i) such Permitted
Sharing Arrangements are, in the determination of management of the Company,
the Subsidiary Guarantors, or their Restricted Subsidiaries in the best
interests of the Company, the Subsidiary Guarantors, or their Restricted
Subsidiaries and (ii) the liabilities of the Company, the Subsidiary
Guarantors and their Restricted Subsidiaries under such Permitted Sharing
Arrangements are determined in good faith and on a reasonable basis).
"Permitted Sharing Arrangements Payment" means payments under Permitted
Sharing Arrangements.
"Permitted Tax Payments" means payment of any liability of the Company,
Host, Host REIT or any of their respective Subsidiaries for Taxes.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), which have a preference on liquidation or with respect
to distributions over any other class of Capital Stock, including preferred
partnership interests, whether general or limited, or such Person's preferred
or preference stock, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all series and classes of such
preferred or preference stock.
"Private Partnership" means a partnership (other than a Public Partnership)
or limited liability company that owns one or more full service hotels and
that, prior to the REIT Conversion, was partially but not Wholly Owned by Host
or one of its Subsidiaries.
"Private Partnership Acquisition" means the acquisition by the Operating
Partnership or a Restricted Subsidiary thereof from unaffiliated partners of
certain Private Partnerships of partnership interests in such Private
Partnerships in exchange for Units or the assets of such Private Partnerships
by merger or conveyance in exchange for Units.
"Procurement Contracts" means contracts for the procurement of goods and
services entered into in the ordinary course of business and consistent with
industry practices.
"Pro Rata Share" means "PRS" where:
PRS equals CR divided by TC multiplied by OPTC
where:
CR equals the redemption value of such Capital Stock in the issuing
Restricted Subsidiary held in the aggregate by the Company and its
Restricted Subsidiaries.
TC equals the total contribution to the equity of the issuing
Restricted Subsidiary made by the Company and its Restricted
Subsidiaries, and
OPTC equals the total contribution to the equity of the issuing
Restricted Subsidiary made by other Persons.
"Public Partnerships" mean, collectively:
1. Atlanta Marriott Marquis II Limited Partnership, a Delaware limited
partnership (with which HMC Atlanta Merger Limited Partnership was
merged);
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2. Desert Springs Marriott Limited Partnership, a Delaware limited
partnership (with which HMC Desert Merger Limited Partnership was
merged);
3. Hanover Marriott Limited Partnership, a Delaware limited partnership
(with which HMC Hanover Merger Limited Partnership was merged);
4. Marriott Diversified American Hotels, L.P., a Delaware limited
partnership (with which HMC Diversified Merger Limited Partnership
was merged);
5. Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership (with which HMC Properties I Merger Limited Partnership
was merged);
6. Marriott Hotel Properties II Limited Partnership, a Delaware limited
partnership (with which HMC Properties II Merger Limited Partnership
was merged);
7. Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P., a Rhode
Island Limited partnership (with which HMC Chicago Merger Limited
Partnership was merged);
8. Potomac Hotel Limited Partnership, a Delaware limited partnership
(with which HMC Potomac Merger Limited Partnership was merged); and
9. Marriott Suites Limited Partnership (with which MS Merger Limited
Partnership was merged);
or, as the context may require, any such entity together with its Subsidiaries,
or any of such Subsidiaries.
"Qualified Assets" means:
1. Capital Stock of the Company or any of its Subsidiaries or of other
Subsidiaries of the Guarantors substantially all of whose sole
assets are direct or indirect interests in Capital Stock of the
Company; and
2. other assets related to corporate operations of the Guarantor which
are de minimus in relation to those of the Guarantors and their
Restricted Subsidiaries, taken as a whole.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Stock and, when used in the definition of "Disqualified Stock,"
also includes any Capital Stock of a Restricted Subsidiary, Host REIT or any
Parent of the Company that is not Disqualified Stock.
"Qualified Exchange" means:
1. any legal defeasance, redemption, retirement, repurchase or other
acquisition of then outstanding Capital Stock or Indebtedness of the
Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of
Qualified Capital Stock; or
2. any exchange of Qualified Capital Stock for any then outstanding
Capital Stock or Indebtedness issued on or after the Issue Date.
"QUIPS" means the 6 3/4% Convertible Preferred Securities issued by Host
Marriott Financial Trust, a statutory business trust.
"QUIPs Debt" means the $567 million aggregate principal amount of 6%
convertible subordinated debentures due 2026 of Host, held by Host Marriott
Financial Trust, a statutory business trust.
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both will not make a rating of all of the notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
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"Rating Category" means currently:
1. with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D (or equivalent successor categories);
2. with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D (or equivalent successor categories); and
3. the equivalent of any such category of S&P or Moody's used in
another Rating Agency.
In determining whether the rating of the notes has decreased by one or more
gradations, gradations within Rating Categories (currently + and - for S&P, 1,
2 and 3 for Moody's; or the equivalent gradations for another Rating Agency)
will be taken into account (e.g., with respect to S&P, a decline in a rating
from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one
gradation).
"Rating Date" means the date which is 90 days prior to the earlier of:
1. a Change of Control; and
2. the first public notice of the occurrence of a Change of Control or
of the intention by the Company to effect a Change of Control.
"Rating Decline" means the occurrence, on or within 90 days after the
earliest to occur of:
1. a Change of Control; and
2. the date of the first public notice of the occurrence of a Change of
Control or of the intention by any Person to effect a Change of
Control (which period will be extended so long as the rating of the
notes is under publicly announced consideration for possible
downgrade by any of the Rating Agencies), of
a. in the event the notes are rated by either Moody's or S&P on the
Rating Date as Investment Grade, a decrease in the rating, of the
notes by either of such Rating Agencies to a rating that is below
Investment Grade; or
b. in the event the notes are rated below Investment Grade by both
Rating Agencies on the Rating Date, a decrease in the rating of
the notes by either Rating Agency by one or more gradations
(including gradations with Rating Categories as well as between
Rating Categories).
"Real estate assets" means real property and all FF&E associated or used in
connection therewith.
"Reference Period" with regard to any Person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the securities or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Stock:
1. issued in exchange for, or the proceeds from the issuance and sale
of which are used substantially concurrently to repay, redeem,
defease, refund, refinance, discharge or otherwise retire for value,
in whole or in part; or
2. constituting an amendment, modification or supplement to, or a
deferral or renewal of ((1) and (2) above are, collectively, a
"Refinancing"),
any Indebtedness or Disqualified Stock in a principal amount or, in the case of
Disqualified Stock, liquidation preference, not to exceed the sum of :
a.the reasonable and customary fees and expenses incurred in
connection with the Refinancing,
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plus
b. the lesser of:
(1) the principal amount or, in the case of Disqualified Stock,
liquidation preference, of the Indebtedness or Disqualified
Stock so refinanced; and
(2) if such Indebtedness being refinanced was issued with an
original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such
Refinancing;
provided that Refinancing Indebtedness (other than a revolving line of credit
from a commercial lender or other Indebtedness whose proceeds are used to
repay a revolving line of credit from a commercial lender to the extent such
revolving line of credit or other Indebtedness was not put in place for
purposes of evading the limitations described in this definition) will:
(x) not have an Average Life shorter than the Indebtedness or
Disqualified Stock to be so refinanced at the time of such
Refinancing; and
(y) be subordinated in right of payment to the rights of holders of the
notes if the Indebtedness or Disqualified Stock to be refinanced
was so subordinated.
"REIT Conversion" means the various transactions which were carried out in
connection with Host's conversion to a REIT, as generally described in the S-4
Registration Statement, including without limitation:
1. the contribution to the Operating Partnership and its Subsidiaries
of substantially all of the assets (excluding the assets of SLC)
held by Host and its other Subsidiaries;
2. the assumption by the Operating Partnership and/or its Subsidiaries
of substantially all of the liabilities of Host and its other
Subsidiaries (including, without limitation, the QUIPs Debt and the
unregistered notes);
3. the Partnership Mergers;
4. the Private Partnership Acquisitions;
5. the issuance of Limited Partner Notes in connection with the
foregoing;
6. the Blackstone Acquisition;
7. the contribution, prior to or substantially concurrent with the
Conversion Date, to Non-Controlled Entities of Non-Conforming
Assets;
8. the leases to SLC or Subsidiaries of SLC of the hotels owned by the
Operating Partnership and its Subsidiaries;
9. the Host REIT Merger;
10. the E&P Distribution; and
11. such other related transactions and steps, occurring prior to or
substantially concurrent with or within a reasonable time after the
Conversion Date as may be reasonably necessary to complete the
above transactions or otherwise to permit Host REIT to elect to be
treated as a REIT for Federal income tax purposes.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Restricted Subsidiaries as of the Closing
Date and any and all businesses that in the good faith judgment of the Board
of the Company are materially related businesses or real estate related
businesses. Without limiting the generality of the foregoing, Related Business
will include the ownership and operation of lodging properties.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than a Permitted Investment.
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"Restricted Payment" means, with respect to any Person (but without
duplication):
1. the declaration or payment of any dividend or other distribution in
respect of Capital Stock of such Person or the Parent or any
Restricted Subsidiary of such Person;
2. any payment on account of the purchase, redemption or other
acquisition or retirement for value of Capital Stock of such Person
or the Parent or any Restricted Subsidiary of such Person;
3. other than with the proceeds from the substantially concurrent sale
of, or in exchange for, Refinancing Indebtedness, any purchase,
redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any
defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such Person or the Parent or a Restricted Subsidiary
of such Person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking, fund payment, as the
case may be, of such Indebtedness;
4. any Restricted Investment by such Person; and
5. the payment to any Affiliate (other than the Company or its
Restricted Subsidiaries) in respect of taxes owed by any
consolidated group of which both such Person or a Subsidiary of such
Person and such Affiliate are members;
provided, however, that the term "Restricted Payment" does not include:
a. any dividend, distribution or other payment on or with respect to
Capital Stock of the Company to the extent payable solely in
shares of Qualified Capital Stock;
b. any dividend, distribution or other payment to the Company, or to
any of the Subsidiary Guarantors, by the Company or any of its
Restricted Subsidiaries;
c. Permitted Tax Payments;
d. the declaration or payment of dividends or other distributions by
any Restricted Subsidiary of the Company, provided such
distributions are made to the Company (or a Subsidiary of the
Company, as applicable) on a pro rata basis (and in like form)
with all dividends and distributions so made;
e. the retirement of Units upon conversion of such Units to Capital
Stock of Host REIT;
f. any transactions comprising part of the REIT Conversion;
g. any payments with respect to Disqualified Stock or Indebtedness
at the stated time and amounts pursuant to the original terms of
the instruments governing such obligations;
h. Permitted REIT Payments; and
i.payments in accordance with the existing terms of the QUIPS;
and provided, further, that any payments of bona fide obligations of the
Company or any Restricted Subsidiary will not be deemed to be Restricted
Payments solely by virtue of the fact of another Person's co-obligation with
respect thereto.
"Restricted Subsidiary" means any Subsidiary of the Company other than (i)
an Unrestricted Subsidiary or (ii) a Non-Consolidated Entity.
"S-4 Registration Statement" means the registration statement of the
Operating Partnership on Form S-4, filed with the Commission on June 2, 1998,
as amended and supplemented.
"Secured Indebtedness" means any Indebtedness or Disqualified Stock secured
by a Lien (other than Permitted Liens) upon the property of the Company, the
Subsidiary Guarantors or any of their respective Restricted Subsidiaries.
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"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1-02(w) of Regulation S-X
promulgated by the Commission as in effect as of the Issue Date.
"SLC" means HMC Senior Communities, Inc., a Delaware corporation, and its
successor Crestline Capital Corporation, a Maryland corporation, and its
successors and assigns.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means:
1. with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of
principal of such debt security is due and payable; and
2. with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt
security as the fixed date on which such installment is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
notes or a Subsidiary Guarantee thereof, as applicable.
"Subsidiary" means, with respect to any Person:
1. any corporation, association or other business entity of which more
than 50% of the voting power of the outstanding Voting Stock is
owned, directly or indirectly, by such Person, by such Person and
one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, or the accounts of which would be
consolidated with those of such Person in its consolidated financial
statements in accordance with GAAP, if such statements were prepared
as of such date;
2. any partnership:
a. in which such Person or one or more Subsidiaries of such Person
is, at the time, a general partner and owns alone or together
with the Company a majority of the partnership interest; or
b. in which such Person or one or more Subsidiaries of such Person
is, at the time, a general partner and which is controlled by
such Person in a manner sufficient to permit its financial
statements to be consolidated with the financial statements of
such Person in conformance with GAAP and the financial statements
of which are so consolidated;
3. any Non-Controlled Entity; and
4. any Fifty Percent Venture.
"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor for
payment of principal, premium and interest on the notes by such Subsidiary
Guarantor. Each Subsidiary Guarantee will be a senior obligation of the
Subsidiary Guarantor and will be full and unconditional regardless of the
enforceability of the notes and the Indenture.
"Subsidiary Guarantors" means:
1. the current Subsidiary Guarantors identified in the following
sentence; and
2. any Future Subsidiary Guarantors that become Subsidiary Guarantors
pursuant to the terms of the Indenture, but in each case excluding
any Persons whose guarantees have been released pursuant to the
terms of the Indenture.
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The current Subsidiary Guarantors are:
1. HMH Rivers, L.P.;
2. HMH Marina LLC;
3. HMC SBM Two LLC;
4. HMC PLP LLC;
5. HMC Retirement Properties, L.P.;
6. HMH Pentagon LLC;
7. HMH SFO LLC;
8. Airport Hotels LLC;
9. Chesapeake Financial Services LLC;
10. HMC Capital Resources LLC;
11. YBG Associates LLC;
12. PRM LLC;
13. Host Park Ridge LLC;
14. Host of Boston, Ltd.;
15. Host of Houston, Ltd.;
16. Host of Houston 1979;
17. Philadelphia Airport Hotel LLC;
18. HMC Hartford LLC;
19. HMH Norfolk LLC;
20. HMH Norfolk, L.P.;
21. HMC Park Ridge LLC;
22. HMC Park Ridge II LLC;
23. HMC Park Ridge LP;
24. HMC Partnership Holdings LLC;
25. HMC Suites LLC;
26. HMC Suites Limited Partnership;
27. Wellsford-Park Ridge Marriott Hotel Limited Partnership;
28. City Center Interstate Partnership LLC;
29. Farrell's Ice Cream Parlor Restaurants LLC;
30. HMC Burlingame LLC;
31. HMC California Leasing LLC;
32. HMC Capital LLC;
33. HMC Grand LLC;
34. HMC Hotel Development LLC;
35. HMC Mexpark LLC;
36. HMC Polanco LLC;
37. HMC NGL LLC;
38. HMC OLS I L.P.;
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39. HMC RTZ Loan I LLC;
40. HMC RTZ II LLC;
41. HMC Seattle LLC;
42. HMC Swiss Holdings LLC;
43. HMC Waterford LLC;
44. HMH Restaurants LLC;
45. HMH Rivers LLC;
46. HMH WTC LLC;
47. HMP Capital Ventures LLC;
48. HMP Financial Services LLC;
49. Host La Jolla LLC;
50. City Center Hotel Limited Partnership;
51. MFR of Illinois LLC;
52. MFR of Vermont LLC;
53. MFR of Wisconsin LLC;
54. HMC Marquis LLC;
55. PM Financial LLC;
56. PM Financial LP;
57. HMC Chicago LLC;
58. HMC HPP LLC;
59. HMC Desert LLC;
60. HMC Hanover LLC;
61. HMC Diversified LLC;
62. HMC Properties I LLC;
63. HMC Potomac LLC;
64. HMC East Side II LLC;
65. HMC Manhattan Beach LLC;
66. Chesapeake Hotel Limited Partnership;
67. HMH General Partner Holdings LLC;
68. HMC IHP Holdings LLC;
69. HMC OP BN LLC;
70. S.D. Hotels LLC;
71. HMC Gateway LLC;
72. HMC Pacific Gateway LLC;
73. HMC Desert Springs LLC;
74. MDSM Finance LLC;
75. Market Street Marriott LLC;
76. HMC Market Street LLC;
77. New Market Street LP;
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78. Times Square LLC;
79. Times Square GP LLC;
80. Saga Property Leasing LLC;
81. Saga Restaurants LLC;
82. HMC Atlanta LLC;
83. Ivy Street LLC;
84. HMC Properties II LLC; and
85. Santa Clara HMC LLC;
"Subsidiary Indebtedness" means, without duplication, all Unsecured
Indebtedness (including Guarantees (other than Guarantees by Restricted
Subsidiaries of Secured Indebtedness)) of which a Restricted Subsidiary other
than a Subsidiary Guarantor is the obligor. A release of the Guarantee of a
Subsidiary Guarantor which remains a Restricted Subsidiary will be deemed to be
an Incurrence of Subsidiary Indebtedness in amount equal to the Company's
proportionate interest in the Unsecured Indebtedness of such Subsidiary
Guarantor.
"Tax" or "Taxes" means all Federal, state, local, and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto, imposed by any domestic or foreign governmental authority responsible
for the administration of any such taxes.
"Total Assets" means the sum of:
1. Undepreciated Real Estate Assets; and
2. all other assets (excluding intangibles) of the Company, the
Subsidiary Guarantors, and their respective Restricted Subsidiaries
determined on a consolidated basis (it being understood that the
accounts of Restricted Subsidiaries will be consolidated with those
of the Company only to the extent of the Company's proportionate
interest therein).
"Total Unencumbered Assets" as of any date means the sum of:
1. Undepreciated Real Estate Assets not securing any portion of Secured
Indebtedness; and
2. all other assets (but excluding intangibles and minority interests
in Persons who are obligors with respect to outstanding secured
debt) of the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries not securing any portion of Secured
Indebtedness, determined on a consolidated basis (it being
understood that the accounts of Restricted Subsidiaries will be
consolidated with those of the Company only to the extent of the
Company's proportionate interest therein).
"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness or issuance of Disqualified Stock by the Company or any of its
Restricted Subsidiaries, the date such Indebtedness is to be Incurred or such
Disqualified Stock is to be issued and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Undepreciated Real Estate Assets" means, as of any date, the cost (being
the original cost to the Company, the Subsidiary Guarantors or any of their
respective Restricted Subsidiaries plus capital improvements) of real estate
assets of the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries on such date, before depreciation and amortization of
such real estate assets, determined on a consolidated basis (it being
understood that the accounts of Restricted Subsidiaries will be consolidated
with those of the Company only to the extent of the Company's proportionate
interest therein).
"Units" means the limited partnership units of the Operating Partnership.
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"Unrestricted Subsidiary" means any Subsidiary of the Company that at the
time of determination will be designated an Unrestricted Subsidiary by the
Board of the Company in the manner provided below. The Board of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary, unless such
Subsidiary owns any Capital Stock of the Company, the Subsidiary Guarantors or
any of their respective Restricted Subsidiaries (other than the designated
Subsidiary and any other Subsidiary concurrently being designated as an
Unrestricted Subsidiary); provided that:
1. any Guarantee by the Company, the Subsidiary Guarantors or any of
their respective Restricted Subsidiaries (other than the designated
Subsidiary and any other Subsidiary concurrently being designated as
an Unrestricted Subsidiary) of any Indebtedness of the Subsidiary
being so designated will be deemed an "Incurrence" of such
Indebtedness and an "Investment" by the Company, the Subsidiary
Guarantors or such Restricted Subsidiaries at the time of such
designation;
2. either:
a. the Subsidiary to be so designated has total assets of $1,000 or
less; or
b. if such Subsidiary has assets greater than $1,000, such
designation would not be prohibited under the "Limitation on
Restricted Payments" covenant described below; and
3. if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (1) of this proviso would be permitted under
the "Limitation on Incurrences of Indebtedness and Issuances of
Disqualified Stock" and "Limitation on Restricted Payments"
covenants.
The Board of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
1. no Default or Event of Default will have occurred and be continuing
at the time of or after giving effect to such designation; and
2. all Liens, Indebtedness and Disqualified Stock of such Unrestricted
Subsidiary outstanding immediately after such designation would, if
Incurred, granted or issued at such time, have been permitted to be
Incurred, granted or issued and will be deemed to have been
Incurred, granted or issued for all purposes of the Indenture.
Any such designation by the Board of the Company will be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officer's Certificate certifying that
such designation complied with the foregoing provisions.
"Unsecured Indebtedness" means any Indebtedness or Disqualified Stock of the
Company, the Subsidiary Guarantors or any of their respective Restricted
Subsidiaries that is not Secured Indebtedness.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting, members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person and/or one or more Wholly Owned Subsidiaries of
such Person.
Covenants
The following covenants apply to the notes being offered pursuant to this
offering memorandum:
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Repurchase of Notes at the Option of the Holder Upon a Change of Control
Triggering Event
Upon the occurrence of a Change of Control Triggering Event, each holder of
notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's notes
pursuant to the unconditional, irrevocable offer to purchase described below
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon to
the date of purchase (the "Change of Control Payment") on a date that is not
more than 45 Business Days after the occurrence of such Change of Control
Triggering Event (the "Change of Control Payment Date").
On or before the Change of Control Payment Date, the Company will:
1. accept for payment notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
2. deposit with the Paying Agent cash sufficient to pay the Change of
Control Payment (together with accrued and unpaid interest) of all
notes so tendered; and
3. deliver to the trustee notes so accepted together with an Officer's
Certificate listing the aggregate principal amount of the notes or
portions thereof being purchased by the Company.
The Paying Agent will promptly mail to the holders of notes so accepted
payment in an amount equal to the Change of Control Payment, and the trustee
will promptly authenticate and mail or deliver (or cause to be transferred by
book entry) to such holders a new note equal in principal amount to any
unpurchased portion of the note surrendered; provided that each such new note
will be in a principal amount of $1,000 or an integral multiple thereof. Any
notes not so accepted will be promptly mailed or delivered by the Company to
the holder thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the consummation
thereof.
The provisions of the indenture relating to a Change of Control Triggering
Event may not afford the holders protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger, spin-off or similar
transaction that may adversely affect holders, if such transaction does not
constitute a Change of Control Triggering Event, as defined. In addition, the
Company may not have sufficient financial resources available to fulfill its
obligation to repurchase the notes upon a Change of Control Triggering Event.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Securities Exchange Act of 1934, as amended, and the rules thereunder and all
other applicable Federal and state securities laws.
Limitation on Incurrences of Indebtedness and Issuances of Disqualified Stock
A. Except as set forth below, neither the Company, the Subsidiary
Guarantors nor any of their respective Restricted Subsidiaries will,
directly or indirectly, Incur any Indebtedness (including Acquired
Indebtedness) or issue any Disqualified Stock. Notwithstanding the
foregoing sentence, if, on the date of any such Incurrence or issuance,
after giving effect to, on a pro forma basis, such Incurrence or
issuance and the receipt and application of the proceeds therefrom:
1. the aggregate amount of all outstanding Indebtedness (other than the
QUIPs Debt) and Disqualified Stock of the Company, the Subsidiary
Guarantors and their respective Restricted Subsidiaries (including
amounts of Refinancing Indebtedness outstanding pursuant to
paragraph (d)(3) hereof or otherwise), determined on a consolidated
basis (it being understood that the amounts of Indebtedness and
Disqualified Stock of Restricted Subsidiaries will be consolidated
with that of the Company only to the extent of the Company's
proportionate interest in such Restricted Subsidiaries), without
duplication, is less than or equal to 65% of Adjusted Total Assets
of the Company; and
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2. the Consolidated Coverage Ratio of the Company would be greater than
or equal to 2.0 to 1,
the Company and its Restricted Subsidiaries may Incur such Indebtedness or
issue such Disqualified Stock.
A. In addition to the foregoing limitations set forth in (a) above, except
as set forth below, the Company, the Subsidiary Guarantors and their
Restricted Subsidiaries will not Incur any Secured Indebtedness or
Subsidiary Indebtedness. Notwithstanding the foregoing sentence, if,
immediately after giving effect to the Incurrence of such additional
Secured Indebtedness and/or Subsidiary Indebtedness and the application
of the proceeds thereof, the aggregate amount of all outstanding Secured
Indebtedness and Subsidiary Indebtedness of the Company, the Subsidiary
Guarantors and their Restricted Subsidiaries (including amounts of
Refinancing Indebtedness outstanding pursuant to paragraph (d)(3) hereof
or otherwise), determined on a consolidated basis (it being understood
that the amounts of Secured Indebtedness and Subsidiary Indebtedness of
Restricted Subsidiaries will be consolidated with that of the Company
only to the extent of the Company's proportionate interest in such
Restricted Subsidiaries), without duplication, is less than or equal to
45% of Adjusted Total Assets of the Company, the Company and its
Restricted Subsidiaries may Incur such Secured Indebtedness and/or
Subsidiary Indebtedness.
B. In addition to the limitations set forth in (a) and (b) above, the
Company, the Subsidiary Guarantors and their Restricted Subsidiaries
will maintain at all times Total Unencumbered Assets of not less than
125% of the aggregate outstanding amount of the Unsecured Indebtedness
(other than the QUIPs Debt) (including amounts of Refinancing
Indebtedness outstanding pursuant to paragraph (d)(3) hereof or
otherwise) determined on a consolidated basis (it being understood that
the Unsecured Indebtedness of the Restricted Subsidiaries will be
consolidated with that of the Company only to the extent of the
Company's proportionate interest in such Restricted Subsidiaries).
C. Notwithstanding paragraphs (a) or (b), the Company, the Subsidiary
Guarantors and their respective Restricted Subsidiaries (except as
specified below) may Incur or issue each and all of the following:
1. Indebtedness outstanding (including Indebtedness issued to replace,
refinance or refund such Indebtedness) under the Credit Facility at
any time in an aggregate principal amount not to exceed $1.5
billion, less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant (including
that, in the case of a revolver or similar arrangement, such
commitment is permanently reduced by such amount);
2. Indebtedness or Disqualified Stock owed:
a. to the Company; or
b. to any Subsidiary Guarantor; provided that any event which
results in any Restricted Subsidiary holding such Indebtedness or
Disqualified Stock ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness or Disqualified Stock
(other than to the Company or a Subsidiary Guarantor) will be
deemed, in each case, to constitute an Incurrence of such
Indebtedness or issuance of Disqualified Stock not permitted by
this clause (2);
3. Refinancing Indebtedness with respect to outstanding Indebtedness
(other than Indebtedness Incurred under clause (1), (2), (4), (6) or
(8) of this paragraph) and any refinancings thereof;
4. Indebtedness:
a. in respect of performance, surety or appeal bonds Incurred in the
ordinary course of business;
b. under Currency Agreements and Interest Swap and Hedging
Obligations; provided that such agreements:
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(1) are designed solely to protect the Company, the Subsidiary
Guarantors or any of their Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest
rates; and
(2) do not increase the Indebtedness of the obligor outstanding,
at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable
thereunder; or
c. arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any
obligations of the Company, the Subsidiary Guarantors or any of
their Restricted Subsidiaries pursuant to such agreements, in any
case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of
such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in an amount not to exceed the gross
proceeds actually received by the Company, the Subsidiary Guarantors
and their Restricted Subsidiaries on a consolidated basis in
connection with such disposition;
5. Indebtedness of the Company, to the extent the net proceeds thereof
are promptly:
a. used to purchase all of the notes tendered in a Change of Control
Offer made as a result of a Change of Control; or
b. deposited to defease the notes as described below under "Legal
Defeasance and Covenant Defeasance";
6. Guarantees of the notes and Guarantees of Indebtedness of the
Company or any of the Subsidiary Guarantors by any of their
respective Restricted Subsidiaries; provided the guarantee of such
Indebtedness is permitted by and made in accordance with the terms
of the Indenture at the time of the incurrence of such underlying
Indebtedness or at the time such guarantor becomes a Restricted
Subsidiary;
7. Indebtedness evidenced by the notes and the Guarantees thereof and
represented by the indenture up to the amounts issued pursuant
thereto as of the Issue Date;
8. the QUIPs Debt;
9. Limited Partner Notes; and
10. Indebtedness Incurred pursuant to the Blackstone Acquisition and
any Indebtedness of Host, its Subsidiaries, a Public Partnership or
a Private Partnership incurred in connection with the REIT
Conversion.
A. For purposes of determining any particular amount of Indebtedness under
this covenant:
1. Indebtedness Incurred under the Credit Facility on or prior to the
Issue Date will be treated as Incurred pursuant to clause (1) of
paragraph (d) of this covenant; and
2. Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount will not be included as additional Indebtedness. For
purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses, the Company, in
its sole discretion, will classify such item of Indebtedness as being
Incurred under only one of such clauses.
Indebtedness or Disqualified Stock of any Person that is not a Restricted
Subsidiary of the Company, which Indebtedness or Disqualified Stock is
outstanding at the time such Person becomes a Restricted Subsidiary of the
Company (including by designation) or is merged with or into or consolidated
with the
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Company or a Restricted Subsidiary of the Company, will be deemed to have been
Incurred or issued at the time such Person becomes a Restricted Subsidiary of
the Company or is merged with or into or consolidated with the Company, or a
Restricted Subsidiary of the Company, and Indebtedness or Disqualified Stock
which is assumed at the time of the acquisition of any asset will be deemed to
have been Incurred or issued at the time of such acquisition.
Limitation on Liens
Neither the Company, the Subsidiary Guarantors, nor any Restricted
Subsidiary will secure any Indebtedness under the Credit Facility by a Lien or
suffer to exist any Lien on their respective properties or assets securing
Indebtedness under the Credit Facility unless effective provision is made to
secure the notes equally and ratably with the Lien securing such Indebtedness
for so long as Indebtedness under the Credit Facility is secured by such Lien.
Limitation on Restricted Payments
The Company and the Subsidiary Guarantors will not, and the Company and the
Subsidiary Guarantors will not permit any of their respective Restricted
Subsidiaries to, directly or indirectly, make a Restricted Payment if, at the
time of, and after giving effect to, the proposed Restricted Payment:
1. a Default or Event of Default will have occurred and be continuing;
2. the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of the "Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock" covenant; or
3. the aggregate amount of all Restricted Payments (the amount, if
other than in cash, the fair market value of any property used
therefor) made on and after the Issue Date will exceed the sum of,
without duplication:
a. 95% of the aggregate amount of the Funds From Operations (or, if
the Funds From Operations is a loss, minus 100% of the amount of
such loss) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the
fiscal quarter in which the Issue Date occurs and ending on the
last day of the last fiscal quarter preceding the Transaction
Date;
b. 100% of the aggregate Net Cash Proceeds received by the Company
after the Issue Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to
a Person who is not a Subsidiary of the Company including from an
issuance to a Person who is not a Subsidiary of the Company of
any options, warrants or other rights to acquire Capital Stock of
the Company (in each case, exclusive of any Disqualified Stock or
any options, warrants or other rights that are redeemable at the
option of the holder, or are required to be redeemed, prior to
the Stated Maturity of the notes), and the amount of any
Indebtedness (other than Indebtedness subordinate in right of
payment to the notes) of the Company that was issued and sold for
cash upon the conversion of such Indebtedness after the Issue
Date into Capital Stock (other than Disqualified Stock) of the
Company, or otherwise received as Capital Contributions;
c. an amount equal to the net reduction in Investments (other than
Permitted Investments) in any Person other than a Restricted
Subsidiary after the Issue Date resulting from payments of
interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the
Company or any of its Restricted Subsidiaries or from the Net
Cash Proceeds from the sale of any such Investment (except, in
each case, to the extent any such payment or proceeds are
included in the calculation of Funds From Operations) or from
designations of Unrestricted Subsidiaries or Non-Consolidated
Entities as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments");
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d. the fair market value of noncash tangible assets or Capital
Stock (other than that of the Company or its Parent)
representing interests in Persons acquired after the Issue Date
in exchange for an issuance of Qualified Capital Stock; and
e. the fair market value of noncash tangible assets or Capital
Stock (other than that of the Company or its Parent)
representing interests in Persons contributed as a Capital
Contribution to the Company after the Issue Date.
Notwithstanding the foregoing, the Company may make Permitted REIT
Distributions. The Company estimates that as of December 31, 1998, the sum of
the amounts referenced in clauses (a) through (e) above was approximately $2.4
billion.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiary
Guarantors
The Company and the Subsidiary Guarantors will not create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary Guarantor to:
1. pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Subsidiary Guarantor
held by the Company or its Restricted Subsidiaries;
2. pay any Indebtedness owed to the Company or any Subsidiary
Guarantor;
3. make loans or advances to the Company or any Subsidiary Guarantor;
or
4. transfer its property or assets to the Company or any Subsidiary
Guarantor.
The foregoing provisions will not prohibit any encumbrances or restrictions:
1. imposed under the indenture as in existence immediately following
the Issue Date or under the Credit Facility, and any extensions,
refinancings, renewals or replacements of such agreements; provided
that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the holders than those encumbrances or
restrictions that are then in effect and that are being extended,
refinanced, renewed or replaced;
2. imposed under any applicable documents or instruments pertaining to
any Secured Indebtedness (and relating solely to assets constituting
collateral thereunder or cash proceeds from or generated by such
assets);
3. existing under or by reason of applicable law;
4. existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired;
5. in the case of clause (d) of the first paragraph of this covenant,
(A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or
any Restricted Subsidiary not otherwise prohibited by the indenture
or (d) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of the
Company or any Restricted Subsidiary in any manner material to the
Company and its Restricted Subsidiaries, taken as a whole;
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6. with respect solely to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary;
7. contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a
default with respect to a financial covenant contained in such
Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the holders of the notes than is
customary in comparable financings (as determined by the Company)
and (C) the Company determines that any such encumbrance or
restriction will not materially affect its ability to make principal
or interest payments on the notes, or
8. in connection with and pursuant to permitted refinancings thereof,
replacements of restrictions imposed pursuant to clause (d) of this
paragraph that are not more restrictive than those being replaced
and do not apply to any other Person or assets other than those that
would have been covered by the restrictions in the Indebtedness so
refinanced.
Nothing contained in this covenant will prevent the Company, the Subsidiary
Guarantors or any of their respective Restricted Subsidiaries from:
(x) creating, incurring, assuming or suffering to exist any Permitted
Liens or Liens not prohibited by the "Limitation on Liens"
covenant; or
(y) restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted Subsidiaries
in accordance with the terms of such Indebtedness or any related
security document.
Limitation on Transactions with Affiliates
Neither the Company, the Subsidiary Guarantors, nor any of their respective
Restricted Subsidiaries will be permitted to, directly or indirectly, enter
into, renew or extend any transaction or series of transactions (including,
without limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any Affiliate of the Company or
any of its Restricted Subsidiaries ("Affiliate Transactions"), other than
Exempted Affiliate Transactions, except upon fair and reasonable terms no less
favorable to the Company, the Subsidiary Guarantor or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's length transaction with
a Person that is not an Affiliate.
The foregoing limitation does not limit, and will not apply to:
1. transactions approved by a majority of the Board of the Company;
2. the payment of reasonable and customary fees and expenses to members
of the Board of the Company who are not employees of the Company;
3. any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant or any payments specifically exempted
from the definition of Restricted Payments; and
4. Permitted REIT Payments.
Notwithstanding the foregoing, any Affiliate Transaction or series of
related Affiliate Transactions, other than Exempted Affiliate Transactions and
any transaction or series of related transactions specified in any of clauses
(2) through (4) of the preceding paragraph:
1. with an aggregate value in excess of $10 million must first be
approved pursuant to a Board Resolution by a majority of the Board
of the Company who are disinterested in the subject matter of the
transaction; and
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2. with an aggregate value in excess of $25 million, will require the
Company to obtain a favorable written opinion from an independent
financial advisor of national reputation as to the fairness from a
financial point of view of such transaction to the Company, such
Subsidiary Guarantor or such Restricted Subsidiary, except that in
the case of a real estate transaction or related real estate
transactions with an aggregate value in excess of $25 million but
not in excess of $50 million, an opinion may instead be obtained
from an independent, qualified real estate appraiser that the
consideration received in connection with such transaction is fair
to the Company, such Subsidiary Guarantor or such Restricted
Subsidiary.
Limitation on Asset Sales
The Company and the Subsidiary Guarantors will not, and the Company and the
Subsidiary Guarantors will not permit any of their respective Restricted
Subsidiaries to, consummate any Asset Sale, unless:
1. the consideration received by the Company, the Subsidiary Guarantor
or such Restricted Subsidiary is at least equal to the fair market
value of the assets sold or disposed of as determined by the Board
of the Company, in good faith; and
2. at least 75% of the consideration received consists of cash, Cash
Equivalents and/or real estate assets; provided that, with respect
to the sale of one or more real estate properties, up to 75% of the
consideration may consist of indebtedness of the purchaser of such
real estate properties so long as such Indebtedness is secured by a
first priority Lien on the real estate property or properties sold;
and provided that, for purposes of this clause (2) the amount of:
a. any Indebtedness (other than Indebtedness subordinated in right
of payment to the notes or a Subsidiary Guarantee) that is
required to be repaid or assumed (and is either repaid or assumed
by the transferee of the related assets) by virtue of such Asset
Sale and which is secured by a Lien on the property or assets
sold; and
b. any securities or other obligations received by the Company, any
Subsidiary Guarantor or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company, the
Subsidiary Guarantor or such Restricted Subsidiary into cash (or as
to which the Company, any Subsidiary Guarantor or such Restricted
Subsidiary has received at or prior to the consummation of the Asset
Sale a commitment (which may be subject to customary conditions) from
a nationally recognized investment, merchant or commercial bank to
convert into cash within 90 days of the consummation of such Asset
Sale and which are thereafter actually converted into cash within
such 90-day period) will be deemed to be cash.
In the event that the aggregate Net Cash Proceeds received by the Company,
any Subsidiary Guarantors or such Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 1% of Total Assets (determined as of the date closest
to the commencement of such 12 month period for which a consolidated balance
sheet of the Company and its Restricted Subsidiaries has been filed with the
Securities and Exchange Commission or provided to the trustee pursuant to the
"Report" covenant), then prior to 12 months after the date Net Cash Proceeds so
received exceeded 1% of Total Assets, the Net Cash Proceeds may be:
1. invested in or committed to be invested in, pursuant to a binding
commitment subject only to reasonable, customary closing conditions,
and providing such Net Cash Proceeds are, in fact, so invested,
within an additional 180 days:
a. fixed assets and property (other than notes, bonds, obligations
and securities) which in the good faith reasonable judgment of
the Board of the Company will immediately constitute or be part
of a Related Business of the Company, the Subsidiary Guarantor or
such Restricted
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Subsidiary (if it continues to be a Restricted Subsidiary)
immediately following such transaction;
b. Permitted Mortgage Investments; or
c. a controlling interest in the Capital Stock of an entity engaged
in a Related Business;
provided that concurrently with an Investment specified in clause , such
entity becomes a Restricted Subsidiary; or
2. used to repay and permanently reduce Indebtedness outstanding under
the Credit Facility (including that, in the case of a revolver or
similar arrangement, such commitment is permanently reduced by such
amount).
Pending the application of any such Net Cash Proceeds as described above,
the Company may invest such Net Cash Proceeds in any manner that is not
prohibited by the Indenture. Any Net Cash Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
(including any Net Cash Proceeds which were committed to be invested as
provided in such sentence but which are not in fact invested within the time
period provided) will be deemed to constitute "Excess Proceeds".
Within 30 days following each date on which the aggregate amount of Excess
Proceeds exceeds $25 million, the Company will make an offer to purchase from
the holders of the notes and holders of any other Indebtedness of the Company
ranking pari passu with the notes from time to time outstanding with similar
provisions requiring the Company to make an offer to purchase or redeem such
Indebtedness with the proceeds from such Asset Sale, on a pro rata basis, an
aggregate principal amount (or accreted value, as applicable) of notes and such
other Indebtedness equal to the Excess Proceeds on such date, at a purchase
price equal to 100% of the principal amount (or accreted value, as applicable)
of the notes and such other Indebtedness, plus, in each case, accrued interest
(if any) to the Payment Date. To the extent that the aggregate amount of notes
and other senior Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount (or accreted
value, as applicable) of notes and such other Indebtedness tendered pursuant to
an Asset Sale Offer exceeds the amount of Excess Proceeds, the notes to be
purchased and such other Indebtedness will be selected on a pro rata basis.
Upon completion of such Offer to Purchase, the amount of Excess Proceeds will
be reset at zero.
Notwithstanding, and without complying with, any of the foregoing
provisions:
1. the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may, in the ordinary course of business,
convey, sell, lease, transfer, assign or otherwise dispose of
inventory acquired and held for resale in the ordinary course of
business;
2. the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may convey, sell, lease, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the
"Consolidation, Merger and Sale of Assets" and "Limitation on Merger
of Subsidiary Guarantors and Release of Subsidiary Guarantors"
covenants in the indenture;
3. the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may sell or dispose of damaged, worn out or
other obsolete property in the ordinary course of business so long
as such property is no longer necessary for the proper conduct of
the business of the Company, the Subsidiary Guarantor or such
Restricted Subsidiary, as applicable; and
4. the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may exchange assets held by the Company, the
Subsidiary Guarantor or a Restricted Subsidiary for one or more real
estate properties and/or one or more Related Businesses of any
Person or entity owning one or more real estate properties and/or
one or more Related Businesses; provided that the Board of the
Company has determined in good faith that the fair market value of
the assets
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received by the Company are approximately equal to the fair market
value of the assets exchanged by the Company.
No transaction listed in clauses (a) through (d) inclusive shall be deemed
to be an "Asset Sale."
Limitation on Merger of Subsidiary Guarantors and Release of Subsidiary
Guarantors
No Subsidiary Guarantor shall consolidate or merge with or into (whether or
not such Subsidiary Guarantor is the surviving Person) another Person (other
than the Company or another Subsidiary Guarantor), unless:
1. subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other
than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the trustee, pursuant to which such
Person shall unconditionally and fully guarantee, on a senior basis,
all of such Subsidiary Guarantor's obligations under such Subsidiary
Guarantor's Guarantee under the indenture on the terms set forth in
the indenture; and
2. immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default
shall have occurred or be continuing.
The Guarantee of the notes by a Subsidiary Guarantor shall be automatically
released upon:
1. the sale or other disposition of Capital Stock of such Subsidiary
Guarantor if, as a result of such sale or disposition, such
Subsidiary Guarantor ceases to be a Subsidiary of the Company;
2. the consolidation or merger of any such Subsidiary Guarantor with
any Person other than the Company or a Subsidiary of the Company if,
as a result of such consolidation or merger, such Subsidiary
Guarantor ceases to be Subsidiary of the Company;
3. a Legal Defeasance or Covenant Defeasance; or
4. the unconditional and complete release of such Subsidiary Guarantor
from its Guarantee of all Guaranteed Indebtedness.
Limitation on Status as Investment Company
The indenture prohibits the Company and its Restricted Subsidiaries from
being required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended).
Covenants upon Attainment and Maintenance of an Investment Grade Rating
The covenants "--Limitation on Liens," "--Limitation on Restricted
Payments," "--Limitation on Dividend and other Payment Restrictions Affecting
Subsidiary Guarantors," "--Limitation on Asset Sales," and "--Limitation on
Transactions with Affiliates" will not be applicable in the event, and only for
so long as, the notes are rated Investment Grade.
Reports
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
trustee and to each holder, within 15 days after it is or would have been
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have
been included in reports filed with the Commission, if the Company were subject
to the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the certified
independent public accountants of the Company, as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. Whether or
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not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability and will make such information available to securities analysts
and prospective investors upon request.
Events of Default
An Event of Default with respect to any series of notes issued under the
indenture is defined as:
1. the failure by the Company to pay any installment of interest on the
notes of that series as and when the same becomes due and payable
and the continuance of any such failure for 30 days;
2. the failure by the Company to pay all or any part of the principal
of, or premium, if any, on, the notes of that series when and as the
same becomes due and payable at maturity, redemption, by
acceleration or otherwise;
3. the failure by the Company, a Guarantor or any Subsidiary Guarantor
to observe or perform any other covenant or agreement contained in
the notes of that series or the Indenture with respect to that
series of notes and, subject to certain exceptions, the continuance
of such failure for a period of 30 days after written notice is
given to the Company by the trustee or to the Company and the
trustee by the holders of at least 25% in aggregate principal amount
of the notes of that series outstanding;
4. certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Significant Subsidiaries;
5. a default in (i) Secured Indebtedness of the Company or any of its
Restricted Subsidiaries with an aggregate principal amount in excess
of 5% of Total Assets, or (ii) other Indebtedness of the Company or
any of its Restricted Subsidiaries with an aggregate principal
amount in excess of $50 million, in either case, (I) resulting from
the failure to pay principal or interest when due (after giving
effect to any applicable extensions or grace or cure periods) or
(II) as a result of which the maturity of such Indebtedness has been
accelerated prior to its final Stated Maturity; and
6. final unsatisfied judgments not covered by insurance aggregating in
excess of 0.5% of Total Assets, at any one time rendered against the
Company or any of its Significant Subsidiaries and not stayed,
bonded or discharged within 60 days.
The indenture provides that if a Default occurs and is continuing, the
trustee must, within 90 days after the occurrence of such default, give to the
holders notice of such default; provided that the trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Events of Default relating to the payment of principal or
interest on the notes of that series) if it determines that withholding notice
is in their interest.
If an Event of Default with respect to the notes of any series occurs and is
continuing (other than an Event of Default specified in clause (4), above,
relating to the Company), then either the trustee or the holders of 25% in
aggregate principal amount of the notes of that series then outstanding, by
notice in writing to the Company (and to the trustee if given by holders) (an
"Acceleration Notice"), may declare all principal, determined as set forth
below, and accrued interest thereon to be due and payable immediately. If an
Event of Default specified in clause (4) above relating to the Company occurs,
all principal and accrued interest thereon will be immediately due and payable
on all outstanding notes without any declaration or other act on the part of
trustee or the holders. The holders of a majority in aggregate principal amount
of notes of any series generally are authorized to rescind such acceleration if
all existing Events of Default with respect to the notes of such series, other
than the non-payment of the principal of, premium, if any, and interest on the
notes of that series which have become due solely by such acceleration, have
been cured or waived. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding notes of a series may direct the
trustee in its exercise of any trust or power with respect to such series.
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The holders of a majority in aggregate principal amount of the notes of a
series at the time outstanding may waive on behalf of all the holders any
default with respect to such series, except a default with respect to any
provision requiring supermajority approval to amend, which default may only be
waived by such a supermajority with respect to such series, and except a
default in the payment of principal of or interest on any note of that series
not yet cured or a default with respect to any covenant or provision which
cannot be modified or amended without the consent of the holder of each
outstanding note of that series affected.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes of any series
at the time outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to such
series.
Consolidation, Merger and Sale of Assets
The Company will not merge with or into, or sell, convey, or transfer, or
otherwise dispose of all or substantially of its property and assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to any Person or permit any Person to merge with or into
the Company, unless:
1. neither the Company shall be the continuing Person or the Person (if
other than the Company) formed by such consolidation or into which
the Company is merged or that acquired such property and assets of
the Company shall be an entity organized and validly existing under
the laws of the United States of America or any state or
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the trustee, all of the
obligations of the Company, on the notes and under the indenture;
2. immediately after giving effect, on a pro forma basis, to such
transaction, no Default or Event of Default shall have occurred and
be continuing; and
3. the Company will have delivered to the trustee an Officer's
Certificate and an Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been
complied with.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company, in accordance with the foregoing, the successor
Person formed by such consolidation or into which the Company is merged or to
which such transfer is made, shall succeed to, be substituted for, and may
exercise every right and power of the Company under the indenture with the same
effect as if such successor Person had been named therein as the Company and
the Company shall be released from the obligations under the notes and the
indenture.
Legal Defeasance and Covenant Defeasance
The Company may, at its option, elect to have its obligations and the
obligations of the Guarantors and Subsidiary Guarantors discharged with respect
to the outstanding notes of any series ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented, and the indenture shall cease to be of
further effect as to all outstanding notes of such series and Guarantees
thereof, except as to:
1. rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on such notes when such payments
are due from the trust funds;
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2. the Company's obligations with respect to such notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes, and the maintenance of an office or agency for
payment and money for security payments held in trust;
3. the rights, powers, trust, duties, and immunities of the trustee, and
the Company's, the Guarantors' and the Subsidiary Guarantors'
obligations in connection therewith; and
4. the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect, with
respect to any series of notes, to have the obligations of the Company, the
Guarantors and the Subsidiary Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes of such series. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the notes of such series.
In order to exercise either Legal Defeasance or Covenant Defeasance, with
respect to any series of notes:
1. the Company must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes of such series, U.S. legal
tender, noncallable government securities or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such notes on the
stated date for payment thereof or on the redemption date of such
principal or installment of principal of, premium, if any, or
interest on such notes;
2. in the case of the Legal Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to trustee confirming that (A) the Company has received
from, or there has been published by the Internal Revenue Service, a
ruling or (B) since the date of the indenture, there has been a
change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of such notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such
Legal Defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
3. in the case of Covenant Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to such trustee confirming that the holders of such notes
will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
4. no Default or Event of Default shall have occurred with respect to
such series and be continuing on the date of such deposit or insofar
as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
5. such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture
or any other material agreement or instrument to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound;
6. the Company shall have delivered to the trustee an Officer's
Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of such notes over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
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7. the Company shall have delivered to the trustee an Officer's
Certificate stating that the conditions precedent provided for have
been complied with; and
8. Amendments and Supplements.
The indenture contains provisions permitting the Company, the Guarantors,
the Subsidiary Guarantors and the trustee to enter into a supplemental
indenture for certain limited purposes without the consent of the holders.
Subject to certain limited exceptions, modifications and amendments of the
indenture or any supplemental indenture with respect to any series may be made
by the Company, the Guarantors, the Subsidiary Guarantors and the trustee with
the consent of the holders of not less than a majority in aggregate principal
amount of the outstanding notes of such series (except that any amendments or
supplements to the provisions relating to security interests or with respect to
the Guarantees of the Subsidiary Guarantors shall require the consent of the
holders of not less than 66 2/3% of the aggregate principal amount of the notes
of such series at the time outstanding); provided that no such modification or
amendment may, without the consent of each holder affected thereby:
1. change the Stated Maturity of the principal of, or any installment
of interest on, any note;
2. reduce the principal amount of, or premium, if any, or interest on,
any note;
3. change the place of payment of principal of, or premium, if any, or
interest on, any note;
4. impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any note;
5. reduce the above-stated percentages of outstanding notes the consent
of whose holders is necessary to modify or amend the indenture;
6. waive a default in the payment of principal of, premium, if any, or
interest on the notes;
7. alter the provisions relating to the redemption of the notes at the
option of the Company;
8. reduce the percentage or aggregate principal amount of outstanding
notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the indenture or for waiver of
certain defaults; or
9. make the notes subordinate in right of payment to any other
Indebtedness.
No Personal Liability of Partners, Stockholders, Officers, Directors
No recourse for the payment of the principal of, premium, if any, or
interest on any of the notes or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company, the Guarantors or the Subsidiary Guarantors in the
indenture, or in any of the notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
partner, stockholder, officer, director, employee or controlling Person of the
Company, the Guarantors or the Subsidiary Guarantors or of any successor Person
thereof, except as an obligor or guarantor of the notes pursuant to the
indenture. Each holder, by accepting the notes, waives and releases all such
liability.
Concerning the Trustee
The indenture provides that, except during the continuance of a Default, the
trustee will not be liable, except for the performance of such duties as are
specifically set forth in such indenture. If an Event of Default has occurred
and is continuing, the trustee will use the same degree of care and skill in
its exercise of the rights and powers vested in it under the indenture as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
trustee, should it become a creditor of the Company or the Guarantors, to
obtain payment of claims in certain cases or to realize on certain property
received by it in
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respect of any such claims, as security or otherwise. The trustee is permitted
to engage in other transactions; provided that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
Book-Entry; Delivery; Form and Transfer
The notes initially will be in the form of one or more registered global
notes without interest coupons. Upon issuance, the global notes will be
deposited with the trustee, as custodian for DTC in New York, New York, and
registered in the name of DTC or its nominee for credit to the accounts of
DTC's direct participants and indirect participants (each as defined in the
following section "Depository Procedures").
Transfer of beneficial interests in any global notes will be subject to the
applicable rules and procedures of DTC and its direct participants or indirect
participants, which may change from time to time.
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be
exchanged for notes in certificated form in certain limited circumstances. See
"Transfer of Interests in Global Notes for Certificated Notes".
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations, called the "direct
participants", and to facilitate the clearance and settlement of transactions
in those securities between direct participants through electronic book-entry
changes in accounts of participants. The direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect custodial relationship with
a direct participant, called the "Indirect Participants". DTC may hold
securities beneficially owned by other persons only through the direct
participants or indirect participants and such other person's ownership
interest and transfer of ownership interest will be recorded only on the
records of the direct participant and/or indirect participant and not on the
records maintained by DTC.
DTC has also advised us that, pursuant to DTC's procedures, (1) upon
issuance of the Global Notes, DTC will credit the accounts of the direct
participants with portions of the principal amount of the global notes, and (2)
DTC will maintain records of the ownership interests of such direct
participants in the global notes and the transfer of ownership interests by and
between direct participants, DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, indirect
participants or other owners of beneficial interests in the global notes.
Direct participants and indirect participants must maintain their own records
of the ownership interests of, and the transfer of ownership interests by and
between, indirect participants and other owners of beneficial interests in the
global notes.
Investors in the global notes may hold their interests therein directly
through DTC if they are direct participants in DTC or indirectly through
organizations that are direct participants in DTC. All ownership interests in
any global notes may be subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a global note to such persons. Because DTC can act only on behalf
of direct participants, which in turn act on behalf of indirect participants
and others, the ability of a person having a beneficial interest in a Global
Note to pledge such interest to persons or entities that are not direct
participants in DTC, or to otherwise take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the notes, see"--
Transfers of Interests in Global Notes for Certificated Notes".
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Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes" owners of beneficial interests in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, we, the subsidiary guarantors and the
trustee will treat the persons in whose names the notes are registered
(including notes represented by global notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, liquidated damages, if any, and
interest on global notes registered in the name of DTC or its nominee will be
payable by the trustee to DTC or its nominee as the registered holder under the
indenture. Consequently, none of us, the subsidiary guarantors or the trustee
or any agent of ours, the subsidiary guarantors or the trustee has or will have
any responsibility or liability for (1) any aspect of DTC's records or any
direct participant's or indirect participant's records relating to or payments
made on account of beneficial ownership interests in the global notes or for
maintaining, supervising or reviewing any of DTC's records or any direct
participant's or Indirect Participant's records relating to the beneficial
ownership interests in any global note or (2) any other matter relating to the
actions and practices of DTC or any of its direct participants or indirect
participants.
DTC has advised us that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the notes
is to credit the accounts of the relevant direct participants with such payment
on the payment date in amounts proportionate to such direct participant's
respective ownership interests in the global notes as shown on DTC's records.
Payments by direct participants and indirect participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the trustee,
us or the subsidiary guarantors. None of us, the subsidiary guarantors or the
trustee will be liable for any delay by DTC or its direct participants or
indirect participants in identifying the beneficial owners of the notes, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the notes for
all purposes.
The global notes will trade in DTC's "Same-Day Funds Settlement System" and,
therefore, transfers between direct participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between indirect participants who hold an interest through a
direct participant will be effected in accordance with the procedures of such
direct participant but generally will settle in immediately available funds.
DTC has advised that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more direct participants to
whose account interests in the global notes are credited and only in respect of
such portion of the aggregate principal amount of the notes as to which such
direct participant or direct participants has or have given direction. However,
if there is an Event of Default under the notes, DTC reserves the right to
exchange global notes (without the direction of one or more of its direct
participants) for legended notes in certificated form, and to distribute such
certificated forms of notes to its direct participants. See "--Transfers of
Interests in Global Notes for Certificated Notes".
The information in this section concerning DTC and its book-entry system has
been obtained from sources that we believe to be reliable, but we take no
responsibility for its accuracy.
Transfers of Interests in Global Notes for Certificated Notes
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons if (1) DTC (x) notifies us that it
is unwilling or unable to continue as depository for the global notes and we
thereupon fail to appoint a successor depository within 90 days or (y) has
ceased to be a clearing agency registered under the Exchange Act, (2) we, it
our option, notify the trustee in writing that we elect to cause the issuance
of certificated notes or (3) upon the request of the trustee or holders of a
majority of the
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outstanding principal amount of notes, there shall have occurred and be
continuing a Default or an Event of Default with respect to the notes. In any
such case, we will notify the trustee in writing that, upon surrender by the
direct participants and indirect participants of their interest in such global
note, certificated notes will be issued to each person that such direct
participants and indirect participants and DTC identify as being the beneficial
owner of the related notes.
Beneficial interests in global notes held by any direct participant or
indirect participant may be exchanged for certificated notes upon request to
DTC, by such direct participant (for itself or on behalf of an indirect
participant), and to the trustee in accordance with customary DTC procedures.
certificated notes delivered in exchange for any beneficial interest in any
global notes will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such direct participants or
indirect participants (in accordance with DTC's customary procedures).
None of us, the subsidiary guarantors or the trustee will be liable for any
delay by the holder of any global notes or DTC in identifying the beneficial
owners of notes, and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the global note or DTC
for all purposes.
Same Day Settlement and Payment
The indenture will require that payments in respect of the notes represented
by the global notes (including principal, premium, if any, interest and
liquidated damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
global note. With respect to certificated notes, we will make all payments of
principal, premium, if any, interest and liquidated damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following discussion, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, is the opinion of Latham &
Watkins, our special tax counsel, as to the material federal income tax
consequences expected to result to holders whose Series D senior notes are
exchanged for Series E senior notes in the exchange offer. Their opinion is
based upon the facts set forth in the registration statement of which this
prospectus is a part, current provisions of the Internal Revenue Code of 1986,
as amended, applicable U.S. Treasury regulations, judicial authority and
administrative rulings and practice. We can not assure you that the Internal
Revenue Service will not take a contrary view. We have not sought nor will we
seek any ruling from the IRS with respect to the exchange offer. Legislative,
judicial or administrative changes or interpretations could occur that would
alter or modify these statements and conclusions set forth in this prospectus.
Any changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders. Holders of Series D senior notes (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations, and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. Each
holder of Series D senior notes should consult its tax advisor as to the
particular tax consequences of exchanging Series D senior notes for Series E
senior notes, including the applicability and effect of any state, local or
foreign laws.
The exchange of Series D senior notes for Series E senior notes will be
treated as a "non-event" for federal income tax purposes. That is, the exchange
will not be treated as an exchange for federal income tax purposes because the
Series E senior notes will not be considered to differ materially in kind or
extent from the Series D senior notes. As a result, no material federal income
tax consequences will result to holders exchanging Series D senior notes for
Series E senior notes.
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PLAN OF DISTRIBUTION
If you are a broker-dealer that receives Series E senior notes for your own
account pursuant to the exchange offer, you must acknowledge that you will
deliver a prospectus in connection with any resale of such Series E senior
notes. This prospectus, as it may be amended or supplemented from time to time,
may be used in connection with resales of Series E senior notes received in
exchange for Series D senior notes where such Series D senior notes were
acquired as a result of market-making activities or other trading activities.
To the extent any broker-dealer participates in the exchange offer and so
notifies us, we have agreed that we will make this prospectus, as amended or
supplemented, available to that broker-dealer for use in connection with
resales, and will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
those documents in the letter of transmittal.
. We will not receive any proceeds from any sale of Series E senior notes
by broker-dealers.
. Series E senior notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Series E senior notes
or a combination of such methods of resale, at prevailing market prices at
the time of resale, at prices related to such prevailing market prices or
at negotiated prices.
. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers or any such
Series E senior notes.
. Any broker-dealer that resells Series E senior notes that were received
by it for its own account pursuant to the exchange offer and any broker
or dealer that participates in a distribution of such Series E senior
notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Series E senior
notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act.
. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
We have agreed to pay all expenses incident to the exchange offer (other
than commissions and concessions of any broker-dealer), subject to certain
prescribed limitations, and will provide indemnification against certain
liabilities, including certain liabilities that may arise under the Securities
Act, to broker-dealers that make a market in the Series D senior notes and
exchange Series D senior notes in the exchange offer for Series E senior notes.
By its acceptance of the exchange offer, any broker-dealer that receives
Series E senior notes pursuant to the exchange offer hereby agrees to notify us
prior to using the prospectus in connection with the sale or transfer of Series
E senior notes. It also agrees that, upon receipt of notice from us of the
happening of any event which makes any statement in this prospectus untrue in
any material respect or which requires the making of any changes in this
prospectus in order to make the statements therein not misleading or which may
impose upon us disclosure obligations that may have a material adverse effect
on us (which notice we agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this prospectus until we have notified such
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to this prospectus to such broker-dealer.
142
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Series E senior notes will be
passed upon for us by Christopher G. Townsend, the general counsel of Host
REIT, Bethesda, Maryland.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a Registration Statement on Form S-4 we have
filed with the Commission under the Securities Act of 1933, as amended. This
prospectus does not contain all of the information set forth in the
registration statement. For further information about us and the notes, you
should refer to the registration statement. In this prospectus we summarize
material provisions of contracts and other documents to which we refer you.
Since this prospectus may not contain all of the information that you may find
important, you should review the full text of these documents. We have filed
these documents as exhibits to our registration statement.
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and file annual, quarterly and special
reports, proxy statements and other information with the Commission. You may
read and copy any reports, proxy statements and other information we file at
the public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: 7 World Trade Center, 14th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call
the Commission at 1-800-SEC-0300 for further information. In addition, the
Commission maintains a website (http:/www.sec.gov) that contains such reports,
proxy statements and other information filed by the Company. In addition, you
may inspect reports and other information we file at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the dates on the front of these documents.
143
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
The following financial information is included on the pages indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and January 2, 1998.. F-3
Consolidated Statements of Operations for the Fiscal Years Ended December
31, 1998 January 2, 1998 and January 3, 1997............................ F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years
Ended December 31, 1998, January 2, 1998 and January 3, 1997............ F-5
Consolidated Statement of Partner's Capital for the period ended December
31, 1998................................................................ F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended December
31, 1998, January 2, 1998 and January 3, 1997........................... F-7
Notes to Consolidated Financial Statements............................... F-8
Unaudited Condensed Consolidated Balance Sheet as of March 26, 1999...... F-44
Unaudited Condensed Consolidated Statements of Operations for the twelve
weeks ended March 26, 1999 and March 27, 1998........................... F-45
Unaudited Condensed Consolidated Statements of Cash Flows for the twelve
weeks ended March 26, 1999 and March 27, 1998........................... F-47
Notes to Unaudited Condensed Consolidated Financial Statements........... F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Host Marriott Corporation as general partner of Host Marriott, L.P.:
We have audited the accompanying consolidated balance sheets of Host
Marriott, L.P. and subsidiaries as of December 31, 1998 and Host Marriott
Corporation as of January 2, 1998, and the related consolidated statements of
operations, shareholders' equity and comprehensive income and cash flows of
Host Marriott Corporation for each of the three fiscal years in the period
ended December 31, 1998 and the statement of partner's capital of Host
Marriott, L.P. for the period ended December 31, 1998. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Host
Marriott, L.P. and subsidiaries as of December 31, 1998 and Host Marriott
Corporation as of January 2, 1998, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
has given retroactive effect to the change to include property-level sales and
operating expenses of its hotels in the consolidated statements of operations.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at item
14(a)(2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
March 5, 1999
F-2
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and January 2, 1998
<TABLE>
<CAPTION>
Host Host
Marriott, Marriott
L.P. Corporation
1998 1997
--------- -----------
(in millions)
<S> <C> <C>
ASSETS
Property and equipment, net.............................. $7,201 $4,634
Notes and other receivables, net (including amounts due
from affiliates of $134 million and $23 million,
respectively)........................................... 203 52
Due from managers........................................ 19 87
Investments in affiliates................................ 33 13
Other assets............................................. 370 272
Short-term marketable securities......................... -- 354
Cash and cash equivalents................................ 436 493
Net investment in discontinued operations................ -- 236
------ ------
$8,262 $6,141
====== ======
LIABILITIES AND EQUITY
Debt
Senior notes issued by the Company or its
subsidiaries.......................................... $2,246 $1,585
Mortgage debt.......................................... 2,438 1,784
Convertible debt obligation to Host Marriott........... 567 --
Other.................................................. 447 97
------ ------
5,698 3,466
Accounts payable and accrued expenses.................... 204 84
Deferred income taxes.................................... 97 487
Other liabilities........................................ 460 296
------ ------
Total liabilities.................................... 6,459 4,333
------ ------
Minority interests....................................... 147 58
Limited partner interests of third parties at redemption
value (representing 64.6 million units at December 31,
1998)................................................... 892 --
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust whose sole
assets are the convertible subordinated debentures due
2026 ("Convertible Preferred Securities")............... -- 550
Shareholders' equity
Common Stock, 750 million shares authorized; 203.8
million shares in 1997 issued and outstanding......... -- 204
Additional paid-in capital............................. -- 935
Accumulated other comprehensive income................. -- 12
Retained earnings...................................... -- 49
Partners' Capital
General partner........................................ 1 --
Limited partner........................................ 767 --
Accumulated other comprehensive loss................... (4) --
------ ------
Total partner's capital.............................. 764 --
Total equity......................................... -- 1,200
------ ------
$8,262 $6,141
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal years ended December 31, 1998, January 2, 1998 and January 3, 1997
(in millions, except per common share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
REVENUES
Rooms................................................. $2,220 $1,850 $1,302
Food and beverage..................................... 984 776 515
Other................................................. 238 180 125
------ ------ ------
Total hotel revenues.................................. 3,442 2,806 1,942
Net gains (losses) on property transactions........... 57 (11) 1
Other................................................. 14 28 14
------ ------ ------
Total revenues........................................ 3,513 2,823 1,957
------ ------ ------
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms................................................. 524 428 313
Food and beverage..................................... 731 592 406
Other department costs and deductions................. 843 693 506
Management fees and other (including Marriott
International management fees of $196 million,
$162 million and $101 million, respectively)......... 726 649 461
Other................................................. 28 29 38
------ ------ ------
Total operating costs and expenses.................... 2,852 2,391 1,724
------ ------ ------
OPERATING PROFIT BEFORE MINORITY INTEREST, CORPORATE
EXPENSES AND INTEREST................................. 661 432 233
Minority interest...................................... (52) (31) (6)
Corporate expenses..................................... (50) (45) (43)
REIT conversion expenses............................... (64) -- --
Interest expense....................................... (335) (288) (237)
Dividends on Convertible Preferred Securities of
subsidiary trust...................................... (37) (37) (3)
Interest income........................................ 51 52 48
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................. 174 83 (8)
Provision for income taxes............................. (86) (36) (5)
Benefit from change in tax status...................... 106 -- --
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS............... 194 47 (13)
DISCONTINUED OPERATIONS
Income from discontinued operations (net of income tax
expense of $4 million in 1998)........................ 6 -- --
Provision for loss on disposal (net of income tax
benefit of $3 million in 1998)........................ (5) -- --
------ ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS............... 195 47 (13)
Extraordinary items--gain (loss) on early
extinguishment of debt (net of income tax (benefit)
expense of
($80 million) and $1 million in 1998 and 1997,
respectively)......................................... (148) 3 --
------ ------ ------
NET INCOME (LOSS)...................................... $ 47 $ 50 $ (13)
====== ====== ======
BASIC EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS.................................. $ .90 $ .22 $ (.06)
Discontinued operations (net of income taxes).......... .01 -- --
Extraordinary items--gain (loss) on early
extinguishment of debt (net of income taxes).......... (.69) .01 --
------ ------ ------
BASIC EARNINGS (LOSS) PER COMMON SHARE................. $ .22 $ .23 $ (.06)
====== ====== ======
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS.................................. $ .84 $ .22 $ (.06)
Discontinued operations (net of income taxes).......... .01 -- --
Extraordinary items--gain (loss) on early
extinguishment of debt (net of income taxes).......... (.58) .01 --
------ ------ ------
DILUTED EARNINGS (LOSS) PER COMMON SHARE............... $ .27 $ .23 $ (.06)
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME OF
HOST MARRIOTT CORPORATION (Predecessor to Host Marriott, L.P.)
Fiscal years ended December 31, 1998, January 2, 1998 and January 3, 1997
<TABLE>
<CAPTION>
Accumulated
Common Additional Other
Shares Common Paid-in Retained Comprehensive Comprehensive
Outstanding Stock Capital Earnings Income (Loss) Income (Loss)
----------- ------ ---------- -------- ------------- -------------
(in millions) (in millions)
<C> <S> <C> <C> <C> <C> <C>
Balance, December 29,
159.7 1995.................... $ 160 $ 499 $ 16 $ -- $ --
-- Net loss................ -- -- (13) -- (13)
Other comprehensive
-- income:
Unrealized gain on HM
Services common stock... -- -- -- 5 5
----
-- Comprehensive loss...... $ (8)
====
Adjustment to Host
Marriott
-- Services dividend....... -- -- (4) --
3.9 Common stock issued for
the comprehensive stock
and employee stock
purchase plans.......... 3 12 -- --
6.8 Common stock issued for
warrants exercised...... 7 42 -- --
Common stock issued in
31.6 stock offering.......... 32 368 -- --
- -------------------------------------------------------------------------------------------------
Balance, January 3,
202.0 1997.................... 202 921 (1) 5 --
-- Net income.............. -- -- 50 -- 50
Other comprehensive
-- income:
Unrealized gain on HM
Services common stock... -- -- -- 7 7
----
-- Comprehensive income.... $ 57
====
1.8 Common stock issued for
the comprehensive stock
and employee stock
purchase plans.......... 2 14 -- --
- -------------------------------------------------------------------------------------------------
Balance, January 2,
203.8 1998.................... 204 935 49 12 --
-- Net income.............. -- -- 47 -- 47
Other comprehensive
-- income (loss):
Unrealized loss on HM
Services common stock... -- -- -- (5) (5)
Foreign currency
translation adjustment.. -- -- -- (9) (9)
Reclassification of gain
realized on HM Services
common stock--net
income.................. -- -- -- (2) (2)
----
-- Comprehensive income.... $ 31
====
1.4 Common stock issued for
the comprehensive stock
and employee stock
purchase plans.......... -- 8 -- --
-- Adjustment of stock par
value from $1 to $.01
per share............... (202) 202 -- --
11.9 Common stock issued for
Special Dividend........ -- 143 (143) --
-- Distribution of stock of
Crestline Capital
Corporation............. -- -- (438) --
-- Cash portion of Special
Dividend................ -- -- (69) --
- -------------------------------------------------------------------------------------------------
217.1 Balance, Before
Contribution to Host
Marriott, L.P. ......... $ 2 $1,288 $(554) $ (4)
Net assets retained by
Host Marriott .......... (23)
------
Balance contributed to
Host Marriott, L.P. .... $ 709
======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
HOST MARRIOTT, L.P.
CONSOLIDATED STATEMENT OF PARTNER'S CAPITAL
For the period ended December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Other
OP Units General Limited Comprehensive
Outstanding Partner Partner Income (Loss) Total
----------- ------- ------- ------------- -----
<S> <C> <C> <C> <C> <C>
Contribution by Host Marriott.. 217.1 $ 1 $712 $ (4) $709
Issuance of OP Units to Host
Marriott in connection with
the Partnership Mergers....... 8.5 -- 113 -- 113
Adjustments to limited partner
interests in the Operating
Partnership................... -- -- (58) -- (58)
----- ---- ---- ---- ----
Balance, December 31, 1998..... 225.6 $ 1 $767 $ (4) $764
===== ==== ==== ==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 31, 1998, January 2, 1998 and January 3, 1997
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -----
(in millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations.............. $ 194 $ 47 $ (13)
Adjustments to reconcile to cash from operations:
Depreciation and amortization........................ 243 231 168
Income taxes......................................... (103) (20) (35)
Amortization of deferred income...................... (4) (4) (6)
Net (gains) losses on property transactions.......... (50) 19 4
Equity in earnings of affiliates..................... (1) (4) (3)
Other................................................ 39 62 49
Changes in operating accounts:
Other assets......................................... (56) 57 9
Other liabilities.................................... 50 44 32
------- ------- -----
Cash from continuing operations...................... 312 432 205
Cash from (used in) discontinued operations.......... 29 32 (4)
------- ------- -----
Cash from operations................................. 341 464 201
------- ------- -----
INVESTING ACTIVITIES
Proceeds from sales of assets......................... 227 51 373
Less non-cash proceeds............................... -- -- (35)
------- ------- -----
Cash received from sales of assets.................... 227 51 338
Acquisitions.......................................... (988) (359) (702)
Capital expenditures:
Capital expenditures for renewals and replacements... (165) (129) (87)
New investment capital expenditures.................. (87) (29) (72)
Purchases of short-term marketable securities......... (134) (354) --
Sales of short-term marketable securities............. 488 -- --
Notes receivable collections.......................... 4 6 13
Affiliate notes receivable issuances and collections,
net.................................................. (13) (6) 21
Other................................................. 13 13 (15)
------- ------- -----
Cash used in investing activities from continuing
operations.......................................... (655) (807) (504)
Cash used in investing activities from discontinued
operations.......................................... (50) (239) --
------- ------- -----
Cash used in investing activities.................... (705) (1,046) (504)
------- ------- -----
FINANCING ACTIVITIES
Issuances of debt..................................... 2,496 857 46
Debt prepayments...................................... (1,898) (403) (173)
Cash contributed to Crestline at inception............ (52) -- --
Cash contributed to Non-Controlled Subsidiary......... (30) -- --
Cost of extinguishment of debt........................ (175) -- --
Scheduled principal repayments........................ (51) (90) (82)
Issuances of common stock............................. 1 6 454
Issuances of Convertible Preferred Securities, net.... -- -- 533
Other................................................. (26) 22 28
------- ------- -----
Cash from financing activities from continuing
operations.......................................... 265 392 806
Cash from (used in) financing activities from
discontinued operations............................. 24 (3) --
------- ------- -----
Cash from financing activities....................... 289 389 806
------- ------- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (75) (193) 503
CASH AND CASH EQUIVALENTS, beginning of year (includes
$18 million for discontinued operations in 1997)..... 511 704 201
------- ------- -----
CASH AND CASH EQUIVALENTS, end of year................ $ 436 $ 511 $ 704
======= ======= =====
Non-cash financing activities:
Assumption of mortgage debt for the acquisition of, or
purchase of controlling interests in, certain hotel
properties and discontinued senior living
communities.......................................... $ 1,215 $ 733 $ 696
======= ======= =====
Distribution of net assets in connection with the
discontinued operations.............................. $ 438
=======
Contribution of net assets to Non-Controlled
Subsidiaries......................................... $ 12
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
Host Marriott Corporation ("Host Marriott"), operating through an umbrella
partnership REIT structure, is the owner of full-service hotel properties. Host
Marriott operates as a self-managed and self-administered real estate
investment trust ("REIT") and its operations are conducted solely through an
operating partnership and its subsidiaries. As REITs are not permitted to
derive revenues directly from the operations of hotels, Host Marriott leases
substantially all of the hotels to subsidiaries of Crestline Capital
Corporation ("Crestline" or the "Lessee") and certain other lessees as further
discussed at Note 9.
As of December 31, 1998, Host Marriott owned, or had controlling interests
in, 126 upscale and luxury, full-service hotel lodging properties generally
located throughout the United States and operated primarily under the Marriott,
Ritz-Carlton, Four Seasons, Swissotel and Hyatt brand names. Most of these
properties are managed by Marriott International, Inc. ("Marriott
International"). Host Marriott also has certain economic, non-voting interests
in certain Non-Controlled Subsidiaries, whose hotels are also managed by
Marriott International (see Note 4).
Basis of Presentation
In these consolidated financial statements, the "Company" or "Host Marriott"
refers to Host Marriott Corporation before, and Host Marriott, L.P. (the
"Operating Partnership"), after Host Marriott Corporation's conversion to a
REIT (the "REIT Conversion"). Host Marriott Corporation is presented as the
predecessor to the Operating Partnership since the Operating Partnership and
its subsidiaries received substantially all of the continuing operations,
assets and liabilities of Host Marriott Corporation and its subsidiaries.
On April 16, 1998, the Board of Directors of Host Marriott approved a plan
to reorganize Host Marriott's business operations through the spin-off of Host
Marriott's senior living business as part of Crestline and the contribution of
Host Marriott's hotels and certain other assets and liabilities to a newly
formed Delaware limited partnership, Host Marriott, L.P. Host Marriott merged
into HMC Merger Corporation (the "Merger"), a newly formed Maryland corporation
(renamed Host Marriott Corporation) which intends to qualify, effective January
1, 1999 as a real estate investment trust ("REIT") and is the sole general
partner of the Operating Partnership. On December 29, 1998, Host Marriott
completed the previously announced spin-off of Crestline (See Note 2) through a
taxable stock dividend to its shareholders. Each Host Marriott shareholder of
record on December 28, 1998 received one share of Crestline for every ten
shares of Host Marriott Corporation owned. In connection with the REIT
Conversion Host Marriott contributed its hotels and substantially all of its
other assets and liabilities to the Operating Partnership (the "Contribution")
in exchange for units of partnership interest in the Operating Partnership. The
Contribution was accounted for at Host Marriott's historical basis. As of
December 31, 1998, Host Marriott owned approximately 78% of the Operating
Partnership.
Immediately after the Contribution, the Company completed the acquisition of
a portfolio of hotels from the Blackstone Entities (defined herein) which
included twelve hotels and other assets for approximately 47.6 million limited
partnership units ("OP Units") and a combination of assumed debt and cash
payments totaling approximately $920 million and distributed 1.4 million of the
shares of Crestline common stock to the Blackstone Entities (the "Blackstone
Acquisition"). The Operating Partnership also completed the roll-up of eight
public partnerships and four private partnerships (collectively, the
"Partnership Mergers") in exchange for the issuance of approximately 25 million
OP Units. See Note 12 for a further discussion of these and other acquisitions.
As a result of the Distribution (see Note 2), the financial statements have
been restated to present the senior living communities' business results of
operations and cash flows as discontinued operations. All
F-8
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
historical financial statements presented have been restated to conform to this
presentation, with the historical assets and liabilities of that segment
presented on the balance sheet as Net Investment in Discontinued Operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and controlled affiliates. Investments in affiliates over
which the Company has the ability to exercise significant influence, but does
not control, are accounted for using the equity method. All material
intercompany transactions and balances have been eliminated.
Fiscal Year End Change
The U.S. Internal Revenue Code of 1986, as amended requires REITs to file
their U.S. income tax return on a calendar year basis. Accordingly in 1998, the
Company changed its fiscal year-end to December 31 for both financial and tax
reporting requirements. Previously, the Company's fiscal year ended on the
Friday nearest to December 31. Fiscal year 1998 and 1997 included 52 weeks
compared to 53 weeks for fiscal year 1996.
Revenues and Expenses
Revenues primarily represent the gross sales generated by the Company's
hotel properties and net gains (losses) on property transactions. As discussed
below, the Company previously recorded only the house profit generated by the
Company's hotels as revenue. House profit is total hotel sales less certain
hotel property-level costs and expenses, which reflects the net revenues
flowing to the Company as the property owner.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity in
its financial statements.
The Company considered the impact of EITF 97-2 on its financial statements
and determined that EITF 97-2 requires the Company to include property-level
sales and operating expenses of its hotels in its statements of operations. The
Company has given retroactive effect to the adoption of EITF 97-2 in the
accompanying consolidated statements of operations. Application of EITF 97-2 to
the consolidated financial statements for the fiscal years ended December 31,
1998, January 2, 1998 and January 3, 1997 increased both revenues and operating
expenses by approximately $2.1 billion, $1.7 billion and $1.2 billion,
respectively, and had no impact on operating profit, net income (loss) or
earnings per share.
In prior years, operations for certain of the Company's hotels were recorded
from the beginning of December of the prior year to November of the current
year due to a one-month delay in receiving results from those hotel properties.
Upon conversion to a REIT, all operations are required to be reported on a
calendar year basis in accordance with Federal income tax regulations. As a
result, the Company has recorded one additional period of operations in fiscal
year 1998 for these properties. The effect on revenues and net income was to
increase revenue by $44 million, net income by $6 million and diluted earnings
per share by $.02.
Earnings (Loss) Per Common Share
Earnings (loss) per common share represent the earnings per share of Host
Marriott for all years presented because the Operating Partnerships results
were insignificant for the period after the contribution. Therefore,
F-9
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
earnings per unit of the Operating Partnership have not been presented. Basic
earnings per common share are computed by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted earnings per
common share are computed by dividing net income by the weighted average number
of shares of common stock outstanding plus other dilutive securities. Diluted
earnings per common share has not been adjusted for the impact of the
Convertible Preferred Securities for 1997 and 1996 and for the comprehensive
stock plan and warrants for 1996 as they were anti-dilutive. In December 1998,
the Company declared the Special Dividend (Note 2) and, in February 1999, the
Company distributed 11.9 million shares to existing shareholders in conjunction
with the Special Dividend. The weighted average number of common shares
outstanding and the basic and diluted earnings per share computations have been
restated to reflect these shares as outstanding for all periods presented
issued to certain limited partners. In February 1999, Host Marriott issued 8.5
million shares in exchange for 8.5 million OP Units issued to certain limited
partners in connection with the Partnership Mergers which are deemed
outstanding at December 31, 1998.
A reconciliation of the number of shares utilized for the calculation of
diluted earnings per common share follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted average number of common shares outstanding...... 216.3 215.0 200.6
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed purchased
at average market price.................................. 4.0 4.8 --
Assuming conversion of Convertible Preferred Securities... 35.8 -- --
Other..................................................... 0.3 0.3 --
----- ----- -----
Shares utilized for the calculation of diluted earnings
per share................................................ 256.4 220.1 200.6
===== ===== =====
</TABLE>
A reconciliation of net income (loss) to earnings (loss) used for the
calculation of diluted earnings per common share follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss).......................................... $47 $ 50 $(13)
Dividends, net of tax benefit, assuming conversion of
Convertible Preferred Securities.......................... 22 -- --
--- ---- ----
Earnings (loss) used for the calculation of diluted
earnings per share........................................ $69 $ 50 $(13)
=== ==== ====
</TABLE>
International Operations
The consolidated statements of operations include the following amounts
related to non-U.S. subsidiaries and affiliates: revenues of $121 million, $105
million and $49 million and income (loss) before income taxes of $7 million,
($9 million) and ($2 million) in 1998, 1997 and 1996, respectively.
Property and Equipment
Property and equipment is recorded at cost. For newly developed properties,
cost includes interest, ground rent and real estate taxes incurred during
development and construction. Replacements and improvements are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 40 years for buildings and three to ten
years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related assets.
F-10
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gains on sales of properties are recognized at the time of sale or deferred
to the extent required by generally accepted accounting principles. Deferred
gains are recognized as income in subsequent periods as conditions requiring
deferral are satisfied or expire without further cost to the Company.
In cases where management is holding for sale particular hotel properties,
the Company assesses impairment based on whether the estimated sales price
less costs of disposal of each individual property to be sold is less than the
net book value. A property is considered to be held for sale when the Company
has made the decision to dispose of the property. Otherwise, the Company
assesses impairment of its real estate properties based on whether it is
probable that undiscounted future cash flows from each individual property
will be less than its net book value. If a property is impaired, its basis is
adjusted to its fair market value.
Deferred Charges
Financing costs related to long-term debt are deferred and amortized over
the remaining life of the debt.
Cash, Cash Equivalents and Short-term Marketable Securities
The Company considers all highly liquid investments with a maturity of 90
days or less at the date of purchase to be cash equivalents. Cash and cash
equivalents includes approximately $22 million and $115 million at December
31, 1998 and January 2, 1998, respectively, of cash related to certain
consolidated partnerships, the use of which is restricted generally for
partnership purposes to the extent it is not distributed to the partners.
Short-term marketable securities include investments with a maturity of 91
days to one year at the date of purchase. The Company's short-term marketable
securities represent investments in U.S. government agency notes and high
quality commercial paper. The short-term marketable securities are categorized
as available for sale and, as a result, are stated at fair market value.
Unrealized holding gains and losses are included as a separate component of
shareholders' equity until realized.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents
and short-term marketable securities. The Company maintains cash and cash
equivalents and short-term marketable securities with various high credit-
quality financial institutions. The Company performs periodic evaluations of
the relative credit standing of these financial institutions and limits the
amount of credit exposure with any institution.
The Company is also subject to credit risk as a party to interest rate swap
agreements. The Company monitors the creditworthiness of its contracting
parties by evaluating credit exposure and referring to the ratings of widely
accepted credit rating services. The Standard and Poors' long-term debt
ratings for the contracting parties are AA-, AA- and BBB+. The Company is
exposed to credit loss in the event of non-performance by the contracting
party to the interest rate swap agreements; however, the Company does not
anticipate non-performance by any of the contracting parties.
In addition, on January 1, 1999, subsidiaries of Crestline became the
lessees of virtually all the hotels and, as such, their rent payments are the
primary source of the Company's future revenues. Rent payments are provided
from pools of hotels which are guaranteed by Crestline. For discussion of the
guarantee, see Note 9. However, management believes that due to Crestline's
substantial assets, net worth and ability to operate as a separate publicly
traded company, Crestline will have the financial stability and access to
capital necessary to meet the substantial obligations as lessee under the
leases.
F-11
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REIT Conversion Expenses
The Company incurred certain costs related to the REIT Conversion. These
costs consist of professional fees, printing and filing costs, consent fees and
certain other related fees and are classified as REIT Conversion expenses on
the consolidated statement of operations. As of December 31, 1998, $48 million
of REIT Conversion expenses were accrued and included in accounts payable and
accrued expenses.
Interest Rate Swap Agreements
The Company has entered into a limited number of interest rate swap
agreements for non-trading purposes. The Company uses such agreements to fix
certain of its variable rate debt to a fixed rate basis. The interest rate
differential to be paid or received on interest rate swap agreements is
recognized as an adjustment to interest expense.
Limited Partner Interests of Third Parties at Redemption Value
As of December 31, 1998, 64.5 million OP Units are held by outside third
parties. Each OP Unit is convertible into a share of common stock of Host
Marriott or cash, at the election of Host Marriott. Those OP Units are recorded
by the Operating Partnership as "Limited Partner Interests of Third Parties at
Redemption Value" at fair value in the accompanying balance sheet because
control over how the OP Units are redeemed is outside the control of the
Operating Partnership.
Other Comprehensive Income.
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130) which establishes new rules for the reporting
and display of comprehensive income and its components. SFAS 130 requires
unrealized gains or losses on the Company's right to receive HM Services stock
(see note 10) and foreign currency translation adjustments, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
The components of total accumulated other comprehensive income in the
balance sheet are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains.............................................. 5 12
Foreign currency translation adjustment........................... (9) --
--- ---
Total accumulated other comprehensive income (loss)............... $(4) $12
=== ===
</TABLE>
Application of New Accounting Standards
During 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." In 1997, the
Company adopted SFAS No. 128, "Earnings Per
F-12
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Share;" SFAS No. 129, "Disclosure of Information About Capital Structure" and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." The adoption of these statements did not have a material effect
on the Company's consolidated financial statements and comprehensive income.
As discussed above, the Company has retroactively adopted EITF 97-2.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company has not determined the impact of SFAS No. 133, but
management does not believe it will be material.
The EITF reached a consensus in May 1998 on Issue 98-9, "Accounting for
Contingent Rents in Interim Financial Periods," which required a lessor to
defer recognition of contingent rental income in interim periods until the
specified target that triggers the contingent rental income is achieved. In
November 1998, EITF 98-9 was rescinded; however, the impact of the accounting
principles outlined in EITF 98-9 must continue to be disclosed in quarterly
financial statements. The Company's accounting policy is to recognize rental
income based on an estimate of full-year rental income and disclose in the
footnotes to the financial statements the portion of rental income that is
contingent.
2. Distribution and Special Dividend
In December 1998, the Company distributed to its shareholders through a
taxable distribution, the outstanding shares of common stock of Crestline, (the
"Distribution") formerly a wholly owned subsidiary of the Company, which, as of
the date of the Distribution, owned and operated the Company's senior living
communities, owned certain other assets and held leasehold interests in
substantially all of the Company's hotels. The Distribution provided Company
shareholders with one share of Crestline common stock for every ten shares of
Company common stock held by such shareholders on the record date of December
28, 1998. As a result of the Distribution, the Company's financial statements
have been restated to present the senior living communities' business results
of operations and cash flows as discontinued operations. Revenues for the
Company's discontinued operations totaled $241 million and $111 million in 1998
and 1997, respectively. The provision for loss on disposal includes
organizational and formation costs related to Crestline.
For purposes of governing certain of the ongoing relationships between the
Company and Crestline after the Distribution and to provide for an orderly
transition, the Company and Crestline entered into various agreements,
including a Distribution Agreement, an Employee Benefits Allocation Agreement
and a Tax Sharing Agreement. Effective as of December 29, 1998, these
agreements provide, among other things, for the division between the Company
and Crestline of certain assets and liabilities.
On December 18, 1998, the Board of Directors declared a special dividend
which entitled shareholders of record on December 28, 1998 to elect to receive
either $1.00 in cash or .087 of a share of common stock of the Company for each
outstanding share of the Company's common stock owned by such shareholder on
the record date (the "Special Dividend"). Cash totaling $69 million and 11.9
million shares of common stock that were elected in the Special Dividend were
paid and/or issued on February 10, 1999.
F-13
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in millions)
<S> <C> <C>
Land and land improvements................................ $ 740 $ 418
Buildings and leasehold improvements...................... 6,613 4,329
Furniture and equipment................................... 740 686
Construction in progress.................................. 78 36
------ ------
8,171 5,469
Less accumulated depreciation and amortization............ (970) (835)
------ ------
$7,201 $4,634
====== ======
</TABLE>
The detail of property and equipment above excludes net book value of the
discontinued senior living business of $583 million at January 2, 1998.
Interest cost capitalized in connection with the Company's development and
construction activities totaled $4 million in 1998, $1 million in 1997 and $3
million in 1996.
In 1997, the Company, through an agreement with the ground lessor of one of
its properties terminated its ground lease and recorded a $15 million loss on
the write-off of its investment, including certain transaction costs, which has
been included in net gains (losses) on property transactions in the
accompanying consolidated financial statements.
In 1996, the Company recorded a $4 million charge to write down an
undeveloped land parcel to its net realizable value based on its expected sales
value.
4. Investments in and Receivables from Affiliates
Investments in and receivables from affiliates consist of the following:
<TABLE>
<CAPTION>
Ownership
Interests 1998 1997
--------- ------ ------
(in millions)
<S> <C> <C> <C>
Equity investments
Rockledge Hotel Properties, Inc................... 95% $ 31 $ --
Fernwood Hotel Assets, Inc........................ 95% 2 --
Hotel partnerships(1)............................. 1%-50% -- 13
Notes and other receivables from affiliates, net.... -- 134 23
------ ------
$ 167 $ 36
====== ======
</TABLE>
- --------
(1) During 1998, all or substantially all of the interests in the previously
unconsolidated hotel partnerships were consolidated or contributed to the
Non-Controlled Subsidiaries (defined herein) as a result of the REIT
Conversion and the Partnership Mergers.
In connection with the REIT Conversion, Rockledge Hotel Properties, Inc. and
Fernwood Hotel Assets, Inc. (together, the "Non-Controlled Subsidiaries") were
formed to own various assets of approximately $264 million contributed by the
Company to the Operating Partnership, the direct ownership of which by the
Company or the Operating Partnership could jeopardize the Company's status as a
REIT. These assets
F-14
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
primarily consist of partnership or other interests in hotels which are not
leased and certain furniture, fixtures and equipment ("FF&E") used in the
hotels. In exchange for the contribution of these assets to the Non-Controlled
Subsidiaries, the Operating Partnership received only non-voting common stock
of the Non-Controlled Subsidiaries, representing 95% of the total economic
interests therein. The Host Marriott Statutory Employee/Charitable Trust, the
beneficiaries of which are certain employees of the Company and the J.W.
Marriott Foundation concurrently acquired all of the voting common stock
representing the remaining 5% of the total economic interest. As a result, as
of December 31, 1998, the Company did not control the Non-Controlled
Subsidiaries. The Non-Controlled Subsidiaries own three full-service hotels and
interests in partnerships that own an additional two full-service hotels and
220 limited-service hotels.
In connection with the REIT Conversion, the Company completed the
Partnership Mergers and, as a result, investments in affiliates in prior years
include earnings and assets, which are now consolidated. (See Note 12 for
discussion.)
In 1997, the Company acquired all of the outstanding interests in Chesapeake
Hotel Limited Partnership ("CHLP") that owns six hotels and acquired
controlling interests in four affiliated partnerships for approximately $550
million, including the assumption of approximately $410 million of debt. In
early 1998, the Company obtained a controlling interest in the partnership that
owns the 1,671-room Atlanta Marriott Marquis for approximately $239 million,
including the assumption of $164 million of mortgage debt.
Receivables from affiliates are reported net of reserves of $7 million at
December 31, 1998 and $144 million at January 2, 1998. Net amounts funded by
the Company totaled $10 million in 1997, and repayments were $14 million in
1998 and $2 million in 1997. There were no fundings in 1998 and 1996.
The Company's pre-tax income from affiliates includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest income............................................... $ 1 $11 $17
Equity in net income.......................................... 1 5 3
--- --- ---
$ 2 $16 $20
=== === ===
</TABLE>
Combined summarized balance sheet information for the Company's affiliates
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in millions)
<S> <C> <C>
Property and equipment, net.................................. $1,656 $1,979
Other assets................................................. 258 283
------ ------
Total assets............................................... $1,914 $2,262
====== ======
Debt, principally mortgages.................................. $1,622 $2,179
Other liabilities............................................ 300 412
Partners' deficit............................................ (8) (329)
------ ------
Total liabilities and partners' deficit.................... $1,914 $2,262
====== ======
</TABLE>
F-15
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined summarized operating results for the Company's affiliates follow:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(in millions)
<S> <C> <C> <C>
Revenues............................................. $1,123 $1,393 $1,740
Operating expenses:
Cash charges (including interest).................. (930) (1,166) (1,469)
Depreciation and other non-cash charges............ (151) (190) (229)
------ ------ ------
Income before extraordinary items.................... 42 37 42
Extraordinary items--forgiveness of debt............. 4 40 12
------ ------ ------
Net income......................................... $ 46 $ 77 $ 54
====== ====== ======
</TABLE>
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in millions)
<S> <C> <C>
Series A senior notes, with a rate of 7 7/8% due August
2005........................................................ $ 500 $ --
Series B senior notes, with a rate of 7 7/8% due August
2008........................................................ 1,192 --
Series C senior notes, with a rate of 8.45% due December
2008........................................................ 498 --
Senior secured notes, with a rate of 9 1/2% due May 2005..... 21 600
Senior secured notes, with a rate of 8 7/8% due July 2007.... -- 600
Senior secured notes, with a rate of 9% due December 2007.... -- 350
Senior notes, with an average rate of 9 3/4% at December 31,
1998,
maturing through 2012....................................... 35 35
------ ------
Total senior notes......................................... 2,246 1,585
------ ------
Mortgage debt (non-recourse) secured by $3.3 billion of real
estate assets,
with an average rate of 7.77% at December 31, 1998, maturing
through
February 2023............................................... 2,438 1,762
Line of credit, terminated in August 1998.................... -- 22
------ ------
Total mortgage debt........................................ 2,438 1,784
------ ------
Convertible debt obligation to Host Marriott, with a rate of
6.75% due 2026 (see Note 6)................................. 567 --
Line of credit, with a variable rate of Eurodollar plus 1.75%
(7.5% at
December 31, 1998).......................................... 350 --
Other notes, with an average rate of 7.39% at December 31,
1998, maturing through December 2017........................ 90 89
Capital lease obligations.................................... 7 8
------ ------
Total other................................................ 1,014 97
------ ------
$5,698 $3,466
====== ======
</TABLE>
The detail above excludes $317 million of debt relating to the discontinued
senior living business in 1997.
On July 10, 1997, HMH Properties, Inc. ("Properties," an indirect wholly
owned subsidiary of Host Marriott) and HMC Acquisitions Properties, Inc.
("Acquisitions", an indirect, wholly owned subsidiary of
F-16
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Host Marriott) completed consent solicitations (the "1997 Consent
Solicitations") with holders of their senior notes ($600 million of 9 1/2%
senior notes due 2005 and $350 million of 9% senior notes due 2007) to amend
certain provisions of their senior indentures. The 1997 Consent Solicitations
facilitated the merger of Acquisitions with and into Properties. The amendments
to the indentures also increased the ability of Properties to acquire, through
certain subsidiaries, additional properties subject to non-recourse
indebtedness and controlling interests in corporations, partnerships and other
entities holding attractive properties and increased the threshold required to
permit Properties to make distributions to affiliates.
Concurrent with the 1997 Consent Solicitations and the Properties and
Acquisitions merger, Properties issued an aggregate of $600 million of 8 7/8%
senior notes at par with a maturity of July 2007. Properties received net
proceeds of approximately $570 million, net of the costs of the 1997 Consent
Solicitations and the offering.
In conjunction with the REIT Conversion, Properties was merged with the
Operating Partnership and all of the debt of Host Marriott and Properties was
assumed by the Operating Partnership.
During 1997, the Company, through its wholly owned subsidiary, HMC Capital
Resources Corporation ("Resources"), entered into a credit facility (the "Old
Credit Facility") with a group of commercial banks under which it could borrow
up to $500 million for the acquisition of lodging real estate and for the
Company's working capital purposes. During August 1998, the Old Credit Facility
was terminated.
The Company also purchased 100% of the outstanding bonds secured by a first
mortgage on the San Francisco Marriott in 1997. The Company purchased the bonds
for $219 million, an $11 million discount to the face value of $230 million. In
connection with the redemption and defeasance of the bonds, the Company
recognized an extraordinary gain of $5 million, which represents the $11
million discount less the write-off of unamortized deferred financing fees, net
of taxes. In 1997, the Company also incurred approximately $418 million of
mortgage debt in conjunction with the acquisition of 11 hotels.
In connection with the acquisition of the outstanding common stock of Forum
Group, Inc. (the "Forum Group") in June 1997, the Company assumed debt of
approximately $270 million. In 1997, an additional $33 million of debt
financing was provided by Marriott International. The Company also assumed
approximately $15 million of debt in conjunction with the acquisition of the
Leisure Park retirement community in 1997. As a result of the Distribution, the
debt related to the Forum Group and Leisure Park retirement community is
included in net investments of discontinued operations for 1997 (Note 2). The
Company continues to provide a guarantee on the Leisure Park debt.
In the fourth quarter of 1996, the Company repaid the $109 million mortgage
on the Philadelphia Marriott. In the first quarter of 1997, the Company
obtained $90 million in first mortgage financing from two insurance companies
secured by the Philadelphia Marriott. The mortgage bears interest at a fixed
rate of 8.49% and matures in April 2009.
In December 1997, the Company successfully completed the refinancing of the
MHP (defined herein) mortgage debt for approximately $152 million. The new
mortgage bears interest at 7.48% and matures in January 2008. In connection
with the refinancing, the Company recognized an extraordinary loss of $2
million which represents payment of a prepayment penalty and the write-off of
unamortized deferred financing fees, net of taxes.
On April 20, 1998, the Company and certain of its subsidiaries filed a shelf
registration on Form S-3 (the "Shelf Registration") with the Securities and
Exchange Commission for the issuance of up to $2.5 billion in securities.
F-17
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 5, 1998, the Company (through Properties) utilized the Shelf
Registration to issue an aggregate of $1.7 billion in new senior notes (the
"New Senior Notes"). The New Senior Notes were issued in two series, $500
million of 7 7/8% Series A notes due in 2005 and $1.2 billion of 7 7/8% Series
B notes due in 2008. The Company utilized the proceeds from the New Senior
Notes to purchase substantially all of its (i) $600 million in 9 1/2% senior
notes due 2005; (ii) $350 million in 9% senior notes due 2007 and (iii) $600
million in 8 7/8% senior notes due 2007 (collectively, the "Old Senior Notes").
Approximately $21 million of the Old Senior Notes remain outstanding. In
connection with the purchase of substantially all of the Old Senior Notes, the
Company recorded a charge of approximately $148 million (net of income tax
benefit of $80 million) as an extraordinary item representing the amount paid
for bond premiums and consent fees, as well as the write-off of deferred
financing fees on the Old Senior Notes.
Concurrently with each offer to purchase, Properties successfully solicited
consents (the "1998 Consent Solicitations") from registered holders of the Old
Senior Notes to certain amendments to eliminate or modify substantially all of
the restrictive covenants and certain other provisions contained in the
indentures pursuant to which the Old Senior Notes were issued.
In conjunction with the issuance of the New Senior Notes, Properties entered
into a $1.25 billion credit facility (the "New Credit Facility") with a group
of commercial banks. The New Credit Facility has an initial three-year term
with two one-year extension options. Borrowings under the New Credit Facility
bear interest currently at the Eurodollar rate plus 1.75% (7.5% at December 31,
1998). The interest rate and commitment fee on the unused portion of the New
Credit Facility fluctuate based on certain financial ratios. The New Senior
Notes and the New Credit Facility were assumed by the Operating Partnership in
connection with the REIT Conversion. As of December 31, 1998, $350 million was
outstanding under the New Credit Facility.
The New Credit Facility and the indenture under which the New Senior Notes
were issued contain covenants restricting the ability of Properties and certain
of its subsidiaries to incur indebtedness, grant liens on their assets, acquire
or sell assets or make investments in other entities, and make certain
distributions to equityholders of Properties, the Company, and the Operating
Partnership. The New Credit Facility also contains certain financial covenants
relating to, among other things, maintaining certain levels of tangible net
worth and certain ratios of EBITDA to interest and fixed charges, total debt to
EBITDA, unencumbered assets to unsecured debt, and secured debt to total debt.
In connection with the REIT Conversion, Properties was merged with, and into,
the Operating Partnership in December 1998.
In December 1998, the Operating Partnership issued $500 million of 8.45%
Series C notes due in 2008 under the same indenture and with the same covenants
as the New Senior Notes. In February 1999, the Company issued $300 million of 8
3/8% Series D notes due in 2006. The debt was used to refinance, or purchase,
approximately $299 million of debt acquired in the Partnership Mergers, and
approximately $40 million of other mortgage debt.
In December 1998, the Company became party to eight interest rate swap
agreements in connection with the Blackstone Acquisition discussed in Note 12.
The notional amount of the agreements is approximately $365 million, with
expiration dates between August 2000 and August 2002. The Company receives
interest based on one month LIBOR (5.06% at December 31, 1998) and pays
interest at fixed rates ranging from 5.72% to 6.60%. The interest rate swap
agreements allow the Company to effectively eliminate the variability of the
interest rates on certain secured debt. The Company was party to an interest
rate swap agreement with a financial institution with an aggregate notional
amount of $100 million which expired in December 1998. In 1997, the Company was
party to two additional interest rate swap agreements with an aggregate
notional amount of $400 million which expired in May 1997. The Company realized
a net reduction of interest expense of $1 million in 1997 and $6 million in
1996 related to interest rate swap agreements. The reduction in interest
expense in 1998 was not material as the Company did not assume the agreements
until December 30.
F-18
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's debt balance at December 31, 1998, includes $87 million of
debt that is recourse to the parent company. Aggregate debt maturities at
December 31, 1998 are (in millions):
<TABLE>
<S> <C>
1999.............................................................. $ 405
2000.............................................................. 206
2001.............................................................. 435
2002.............................................................. 430
2003.............................................................. 121
Thereafter........................................................ 4,090
------
5,687
Discount on senior notes.......................................... (10)
Interest rate swap agreements..................................... 14
Capital lease obligation.......................................... 7
------
$5,698
======
</TABLE>
Cash paid for interest for continuing operations, net of amounts
capitalized, was $325 million in 1998, $278 million in 1997 and $220 million in
1996. Deferred financing costs, which are included in other assets, amounted to
$98 million and $96 million, net of accumulated amortization, as of December
31, 1998 and January 2, 1998, respectively. Amortization of deferred financing
costs totaled $10 million, $7 million and $5 million in 1998, 1997 and 1996,
respectively.
6. Convertible Debt Obligation to Host Marriott Corporation
The obligation for the $567 million of 6 3/4% Convertible Subordinated
Debentures (the "Debentures") has been included in these financial statements
as debt of the Company because upon the REIT Conversion the Operating
Partnership assumed primary liability for repayment of the Debentures of Host
Marriott underlying the Convertible Preferred Securities (defined below) of the
Host Marriott Financial Trust (the "Issuer"), a wholly-owned subsidiary trust
of Host Marriott. The common securities of Host Marriott Financial Trust were
not contributed to the Operating Partnership and therefore Host Marriott
Financial Trust is not consolidated by the Operating Partnership. Upon
conversion by a Convertible Preferred Securities holder, the Host Marriott will
issue shares of its common stock which will be delivered to such holder. Upon
the issuance of such shares by the Host Marriott, the Operating Partnership
will issue to the Host Marriott the number of OP Units equal to the number of
shares of the Host Marriott common stock issued in exchange for the Debentures.
In December 1996, Host Marriott Financial Trust issued 11 million shares of
6 3/4% convertible quarterly income preferred securities (the "Convertible
Preferred Securities"), with a liquidation preference of $50 per share (for a
total liquidation amount of $550 million). The Convertible Preferred Securities
represent an undivided beneficial interest in the assets of the Issuer. The
payment of distributions out of moneys held by the Issuer and payments on
liquidation of the Issuer or the redemption of the Convertible Preferred
Securities are guaranteed by the Company to the extent the Issuer has funds
available therefor. This guarantee, when taken together with the Company's
obligations under the indenture pursuant to which the Debentures (defined
below) were issued, the Debentures, the Company's obligations under the Trust
Agreement and its obligations under the indenture to pay costs, expenses, debts
and liabilities of the Issuer (other than with respect to the Convertible
Preferred Securities) provides a full and unconditional guarantee of amounts
due on the Convertible Preferred Securities. Proceeds from the issuance of the
Convertible Preferred Securities were invested in 6 3/4% Convertible
Subordinated Debentures (the "Debentures") due December 2, 2026 issued by the
Company. The Issuer exists solely to issue the Convertible Preferred Securities
and its own common securities (the "Common Securities") and invest the proceeds
therefrom in the Debentures. The note receivable from the Operating Partnership
is the Issuer's sole asset.
F-19
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each of the Convertible Preferred Securities is convertible at the option of
the holder into shares of Company common stock at the rate of 3.2537 shares per
Convertible Preferred Security (equivalent to a conversion price of $15.367 per
share of Company common stock). The Debentures are convertible at the option of
the holders into shares of Host Marriott common stock at a conversion rate of
3.2537 shares for each $50 in principal amount of Debentures. The Issuer will
only convert Debentures pursuant to a notice of conversion by a holder of
Convertible Preferred Securities. During 1998, 1997 and 1996, no shares were
converted into common stock. The conversion ratio and price were adjusted to
reflect the impact of the Distribution and the Special Dividend.
Holders of the Convertible Preferred Securities are entitled to receive
preferential cumulative cash distributions at an annual rate of 6 3/4% accruing
from the original issue date, commencing March 1, 1997, and payable quarterly
in arrears thereafter. The distribution rate and the distribution and other
payment dates for the Convertible Preferred Securities will correspond to the
interest rate and interest and other payment dates on the Debentures. The
Company may defer interest payments on the Debentures for a period not to
exceed 20 consecutive quarters. If interest payments on the Debentures are
deferred, so too are payments on the Convertible Preferred Securities. Under
this circumstance, the Company will not be permitted to declare or pay any cash
distributions with respect to its capital stock or debt securities that rank
pari passu with or junior to the Debentures.
Subject to certain restrictions, the Convertible Preferred Securities are
redeemable at the Issuer's option upon any redemption by the Company of the
Debentures after December 2, 1999. Upon repayment at maturity or as a result of
the acceleration of the Debentures upon the occurrence of a default, the
Debentures shall be subject to mandatory redemption, from which the proceeds
will be applied to redeem Convertible Preferred Securities and Common
Securities, together with accrued and unpaid distributions.
7. Equity and Partner's Capital
The Contribution and related transactions resulted in the exchange of 217.1
million OP Units for substantially all of the assets and liabilities of Host
Marriott Corporation.
In conjunction with the Merger, the Blackstone Acquisition and the
Partnership Mergers (Note 12), the Operating Partnership issued approximately
64.5 million OP Units which are convertible into cash (or at Host Marriott's
option shares of Host Marriott common stock). These OP Units are restricted
from converting until July 1999, October 1999 and January 2000 when 23.9
million, 11.9 million and 28.8 million units, respectively, are eligible for
conversion.
Host Marriott issued 11.9 million shares of common stock as part of the
Special Dividend (Note 2) and 8.5 million shares of common stock in exchange
for 8.5 million OP Units issued to certain other limited partners in connection
with the Partnership Mergers (Note 12). Also, as part of the REIT Conversion,
Host Marriott changed its par value from $1 to $0.01 per share. The change in
par value did not affect the number of shares outstanding.
8. Income Taxes
The Operating Partnership is not a tax paying entity. However, the Operating
Partnership under the Operating Partnership Agreement is required to reimburse
Host Marriott for certain tax payments Host Marriott is required to make.
Accordingly, the tax information included herein represents disclosures
regarding Host Marriott. As a result of the requirement of the Operating
Partnership to reimburse Host Marriott for these liabilities, such liabilities
and related disclosures are included in the Operating Partnership's financial
statements.
F-20
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1998, Host Marriott restructured itself to enable Host Marriott
to qualify for treatment as a REIT, pursuant to the Internal Revenue Code of
1986, as amended, effective January 1, 1999. In general, a corporation that
elects REIT status and distributes at least 95% of its taxable income to
shareholders and complies with certain other requirements (relating primarily
to the nature of its assets and the sources of its revenues) is not subject to
Federal income taxation to the extent it distributes its taxable income.
Management believes that Host Marriott was organized and will operate so as to
qualify as a REIT as of January 1, 1999 (including distribution of at least 95%
of its REIT taxable income to shareholders in 1999 and subsequent years).
Management expects that Host Marriott will pay taxes on "built-in gains" on
only certain of its assets. Based on these considerations, management does not
believe that Host Marriott will be liable for income taxes at the federal level
or in most of the states in which it operates in future years, and Host
Marriott eliminated $106 million of its net existing deferred tax liabilities
as of December 31, 1998. Host Marriott does not expect to provide for any
material deferred income taxes in future periods except in certain states and
foreign countries. Additionally, in connection with the Distribution and the
formation of the Non-Controlled Subsidiaries, Host Marriott reduced deferred
income tax liabilities by $102 million.
In order to qualify as a REIT for federal income tax purposes, among other
things, Host Marriott must have distributed all of the accumulated earnings and
profits ("E&P") of Host Marriott Corporation to its stockholders in one or more
taxable dividends prior to the end of the first full taxable year for which the
REIT election of Host Marriott is effective, which currently is expected to be
the taxable year commencing January 1, 1999.
In an effort to help accomplish the requisite distributions of the
accumulated E&P, Host Marriott made an initial E&P distribution consisting of
approximately 20.4 million shares of Crestline valued at $297 million, $69
million in cash, and approximately 11.9 million shares of Host Marriott stock
valued at $143 million.
The actual amount of the initial E&P distribution was based, in part, upon
the estimated amount of accumulated E&P of Host Marriott as of the last day of
its taxable year. To the extent that the initial E&P distribution was not
sufficient to eliminate Host Marriott's accumulated E&P, Host Marriott will
make one or more additional taxable distributions to its stockholders (in the
form of cash or securities) prior to the last day of Host Marriott's first full
taxable year as a REIT.
Where required, deferred income taxes are accounted for using the asset and
liability method. Under this method, deferred income taxes are recognized for
temporary differences between the financial reporting bases of assets and
liabilities and their respective tax bases and for operating loss and tax
credit carryforwards based on enacted tax rates expected to be in effect when
such amounts are realized or settled. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they will be
realized based on consideration of available evidence, including tax planning
strategies and other factors.
Total deferred tax assets and liabilities at December 31, 1998 and January
2, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997
------ -------
(in millions)
<S> <C> <C>
Deferred tax assets..................................... $ 32 $ 159
Deferred tax liabilities................................ (129) (646)
------ -------
Net deferred income tax liability..................... $ (97) $ (487)
====== =======
</TABLE>
F-21
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of December 31, 1998 and January 2, 1998 follows:
<TABLE>
<CAPTION>
1998 1997
------ -------
(in millions)
<S> <C> <C>
Investments in affiliates............................... $ -- $ (310)
Property and equipment.................................. -- (179)
Safe harbor lease investments........................... (24) (65)
Deferred tax gain....................................... (105) (92)
Reserves................................................ -- 103
Alternative minimum tax credit carryforwards............ 32 41
Other, net.............................................. -- 15
------ -------
Net deferred income tax liability..................... $ (97) $ (487)
====== =======
</TABLE>
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Current--Federal............................................ $116 $19 $(2)
--State................................................. 27 4 3
--Foreign............................................... 4 3 3
---- --- ---
147 26 4
---- --- ---
Deferred--Federal........................................... (49) 8 2
--State................................................. (12) 2 (1)
---- --- ---
(61) 10 1
---- --- ---
$ 86 $36 $ 5
==== === ===
</TABLE>
At December 31, 1998, Host Marriott had approximately $32 million of
alternative minimum tax credit carryforwards available which do not expire.
Through 1997, Host Marriott settled with the Internal Revenue Service
("IRS") substantially all issues for tax years through 1993. Host Marriott
expects to resolve any remaining issues with no material impact on the
consolidated financial statements. Host Marriott made net payments to the IRS
of approximately $10 million and $45 million in 1997 and 1996, respectively,
related to these settlements. Certain adjustments totaling approximately $2
million in 1996 were made to the tax provision related to those settlements.
A reconciliation of the statutory Federal tax rate to Host Marriott's
effective income tax rate follows (excluding the impact of the change in tax
status):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Statutory Federal tax
rate..................... 35.0 % 35.0 % (35.0)%
State income taxes, net of
Federal tax benefit...... 5.8 4.9 21.7
Tax credits............... (1.7) (2.7) --
Additional tax on foreign
source income............ 4.2 6.0 40.8
Tax contingencies......... -- -- 25.0
Permanent non-deductible
REIT Conversion
expenses................. 4.6 -- --
Other permanent items..... 1.2 .1 9.0
Other, net................ 0.3 .1 1.0
---- ---- -----
Effective income tax
rate................... 49.4 % 43.4 % 62.5 %
==== ==== =====
</TABLE>
F-22
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crestline and Host Marriott entered into a tax sharing agreement (the "Tax
Sharing Agreement") which defines each party's rights and obligations with
respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to Crestline's business for taxable years prior to the
Distribution and with respect to certain tax attributes of Crestline after the
Distribution. Host Marriott is responsible for filing consolidated returns and
paying taxes for periods through the date of the Distribution, and Crestline is
responsible for filing its returns and paying taxes for subsequent periods.
Cash paid for income taxes, including IRS settlements, net of refunds
received, was $83 million in 1998, $56 million in 1997 and $40 million in 1996.
9. Leases
As of January 1, 1999, the Company leases substantially all of its hotels to
subsidiaries of Crestline. Additionally, the Company also leases certain
property and equipment under non-cancellable operating and capital leases.
Hotel Leases. Due to current federal income tax law restrictions on a REIT's
ability to derive revenues directly from the operation of a hotel, the Company
leases its hotels (the "Leases") to one or more lessees (the "Lessees").
There generally is a separate Lessee for each hotel or group of hotels that
is owned by a separate subsidiary of the Company. The operating agreements for
such Lessees provide that the Crestline member of the Lessee has full control
over the management of the business of the Lessee, subject to blocking rights
by Marriott International, where it is the manager, over certain decisions by
virtue of its non-economic, limited voting interest in the lessee subsidiaries.
Each full-service hotel Lease has a fixed term generally ranging from seven to
ten years, subject to earlier termination upon the occurrence of certain
contingencies as defined in the Leases. Each Lease requires the Lessee to pay
1) minimum rent in a fixed dollar amount per annum plus 2) to the extent it
exceeds minimum rent, percentage rent based upon specified percentages of
aggregate sales from the applicable hotel, including room sales, food and
beverage sales, and other income in excess of specified thresholds. The amount
of minimum rent and the percentage rent thresholds will be adjusted each year
based upon any increases in the Consumer Price Index and the Employment Cost
Index during the previous ten months, as well as for certain capital
expenditures and casualty occurrences.
If the Company anticipates that the average tax basis of the Company's FF&E
and other personal property that are leased by any individual lessor entity
will exceed 15% of the aggregate average tax basis of the fixed assets in that
entity, then the Lessee would be obligated either to acquire such excess FF&E
from the Company or to cause a third party to purchase such FF&E. The Lessee
has agreed to give a right of first opportunity to a Non-Controlled Subsidiary
to acquire the excess FF&E and to lease the excess FF&E to the Lessee.
Each Lessee is responsible for paying all of the expenses of operating the
applicable hotel(s), including all personnel costs, utility costs and general
repair and maintenance of the hotel(s). The Lessee also is responsible for all
fees payable to the applicable manager, including base and incentive management
fees, chain services payments and franchise or system fees, with respect to
periods covered by the term of the Lease. Host Marriott also remains liable
under each management agreement.
The Company is responsible for paying real estate taxes, personal property
taxes (to the extent the Company owns the personal property), casualty
insurance on the structures, ground lease rent payments, required expenditures
for FF&E (including maintaining the FF&E reserve, to the extent such is
required by the applicable management agreement) and other capital
expenditures.
F-23
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crestline Guarantees
Crestline and certain of its subsidiaries entered into limited guarantees of
the Lease obligations of each Lessee. For each of four identified "pools" of
hotels (determined on the basis of the term of the particular Lease with all
leases having generally the same lease term placed in the same "pool"), the
cumulative limit of Crestline's guaranty obligation is the greater of 10% of
the aggregate rent payable for the immediately preceding fiscal year under all
Leases in the pool or 10% of the aggregate rent payable under all Leases in the
pool. For each pool, the subsidiary of Crestline that is the parent of the
Lessees in the pool (a "Pool Parent") also is a party to the guaranty of the
Lease obligations for that pool.
The obligations of the Pool Parent under each guaranty is secured by all
funds received by the applicable Pool Parent from the hotels in the pool, and
the hotels in the pool are required to distribute their excess cash flow to the
Pool Parent for each accounting period, under certain conditions as described
by the guaranty.
In the event that Crestline's obligation under a guaranty is reduced to
zero, the applicable Pool Parent can elect to terminate its guaranty and the
pooling agreement for that pool by giving notice to the Operating Partnership.
In that event, subject to certain conditions, the Pool Parent's guaranty will
terminate six months after the effective date of such notice, subject to
reinstatement in certain limited circumstances.
The Operating Partnership sold the existing working capital to the
applicable Lessee upon the commencement of the Lease at a price equal to the
fair market value of such assets. The purchase price is represented by a note
evidencing a loan that bears interest at a rate of 5.12%. Interest accrued on
the working capital loan is due simultaneously with each periodic rent payment,
and the amount of each payment of interest is credited against such rent
payment. The principal amount of the working capital loan is payable upon
termination of the Lease. The Lessee can return the working capital in
satisfaction of the note. As of December 31, 1998, the note receivable from
Crestline for working capital was $95 million.
In the event the Company enters into an agreement to sell or otherwise
transfer any full-service hotel free and clear of the applicable Lease, the
Lessor must pay the Lessee a termination fee equal to the fair market value of
the Lessee's leasehold interest in the remaining term of the Lease using a
discount rate of 12%. Alternatively, the Lessor will be entitled to (i)
substitute a comparable hotel or hotels for any hotel that is sold or (ii) sell
the hotel subject to the Lease and certain conditions without being required to
pay a termination fee.
In the event that changes in the Federal income tax laws allow the Company,
or subsidiaries or affiliates of the Company, to directly operate the hotels
without jeopardizing Host Marriott's status as a REIT, the Company will have
the right to terminate all, but not less than all, of the full-service and HPT
hotel Leases in return for paying the Lessees the fair market value of the
remaining terms of the full-service hotel Leases, valued in the same manner as
discussed above. The payment is payable in cash or, subject to certain
conditions, shares of the Host Marriott's common stock, at the election of Host
Marriott. The rights of each Lessee will be expressly subordinated to
qualifying mortgage debt and any refinancing thereof.
The Company sold and leased back 37 of its Courtyard properties in 1995 and
an additional 16 Courtyard properties in 1996 to Hospitality Properties Trust
("HPT"). Additionally, in 1996, the Company sold and leased back 18 of its
Residence Inns to HPT. These leases, which are accounted for as operating
leases and are included in the table below, have initial terms expiring through
2012 for the Courtyard properties and 2010 for the Residence Inn properties,
and are renewable at the option of the Company. Minimum rent payments are $51
million annually for the Courtyard properties and $17 million annually for the
Residence Inn properties, and additional rent based upon sales levels are
payable to the owner under the terms of the leases.
In connection with the REIT Conversion, the Operating Partnership sublet the
HPT hotels (the "Subleases") to separate indirect sublessee subsidiaries of
Crestline ("Sublessee"), subject to the terms of the applicable HPT Lease.
F-24
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The term of each Sublease expires simultaneously with the expiration of the
initial term of the HPT lease to which it relates and automatically renews for
the corresponding renewal term under the HPT lease, unless either the HPT
lessee (the "Sublessor") elects not to renew the HPT lease, or the Sublessee
elects not to renew the Sublease at the expiration of the initial term
provided, however, that neither party can elect to terminate fewer than all of
the Subleases in a particular pool of HPT hotels (one for Courtyard by Marriott
hotels and one for Residence Inn hotels). Rent under the Sublease consists of
the Minimum Rent payable under the HPT lease and an additional percentage rent
payable to the Sublessor. The percentage rent is sufficient to cover the
additional rent due under the HPT lease, with any excess being retained by the
Sublessor. The rent payable under the Subleases is guaranteed by Crestline, up
to a maximum amount of $30 million which amount is allocated between the two
pools of HPT hotels.
A number of the Company's leased hotel properties also include long-term
ground leases for certain hotels, generally with multiple renewal options.
Certain leases contain provision for the payment of contingent rentals based on
a percentage of sales in excess of stipulated amounts. Future minimum annual
rental commitments for all non-cancelable leases for which the Company is the
lessee are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in millions)
<S> <C> <C>
1999....................................................... $ 2 $ 119
2000....................................................... 1 116
2001....................................................... 1 111
2002....................................................... 1 106
2003....................................................... 1 102
Thereafter................................................. 4 1,292
--- ------
Total minimum lease payments............................... 10 $1,846
======
Less amount representing interest.......................... (3)
---
Present value of minimum lease payments.................. $ 7
===
</TABLE>
Certain of the lease payments included in the table above relate to
facilities used in the Company's former restaurant business. Most leases
contain one or more renewal options, generally for five or 10-year periods.
Future rentals on leases have not been reduced by aggregate minimum sublease
rentals from restaurants and HPT subleases of $103 million and $915 million,
respectively, payable to the Company under non-cancellable subleases.
The aggregate minimum rental payments to be received by the Operating
Partnership under the hotel leases are $774 million in 1999 and will be
adjusted in future periods based on changes in the Consumer Price Index and
Employment Cost Index.
In conjunction with the refinancing of the mortgage of the New York Marriott
Marquis, the Company also renegotiated the terms of the ground lease. The
renegotiated ground lease provides for the payment of a percentage of the hotel
sales (3% in 1998, 4% in 1999 and 5% thereafter) through 2017, which is to be
used to amortize the existing deferred ground rent obligation of $116 million.
The Company has the right to purchase the land under certain circumstances.
The Company remains contingently liable at December 31, 1998 on certain
leases relating to divested non-lodging properties. Such contingent liabilities
aggregated $93 million at December 31, 1998. However, management considers the
likelihood of any substantial funding related to these leases to be remote.
F-25
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Minimum rentals on operating leases........................... $104 $ 98 $83
Additional rentals based on sales............................. 26 20 16
---- ---- ---
$130 $118 $99
==== ==== ===
</TABLE>
10. Employee Stock Plans
In connection with the REIT Conversion, the Operating Partnership assumed
the employee obligations of Host Marriott. Upon the exercise of stock options
in Host Marriott common stock, Host Marriott will issue shares of its common
stock in return for the issuance of an equal number of OP Units of the
Operating Partnership. Accordingly, those liabilities and related disclosures
are included in the Operating Partnership financial statements.
At December 31, 1998, the Company maintained two stock-based compensation
plans, including the comprehensive stock plan (the "Comprehensive Plan"),
whereby the Company may award to participating employees (i) options to
purchase Host Marriott's common stock, (ii) deferred shares of Host Marriott's
common stock and (iii) restricted shares of Host Marriott's common stock and
the employee stock purchase plan (the "Employee Stock Purchase Plan").
Total shares of common stock reserved and available for issuance under the
Comprehensive Plan at December 31, 1998 was 26.6 million.
Employee stock options may be granted to officers and key employees with an
exercise price not less than the fair market value of the common stock on the
date of grant. Non-qualified options generally expire up to 15 years after the
date of grant. Most options vest ratably over each of the first four years
following the date of the grant. In connection with the Marriott International
Distribution in 1993, the Company issued an equivalent number of Marriott
International options and adjusted the exercise prices of its options then
outstanding based on the relative trading prices of shares of the common stock
of the two companies.
In connection with the Host Marriott Services Corporation ("HM Services")
spin-off in 1995, outstanding options held by current and former employees of
the Company were redenominated in both Company and HM Services stock and the
exercise prices of the options were adjusted based on the relative trading
prices of shares of the common stock of the two companies. Pursuant to the
distribution agreement between the Company and HM Services, the Company has the
right to receive up to 1.4 million shares of HM Services' common stock or an
equivalent cash value subsequent to exercise of the options held by certain
former and current employees of Marriott International. As of December 31,
1998, the Company valued this right at approximately $9 million, which is
included in other assets.
Effective December 29, 1998, the Company adjusted the number of outstanding
stock options and the related exercise prices to maintain the intrinsic value
of the options to account for the Special Dividend and the Distribution. The
vesting provisions and option period of the original grant was retained. No
compensation expense was recorded by the Company as a result of these
adjustments. Employee optionholders that remained with the Company received
options only in the Company's stock and those employee optionholders that
became Crestline employees received Crestline options in exchange for the
Company's options.
The Company continues to account for expense under its plans according to
the provisions of Accounting Principle Board Opinion 25 and related
interpretations as permitted under SFAS No. 123. Consequently, no
F-26
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
compensation cost has been recognized for its fixed stock options under the
Comprehensive Plan and its Employee Stock Purchase Plan.
For purposes of the following disclosures required by SFAS No. 123, the fair
value of each option granted has been estimated on the date of grant using an
option-pricing model with the following weighted average assumptions used for
grants in 1997 and 1996, respectively: risk-free interest rate of 6.2% and
6.6%, respectively, volatility of 35% and 36%, respectively, expected lives of
12 years and no dividend yield. The weighted average fair value per option
granted during the year was $13.13 in 1997 and $8.68 in 1996. No options were
granted in 1998. Pro forma compensation cost for 1998, 1997 and 1996 would have
reduced (increased) net income (loss) by approximately $524,000, $330,000 and
($150,000), respectively. Basic and diluted earnings per share on a pro forma
basis were not impacted by the pro forma compensation cost in 1998, 1997 and
1996.
The effects of the implementation of SFAS No. 123 are not representative of
the effects on reported net income in future years because only the effects of
stock option awards granted in 1996 and 1997 have been considered.
A summary of the status of Host Marriott's stock option plan for 1998, 1997
and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(in millions) Exercise Price (in millions) Exercise Price (in millions) Exercise Price
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, at beginning of
year................... 6.8 $ 4 8.3 $ 4 10.0 $ 4
Granted................. -- -- .1 20 .2 13
Exercised............... (1.3) 5 (1.6) 4 (1.9) 4
Forfeited/Expired....... (0.6) 4 -- -- -- --
Adjustment for
Distribution and
Special Dividend....... 0.7 3 -- -- -- --
---- ---- ----
Balance, at end of
year................... 5.6 3 6.8 4 8.3 4
==== ==== ====
Options exercisable at
year-end............... 5.5 6.4 7.6
==== ==== ====
</TABLE>
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (in millions) Life Price (in millions) Price
------------------------ ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$ 1 - 3 4.1 8 $ 2 4.1 $ 2
4 - 6 0.8 6 5 0.8 5
7 - 9 0.4 11 8 0.4 8
10 - 12 0.1 12 10 0.1 10
13 - 15 0.1 13 13 0.1 13
19 - 22 0.1 14 18 -- --
--- ---
5.6 5.5
=== ===
</TABLE>
Deferred stock incentive plan shares granted to officers and key employees
after 1990 generally vest over 10 years in annual installments commencing one
year after the date of grant. Certain employees may elect to defer payments
until termination or retirement. The Company accrues compensation expense for
the fair market value of the shares on the date of grant, less estimated
forfeitures. In 1998, 1997 and 1996, 12,000, 14,000 and
F-27
<PAGE>
HOST MARIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13,000 shares were granted, respectively, under this plan. The compensation
cost that has been charged against income for deferred stock was not material
in 1998, 1997 and 1996. The weighted average fair value per share granted
during each year was $19.21 in 1998, $15.81 in 1997 and $11.81 in 1996.
The Company from time to time awards restricted stock plan shares under the
Comprehensive Plan to officers and key executives to be distributed over the
next three to 10 years in annual installments based on continued employment and
the attainment of certain performance criteria. The Company recognizes
compensation expense over the restriction period equal to the fair market value
of the shares on the date of issuance adjusted for forfeitures, and where
appropriate, the level of attainment of performance criteria and fluctuations
in the fair market value of the Company's common stock. In 1998, 1997 and 1996,
2,900, 198,000 and 2,511,000 shares of additional restricted stock plan shares
were granted to certain key employees under these terms and conditions similar
to the 1993 grants. Approximately 16,842 and 161,000 shares were forfeited in
1998 and 1996, respectively. There were no shares forfeited in 1997. The
Company recorded compensation expense of $11 million, $13 million and $11
million in 1998, 1997 and 1996, respectively, related to these awards. The
weighted average fair value per share granted during each year was $18.13 in
1998, $16.88 in 1997 and $14.01 in 1996. Under these awards 925,000 shares were
outstanding at December 31, 1998. The Board has voted to approve 3,199,000
shares for award in 1999 under similar terms.
In 1998, 568,408 stock appreciation rights ("SARs") were issued under the
Comprehensive Plan to certain directors of the Company as a replacement for
previously issued options that were cancelled during the year. The conversion
to SARs was completed in order to comply with ownership limits applicable to
the Company upon conversion to a REIT. The SARs are fully vested and the grant
prices range from $1.20 to $5.13. In 1998, the Company recognized compensation
expense of $4.8 million related to this grant. Additionally, in future periods,
the Company will recognize compensation expense for outstanding SARs as a
result of fluctuations in the market price of the Company's common stock.
Under the terms of the Employee Stock Purchase Plan, eligible employees may
purchase common stock through payroll deductions at 90% of the lower of market
value at the beginning or market value at the end of the plan year.
11. Profit Sharing and Postemployment Benefit Plans
The Company contributes to profit sharing and other defined contribution
plans for the benefit of employees meeting certain eligibility requirements and
electing participation in the plans. The amount to be matched by the Company is
determined annually by the Board of Directors. The Company provides medical
benefits to a limited number of retired employees meeting restrictive
eligibility requirements. Amounts for these items were not material in 1996
through 1998.
12. Acquisitions and Dispositions
The Company acquired or gained controlling interest in 36 hotels with 15,166
rooms in 1998, 18 hotels with 9,128 rooms in 1997 and 24 hotels with 11,385
rooms in 1996. The Company has also disposed of a number of hotels, including
two hotels since 1997 and one subsequent to year-end 1998. Twenty-five of the
1998 acquisitions, consisting of the Blackstone Acquisition and the Partnership
Mergers, were completed on December 30, 1998, in conjunction with the REIT
Conversion. Additionally, three full-service properties were contributed to one
of the Non-Controlled Subsidiaries (Note 4). Each of these transactions is
discussed separately below.
1998 Acquisitions. In January 1998, the Company acquired an additional
interest in Atlanta Marriott Marquis II Limited Partnership, which owns an
interest in the 1,671-room Atlanta Marriott Marquis Hotel, for
F-28
<PAGE>
HOST MARIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$239 million, including the assumption of $164 million of mortgage debt. The
Company previously owned a 1.3% general and limited partnership interest. In
March 1998, the Company acquired a controlling interest in a partnership that
owns three hotels: the 359-room Albany Marriott, the 350-room San Diego
Marriott Mission Valley and the 320-room Minneapolis Marriott Southwest for
approximately $50 million. In the second quarter of 1998, the Company acquired
the partnership that owns the 289-room Park Ridge Marriott in Park Ridge, New
Jersey for $24 million. The Company previously owned a 1% managing general
partner interest and a note receivable interest in such partnership. In
addition, the Company acquired the 281-room Ritz-Carlton, Phoenix for $75
million, the 397-room Ritz-Carlton in Tysons Corner, Virginia for $96 million
and the 487-room Torrance Marriott near Los Angeles, California for $52
million. In the third quarter of 1998, the Company acquired the 308-room Ritz-
Carlton, Dearborn for $65 million, the 336-room Ritz-Carlton, San Francisco for
$161 million and the 404-room Memphis Crowne Plaza (which was converted to the
Marriott brand upon acquisition) for $16 million.
Blackstone Acquisition. In December 1998, the Company completed the
acquisition of, or controlling interests in, twelve hotels and one mortgage
loan secured by an additional hotel from the Blackstone Group, a Delaware
limited partnership, and a series of funds controlled by affiliates of
Blackstone Real Estate Partners (together, the "Blackstone Entities"). In
addition, the Company acquired a 25% interest in Swissotel Management (USA)
L.L.C., which operates five Swissotel hotels in the United States, from the
Blackstone Entities, which the Company transferred to Crestline in connection
with the Distribution. The Operating Partnership issued approximately 43.9
million OP Units, which OP Units are redeemable for cash (or at Host Marriott's
option, shares of common stock of Host Marriott), assumed debt and made cash
payments totaling approximately $920 million and distributed 1.4 million of the
shares of Crestline common stock to the Blackstone Entities. The actual number
of OP Units to be issued to the Blackstone Entities will fluctuate based upon
certain adjustments to be determined on March 30, 1999. Based on current stock
prices the Operating Partnership will be required to issue to the Blackstone
Entities approximately 3.7 million additional units on March 31, 1999. The
consideration received by the Blackstone Entities was determined through
negotiations between the Company and Blackstone and was not based upon
appraisals of the assets. After all adjustments, the Blackstone Entities will
own approximately 16.4% of the outstanding OP Units.
At the closing of the Blackstone Acquisition, the hotels were leased to
subsidiaries of Crestline but will continue to be managed on behalf of the
Lessees under their existing management agreements.
Partnership Mergers. In December 1998, the Company completed the Partnership
Mergers which was the roll-up of eight public partnerships and four private
partnerships which own or control 28 properties, 13 of which were already
consolidated. The Operating Partnership issued approximately 25 million OP
Units to partners for their interests valued at approximately $333 million. The
eight public partnerships that merged are: the Atlanta Marriott Marquis II
Limited Partnership ("Atlanta Marquis"); Desert Springs Marriott Limited
Partnership ("Desert Springs"); Hanover Marriott Limited Partnership
("Hanover"); Marriott Diversified American Hotels, L.P. ("MDAH"); Marriott
Hotel Properties Limited Partnership ("MHP"); Marriott Hotel Properties II
Limited Partnership ("MHP2"); Mutual Benefit Chicago Marriott Suite Hotel
Partners, L.P. ("Chicago Suites") and Potomac Hotel Limited Partnership
("PHLP") (collectively, the "Public Partnerships"). The four private
partnerships in which all or controlling interests also were acquired include
privately-held ownership interests in the Atlanta Marriott Marquis; The Ritz-
Carlton, Naples; The Ritz-Carlton, Buckhead; the New York Marriott Marquis and
the Hartford Marriott (collectively, the "Private Partnerships"). The Company
had previously not consolidated three of the 12 partnerships. Those three
partnerships are: 1) MDAH, the owner of six full-service Marriott hotels;
2) PHLP, the owner of eight Marriott hotels (two of which were previously
consolidated) and 3) Chicago Suites, the owner of the 256-room Marriott O'Hare
Suites. As a result of these transactions, the Company has increased its
ownership of most of the 28 properties to 100% while consolidating 13
additional hotels (4,445 rooms).
F-29
<PAGE>
HOST MARIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 Dispositions. In 1998, the Company sold the 662-room New York Marriott
East Side for approximately $191 million and recorded a pre-tax gain of
approximately $40 million. The Company also sold the 191-room Napa Valley
Marriott for approximately $21 million and recorded a pre-tax gain of
approximately $10 million.
1999 Dispositions. In February 1999, the Company sold the 479-room
Minneapolis/Bloomington Marriott for approximately $35 million and recorded a
pre-tax gain of approximately $13 million.
1997 Acquisitions. In 1997, the Company acquired eight full-service hotels
totaling 3,600 rooms for approximately $145 million. In addition, the Company
acquired controlling interests in nine full-service hotels totaling 5,024 rooms
for approximately $621 million, including the assumption of approximately $418
million of debt. The Company also completed the acquisition of the 504-room New
York Marriott Financial Center, after acquiring the mortgage on the hotel for
$101 million in late 1996.
Also in 1997, the Company acquired the outstanding common stock of the Forum
Group from Marriott Senior Living Services. The Company purchased the Forum
Group portfolio of 29 senior living communities for approximately $460 million,
including approximately $270 million in debt. The Company also acquired 49% of
the remaining 50% interest in the partnership which owned the 418-unit Leisure
Park retirement community for approximately $23 million, including the
assumption of approximately $15 million of debt. The Company contributed these
assets in conjunction with the Distribution of Crestline.
1996 Acquisitions. In 1996, the Company acquired six full-service hotels
totaling 1,964 rooms for an aggregate purchase price of approximately $189
million. In addition, the Company acquired controlling interests in 17 full-
service hotels totaling 8,917 rooms for an aggregate purchase price of
approximately $1.1 billion, including the assumption of approximately $696
million of debt. The Company also purchased the first mortgage of the 504-room
New York Marriott Financial Center for approximately $101 million.
In the first and second quarters of 1996, the Company completed the sale and
leaseback of 16 of its Courtyard properties and 18 of its Residence Inn
properties for $349 million. The Company received net proceeds of approximately
$314 million and will receive approximately $35 million upon expiration of the
leases. A deferred gain of $45 million on the sale/leaseback transactions is
being amortized over the initial term of the leases.
The Company's summarized, unaudited consolidated pro forma results of
operations, assuming the above transactions occurred on January 3, 1997, are as
follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Revenues................................................... $4,220 $3,919
Income before extraordinary items.......................... 189 71
Net income (loss).......................................... 41 74
Basic earnings (loss) per common share:
Income before extraordinary items........................ .88 .33
Basic earnings (loss) per common share................... .19 .34
Diluted earnings (loss) per common share:
Income before extraordinary items........................ .83 .32
Diluted earnings (loss) per common share................. .25 .33
</TABLE>
F-30
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Fair Value of Financial Instruments
The fair values of certain financial assets and liabilities and other
financial instruments are shown below:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Financial assets
Short-term marketable securities......... $ -- $ -- $ 354 $ 354
Receivables from affiliates.............. 134 141 23 26
Notes receivable......................... 69 69 29 46
Other.................................... 9 9 20 20
Financial liabilities
Debt, net of capital leases.............. 5,110 5,125 3,458 3,493
Other financial instruments
Convertible Preferred Securities......... -- -- 550 638
Convertible debt obligation to Host
Marriott................................ 567 466 -- --
</TABLE>
Short-term marketable securities and Convertible Preferred Securities and
convertible debt obligations to Host Marriott are valued based on quoted market
prices. Receivables from affiliates, notes and other financial assets are
valued based on the expected future cash flows discounted at risk-adjusted
rates. Valuations for secured debt are determined based on the expected future
payments discounted at risk-adjusted rates. The fair values of the New Credit
Facility and other notes are estimated to be equal to their carrying value.
Senior notes are valued based on quoted market prices.
The fair value of the liability related to the interest rate swap agreements
assumed in the Blackstone Acquisition was $14 million. The fair value is based
on the estimated amount the Company would pay or receive to terminate the swap
agreements. The aggregate notional amount of the agreements was $365 million at
December 31, 1998 and $100 million at January 2, 1998.
14. Marriott International Distribution and Relationship with Marriott
International
The Company and Marriott International (formerly a wholly owned subsidiary,
the common stock of which was distributed to the Company's shareholders on
October 8, 1993) have entered into various agreements in connection with the
Marriott International Distribution and thereafter which provide, among other
things, that (i) the majority of the Company's hotel lodging properties are
managed by Marriott International under agreements with initial terms of 15 to
20 years and which are subject to renewal at the option of Marriott
International for up to an additional 16 to 30 years (see Note 15); (ii) 13 of
the Company's full-service properties are operated under franchise agreements
with Marriott International with terms of 15 to 30 years; (iii) Marriott
International provided the Company with $92 million of financing at an average
rate of 9% in 1997 related to the Company's discontinued senior living
operations; (iv) the Company acquired 49% of Marriott International's 50%
interest in the Leisure Park retirement community in 1997 for $23 million,
including approximately $15 million of assumed debt; (v) Marriott International
guarantees the Company's performance in connection with certain loans and other
obligations ($70 million at December 31, 1998); (vi) the Company borrowed and
repaid $109 million of first mortgage financing for construction of the
Philadelphia Marriott (see Note 5); (vii) Marriott International and the
Company formed a joint venture and Marriott International provided the Company
with $29 million in debt financing at an average interest rate of 12.7% and $28
million in preferred equity in 1996 for the acquisition of two full-service
properties in Mexico City, Mexico; and (viii) Marriott International provides
certain limited administrative services.
F-31
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, 1997 and 1996, the Company paid to Marriott International $196
million, $162 million and $101 million, respectively, in hotel management fees;
$4 million, $13 million and $18 million, respectively, in interest and
commitment fees under the debt financing and line of credit provided by
Marriott International, and $3 million, $3 million and $4 million,
respectively, for limited administrative services. The Company also paid
Marriott International $9 million, $4 million and $2 million, respectively, of
franchise fees in 1998, 1997 and 1996. In connection with the discontinued
senior living communities' business, the Company paid Marriott International
$13 million and $6 million in management fees during 1998 and 1997,
respectively.
Additionally, Marriott International has the right to purchase up to 20% of
the voting stock of the Company if certain events involving a change in control
of the Company occur.
15. Hotel Management Agreements
Most of the Company's hotels are subject to management agreements (the
"Agreements") under which Marriott International manages the Company's hotels,
generally for an initial term of 15 to 20 years with renewal terms at the
option of Marriott International of up to an additional 16 to 30 years. The
Agreements generally provide for payment of base management fees equal to one
to four percent of sales and incentive management fees generally equal to 20%
to 50% of Operating Profit (as defined in the Agreements) over a priority
return (as defined) to the Company, with total incentive management fees not to
exceed 20% of cumulative Operating Profit, or 20% of current year Operating
Profit. In the event of early termination of the Agreements, Marriott
International will receive additional fees based on the unexpired term and
expected future base and incentive management fees. The Company has the option
to terminate certain management agreements if specified performance thresholds
are not satisfied. No agreement with respect to a single lodging facility is
cross-collateralized or cross-defaulted to any other agreement and a single
agreement may be canceled under certain conditions, although such cancellation
will not trigger the cancellation of any other agreement.
As a result of the REIT Conversion, all fees payable under the Agreements
for subsequent periods are the primary obligations of the Lessees. The
obligations of the Lessees are guaranteed to a limited extent by Crestline. The
Company remains obligated to the managers in case the Lessee fails to pay these
fees (but it would be entitled to reimbursement from the Lessee under the terms
of the Leases).
Pursuant to the terms of the Agreements, Marriott International is required
to furnish the hotels with certain services ("Chain Services") which are
generally provided on a central or regional basis to all hotels in the Marriott
International hotel system. Chain Services include central training,
advertising and promotion, a national reservation system, computerized payroll
and accounting services, and such additional services as needed which may be
more efficiently performed on a centralized basis. Costs and expenses incurred
in providing such services are allocated among all domestic hotels managed,
owned or leased by Marriott International or its subsidiaries. In addition, the
Company's hotels also participate in the Marriott Rewards program. The cost of
this program is charged to all hotels in the Marriott hotel system.
Crestline, as the Company's Lessee, is obligated to provide the manager with
sufficient funds to cover the cost of (a) certain non-routine repairs and
maintenance to the hotels which are normally capitalized; and (b) replacements
and renewals to the hotels' property and improvements. Under certain
circumstances, Crestline will be required to establish escrow accounts for such
purposes under terms outlined in the Agreements.
Crestline assumed franchise agreements with Marriott International for 10
hotels. Pursuant to these franchise agreements, Crestline generally pays a
franchise fee based on a percentage of room sales and food and beverage sales
as well as certain other fees for advertising and reservations. Franchise fees
for room sales vary from four to six percent of sales, while fees for food and
beverage sales vary from two to three percent of sales. The terms of the
franchise agreements are from 15 to 30 years.
F-32
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crestline assumed management agreements with The Ritz-Carlton Hotel Company,
LLC ("Ritz-Carlton"), an affiliate of Marriott International, to manage ten of
the Company's hotels. These agreements have an initial term of 15 to 25 years
with renewal terms at the option of Ritz-Carlton of up to an additional 10 to
40 years. Base management fees vary from two to five percent of sales and
incentive management fees are generally equal to 20% of available cash flow or
operating profit, as defined in the agreements.
Crestline also assumed management agreements with hotel management companies
other than Marriott International and Ritz-Carlton for 23 of the Company's
hotels (10 of which are franchised under the Marriott brand). These agreements
generally provide for an initial term of 10 to 20 years with renewal terms at
the option of either party or, in some cases, the hotel management company of
up to an additional one to 15 years. The agreements generally provide for
payment of base management fees equal to one to four percent of sales.
Seventeen of the 23 agreements also provide for incentive management fees
generally equal to 10 to 25 percent of available cash flow, operating profit,
or net operating income, as defined in the agreements.
16. Relationship with Crestline Capital Corporation
The Company and Crestline have entered into various agreements in connection
with the Distribution as discussed in Note 2 and further outlined below.
Distribution Agreement
Crestline and the Company entered into a distribution agreement (the
"Distribution Agreement"), which provided for, among other things, (i) the
distribution of shares of Crestline in connection with the Distribution; (ii)
the division between Crestline and the Company of certain assets and
liabilities; (iii) the transfer to Crestline of the 25% interest in the
Swissotel management company acquired in the Blackstone Acquisition and (iv)
certain other agreements governing the relationship between Crestline and the
Company following the Distribution. Crestline also granted the Company a
contingent right to purchase Crestline's interest in Swissotel Management (USA)
L.L.C. at fair market value in the event the tax laws are changed so that the
Company could own such interest without jeopardizing its status as a REIT.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate to Crestline, effective as of the date of the Distribution,
financial responsibilities for liabilities arising out of, or in connection
with, the business of the senior living communities.
Asset Management Agreement
The Company and the Non-Controlled Subsidiaries entered into asset
management agreements (the "Asset Management Agreements") with Crestline
whereby Crestline agrees to provide advice on the operation of the hotels and
review financial results, projections, loan documents and hotel management
agreements. Crestline also agrees to consult on market conditions and
competition, as well as monitor and negotiate with governmental agencies,
insurance companies and contractors. Crestline will be paid a fee not to exceed
$4.5 million for each calendar year for its consulting services under the Asset
Management Agreements, which includes $0.25 million related to the Non-
Controlled Subsidiaries. The Asset Management Agreements each have terms of two
years with an automatic one year renewal, unless earlier terminated by either
party in accordance with the terms thereof.
Non-Competition Agreement
Crestline and the Company entered into a non-competition agreement that
limits the respective parties' future business opportunities. Pursuant to this
non-competition agreement, Crestline agrees, among other things,
F-33
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that until the earlier of December 31, 2008, or the date on which it is no
longer a Lessee of more than 25% of the number of hotels owned by the Company
at the time of the Distribution, it will not own any full service hotel, manage
any limited service or full service hotel owned by the Company, or own or
operate a full service hotel franchise system operating under a common name
brand, subject to certain exceptions. In addition, the Company agrees not to
participate in the business of leasing, operating or franchising limited
service or full service properties, subject to certain exceptions.
1998 Employee Benefits and Other Employment Matters Allocation Agreement
As part of the REIT Conversion, the Company, the Operating Partnership and
Crestline entered into the 1998 Employee Benefits Allocation Agreement relating
to various compensation, benefits and labor matters. Under the agreement, the
Operating Partnership and Crestline each assumed certain liabilities related to
covered benefits and labor matters arising prior to the effective date of the
Distribution and relating to employees of each organization, respectively,
after the Distribution. The agreements also govern the treatment of awards
under the Comprehensive Plan and requires the adoption of such a plan by
Crestline and the Operating Partnership.
17. Litigation
The Company is and from time-to-time will be the subject of, or involved in,
judicial proceedings. Management believes that any liability or loss resulting
from such matters will not have a material adverse effect on the financial
position or results of operations of the Company.
In the fourth quarter of 1997, the Company reached a settlement in a lawsuit
against Trinity Industries and others for claims related to construction of the
New York Marriott Marquis. In settlement of the lawsuit, the Company and its
affiliate received a cash settlement of approximately $70 million, the majority
of which was considered a recovery of construction costs and $10 million of
which has been recorded as other revenues in the accompanying consolidated
financial statements.
18. Geographic and Business Segment Information
The Company operates one business segment, hotel ownership. The Company's
hotels are primarily operated under the Marriott or Ritz-Carlton brands,
contain an average of nearly 465 rooms, as well as supply other amenities such
as meeting space and banquet facilities; a variety of restaurants and lounges;
gift shops and swimming pools. They are typically located in downtown, airport,
suburban and resort areas throughout the United States.
The Company evaluates the performance of its segments based primarily on
operating profit before depreciation, corporate expenses, and interest expense.
The Company's income taxes are included in the consolidated Federal income tax
return of the Company and its affiliates and is allocated based upon the
relative contribution to the Company's consolidated taxable income/loss and
changes in temporary differences. The allocation of taxes is not evaluated at
the segment level and, therefore, the Company does not believe the information
is material to the consolidated financial statements.
F-34
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents revenues and other financial information,
excluding amounts related to the Company's discontinued senior living business
(in millions):
<TABLE>
<CAPTION>
1998
-----------------------------
Corporate
Hotels & Other Consolidated
------ --------- ------------
<S> <C> <C> <C>
Revenues.......................................... $3,492 $ 21 $3,513
Operating profit ................................. 618 43 661
Interest expense.................................. 328 7 335
Interest income................................... 37 14 51
Depreciation and amortization..................... 238 5 243
Capital expenditures.............................. 247 5 252
Total assets...................................... 7,902 360 8,262
<CAPTION>
1997
-----------------------------
Corporate
Hotels & Other Consolidated
------ --------- ------------
<S> <C> <C> <C>
Revenues.......................................... $2,806 $ 17 $2,823
Operating profit (loss)........................... 444 (12) 432
Interest expense.................................. 281 7 288
Interest income................................... 40 12 52
Depreciation and amortization..................... 226 5 231
Capital expenditures.............................. 154 4 158
Total assets...................................... 5,789 116 5,905
<CAPTION>
1996
-----------------------------
Corporate
Hotels & Other Consolidated
------ --------- ------------
<S> <C> <C> <C>
Revenues.......................................... $1,942 $ 15 $1,957
Operating profit (loss)........................... 256 (23) 233
Interest expense.................................. 228 9 237
Interest income................................... 31 17 48
Depreciation and amortization..................... 165 3 168
Capital expenditures.............................. 156 3 159
Total assets...................................... 4,770 382 5,152
</TABLE>
During most of 1998, the Company's foreign operations consisted of six full-
service hotel properties located in Mexico and Canada. As of December 31, 1998,
the Company's foreign operations had decreased to four Canadian hotel
properties, as the hotels in Mexico were contributed to Rockledge Hotel
Properties, Inc. There were no intercompany sales between the properties and
the Company. The following table presents revenues and long-lived assets for
each of the geographical areas in which the Company operates (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Long-lived Long-lived Long-lived
Revenues Assets Revenues Assets Revenues Assets
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States...... $3,392 $7,112 $2,718 $4,412 $1,908 $3,587
International...... 121 89 105 222 49 218
------ ------ ------ ------ ------ ------
Total............. $3,513 $7,201 $2,823 $4,634 $1,957 $3,805
====== ====== ====== ====== ====== ======
</TABLE>
The long-lived assets for 1997 exclude $583 million of assets related to the
discontinued senior living business.
F-35
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Supplemental Guarantor And Non-Guarantor Subsidiary Information
All subsidiaries of the operating partnership guarantee the Senior Notes
except those among the twenty one full service hotels listed below and HMH HPT
Residence Inn, LLC and HMH HPT Courtyard, LLC, the leasees of the Residence Inn
and Courtyard properties, respectively. The separate financial statements of
each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not presented
because the Company's management has concluded that such financial statements
are not material to investors. The guarantee of each Guarantor Subsidiary is
full and unconditional and joint and several and each Guarantor Subsidiary is a
wholly owned subsidiary of the Company. The non-guarantor subsidiaries (the
"Non-Guarantor Subsidiaries") own the following full-service hotels: the Albany
Marriott, Atlanta Marriott Marquis, Grand Hyatt, Atlanta, Harbor Beach Resort,
Hartford Marriott, Hyatt Regency, Cambridge, Hyatt Regency, Reston, Manhattan
Beach Marriott, Minneapolis Southwest Marriott, New York Marriott Marquis,
Ontario Airport Marriott, Pittsburgh City Center Marriott, The Ritz-Carlton,
Amelia Island, San Diego Marriott Hotel and Marina, San Diego Mission Valley,
Swissotel Atlanta, Swissotel Boston, Swissotel Chicago, The Drake (Swissotel)
New York and the Oklahoma City Waterford Marriott.
The following condensed combined consolidating financial information sets
forth the financial position as of December 31, 1998 and January 2, 1998 and
results of operations and cash flows for the three fiscal years in the period
ended December 31, 1998 of the parent, Guarantor Subsidiaries and the Non-
Guarantor Subsidiaries:
F-36
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Balance Sheets
(in millions)
December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,225 $3,743 $2,233 $ -- $7,201
Investments in
affiliate.............. 1,038 -- -- (1,005) 33
Notes and other
receivables............ 783 51 19 (650) 203
Other assets............ 258 146 141 (156) 389
Cash and cash
equivalents............ 330 91 15 -- 436
------ ------ ------ ------- ------
Total assets........... $3,634 $4,031 $2,408 $(1,811) $8,262
====== ====== ====== ======= ======
Debt.................... $1,438 $2,837 $1,183 $ (327) $5,131
Convertible debt
obligation to Host
Marriott............... 567 -- -- -- 567
Deferred income taxes... 51 39 7 -- 97
Other liabilities....... 99 598 252 (285) 664
------ ------ ------ ------- ------
Total liabilities...... 2,155 3,474 1,442 (612) 6,459
Minority interests...... 15 56 76 -- 147
Limited partner interest
of third parties at
redemption value....... 892 -- -- -- 892
Owner's equity.......... 572 501 890 (1,199) 764
------ ------ ------ ------- ------
Total liabilities and
owner's equity........ $3,634 $4,031 $2,408 $(1,811) $8,262
====== ====== ====== ======= ======
</TABLE>
January 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,184 $2,552 $ 898 $ -- $4,634
Investments in
affiliate.............. 74 -- 10 (71) 13
Notes and other
receivables............ 399 12 -- (359) 52
Other assets............ 202 116 108 (67) 359
Cash, cash equivalents
and marketable
securities............. 731 99 17 -- 847
Net investment in
discontinued
operations............. 236 -- -- -- 236
------ ------ ------ ----- ------
Total assets........... $2,826 $2,779 $1,033 $(497) $6,141
====== ====== ====== ===== ======
Debt.................... $ 792 $2,265 $ 627 $(218) $3,466
Deferred income taxes... 448 39 -- -- 487
Other liabilities....... 246 281 213 (360) 380
------ ------ ------ ----- ------
Total liabilities...... 1,486 2,585 840 (578) 4,333
Minority interests...... 3 31 24 -- 58
Convertible preferred
securities............. 550 -- -- -- 550
Owner's equity.......... 787 163 169 81 1,200
------ ------ ------ ----- ------
Total liabilities and
owner's equity........ $2,826 $2,779 $1,033 $(497) $6,141
====== ====== ====== ===== ======
</TABLE>
F-37
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Operations
(in millions)
Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $1,017 $1,678 $904 $(86) $3,513
OPERATING COSTS AND
EXPENSES............... 785 1,309 758 -- 2,852
------ ------ ---- ---- ------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND
INTEREST............... 232 369 146 (86) 661
Minority interest....... (35) (70) (33) 86 (52)
Corporate expenses...... (9) (26) (15) -- (50)
REIT conversion
expenses............... (64) -- -- -- (64)
Interest expense........ (55) (208) (72) -- (335)
Dividends on convertible
preferred securities .. (37) -- -- -- (37)
Interest income......... 71 10 3 (33) 51
------ ------ ---- ---- ------
Income from continuing
operations before
taxes.................. 103 75 29 (33) 174
Benefit (provision) for
income taxes........... 62 (30) (12) -- 20
------ ------ ---- ---- ------
Income from continuing
operations............. 165 45 17 (33) 194
Income from discontinued
operations............. 1 -- -- -- 1
------ ------ ---- ---- ------
INCOME BEFORE BEFORE
EXTRAORDINARY ITEM..... 166 45 17 (33) 195
Extraordinary item--loss
on extinguishment of
debt (net of income
taxes)................. (143) (5) -- -- (148)
------ ------ ---- ---- ------
NET INCOME.............. $ 23 $ 40 $ 17 $(33) $ 47
====== ====== ==== ==== ======
</TABLE>
Fiscal Year Ended January 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $911 $1,264 $706 $(58) $2,823
OPERATING COSTS AND
EXPENSES............... 744 1,035 612 -- 2,391
---- ------ ---- ---- ------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND
INTEREST............... 167 229 94 (58) 432
Minority interest....... (24) (60) (5) 58 (31)
Corporate expenses...... (11) (25) (9) -- (45)
Interest expense........ (27) (189) (72) -- (288)
Dividends on convertible
preferred securities .. (37) -- -- -- (37)
Interest income......... 85 5 1 (39) 52
---- ------ ---- ---- ------
Income from continuing
operations before
taxes.................. 153 (40) 9 (39) 83
Provision for income
taxes.................. (48) 16 (4) -- (36)
---- ------ ---- ---- ------
Income (loss) from
continuing operations.. 105 (24) 5 (39) 47
Income from discontinued
operations............. -- -- -- -- --
---- ------ ---- ---- ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 105 (24) 5 (39) 47
Extraordinary item--gain
on extinguishment of
debt (net of income
taxes)................. -- 3 -- -- 3
---- ------ ---- ---- ------
NET INCOME (LOSS)....... $105 $ (21) $ 5 $(39) $ 50
==== ====== ==== ==== ======
</TABLE>
F-38
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year Ended January 3, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $721 $687 $557 $ (8) $1,957
OPERATING COSTS AND
EXPENSES............... 667 567 490 -- 1,724
---- ---- ---- ---- ------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND
INTEREST............... 54 120 67 (8) 233
Minority interest....... (3) (10) (1) 8 (6)
Corporate expenses...... (13) (22) (8) -- (43)
Interest expense........ (97) (90) (50) -- (237)
Dividends on convertible
preferred securities .. (3) -- -- -- (3)
Interest income......... 54 8 2 (16) 48
---- ---- ---- ---- ------
Income (loss) from
operations before
taxes.................. (8) 6 10 (16) (8)
Benefit (provision) for
income taxes........... 1 (2) (4) -- (5)
---- ---- ---- ---- ------
NET INCOME (LOSS)....... $ (7) $ 4 $ 6 $(16) $ (13)
==== ==== ==== ==== ======
</TABLE>
F-39
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Cash Flows
(in millions)
Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations................... $ 46 $ 137 $ 129 $ 312
Cash from discontinued
operations................... 29 -- -- 29
----- ----- ----- -------
Cash from operations.......... 75 137 129 341
----- ----- ----- -------
INVESTING ACTIVITIES
Cash received from sales of
assets....................... 227 -- -- 227
Capital expenditures.......... (63) (144) (45) (252)
Acquisitions.................. (336) (325) (327) (988)
Sales of short-term marketable
securities................... 354 -- -- 354
Other......................... 4 -- -- 4
----- ----- ----- -------
Cash from (used in) investing
activities from continuing
operations................... 186 (469) (372) (655)
Cash from (used in) investing
activities from discontinued
operations................... (50) -- -- (50)
----- ----- ----- -------
Cash used in investing
activities................... 136 (469) (372) (705)
----- ----- ----- -------
FINANCING ACTIVITIES
Repayment of debt............. (990) (972) (162) (2,124)
Issuances of debt............. 1,410 1,086 -- 2,496
Transfers to/from Parent...... (613) 210 403 --
Cash contributed to Crestline
at inception................. (52) -- -- (52)
Cash contributed to Non-
Contributed Subsidiary....... (30) -- -- (30)
Other ........................ (25) -- -- (25)
----- ----- ----- -------
Cash from (used in) financing
activities from continuing
operations................... (300) 324 241 265
Cash from (used in) financing
activities from discontinued
operations................... 24 -- -- 24
----- ----- ----- -------
Cash from (used in) financing
activities................... (276) 324 241 289
----- ----- ----- -------
CASH AND CASH EQUIVALENTS,
beginning of year............ 395 99 17 511
----- ----- ----- -------
CASH AND CASH EQUIVALENTS, end
of year...................... $ 330 $ 91 $ 15 $ 436
===== ===== ===== =======
</TABLE>
DECREASE IN CASH AND CASH
EQUIVALENTS.................. (65) (8) (2) (75)
F-40
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year Ended January 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations................... $ 208 $ 156 $ 68 $ 432
Cash from discontinued
operations................... 32 -- -- 32
----- ----- ---- -------
Cash from operations.......... 240 156 68 464
----- ----- ---- -------
INVESTING ACTIVITIES
Cash received from sales of
assets....................... 51 -- -- 51
Capital expenditures.......... (54) (76) (28) (158)
Acquisitions.................. (55) (233) (71) (359)
Purchase of short-term
marketable securities........ (354) -- -- (354)
Other......................... -- -- 13 13
----- ----- ---- -------
Cash used in investing
activities from continuing
operations................... (412) (309) (86) (807)
Cash used in investing
activities from discontinued
operations................... (239) -- -- (239)
----- ----- ---- -------
Cash used in investing
activities................... (651) (309) (86) (1,046)
----- ----- ---- -------
FINANCING ACTIVITIES
Repayment of debt............. (42) (410) (41) (493)
Issuances of debt............. 483 288 86 857
Transfers to/from Parent...... (282) 321 (39) --
Other......................... 6 -- 22 28
----- ----- ---- -------
Cash from financing activities
from continuing operations... 165 199 28 392
Cash used in financing
activities from discontinued
operations................... (3) -- -- (3)
----- ----- ---- -------
Cash from financing
activities................... 162 199 28 389
----- ----- ---- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......... (249) 46 10 (193)
CASH AND CASH EQUIVALENTS,
beginning of year............ 644 53 7 704
----- ----- ---- -------
CASH AND CASH EQUIVALENTS, end
of year...................... $ 395 $ 99 $ 17 $ 511
===== ===== ==== =======
</TABLE>
F-41
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year Ended January 3, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations.................... $ 60 $ 82 $63 $ 205
Cash from (used in)
discontinued operations....... (4) -- -- (4)
---- ---- --- -----
Cash from operations........... 56 82 63 201
---- ---- --- -----
INVESTING ACTIVITIES
Net cash received from sales of
assets........................ 338 -- -- 338
Capital expenditures........... (64) (64) (31) (159)
Acquisitions................... (349) (312) (41) (702)
Other.......................... 7 12 -- 19
---- ---- --- -----
Cash used in investing
activities ................... (68) (364) (72) (504)
---- ---- --- -----
FINANCING ACTIVITIES
Repayment of debt.............. (119) (112) (24) (255)
Issuance of debt............... 46 -- -- 46
Issuance of common stock....... 454 -- -- 454
Issuance of convertible
preferred securities, net..... 533 -- -- 533
Transfer to/from Parent........ (482) 442 40 --
Other.......................... 28 -- -- 28
---- ---- --- -----
Cash from financing
activities.................... 460 330 16 806
---- ---- --- -----
INCREASE IN CASH AND CASH
EQUIVALENTS................... 448 48 7 503
CASH AND CASH EQUIVALENTS,
beginning of year............. 196 5 -- 201
---- ---- --- -----
CASH AND CASH EQUIVALENTS, end
of year....................... $644 $ 53 $ 7 $ 704
==== ==== === =====
</TABLE>
F-42
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ---------- ----------
(in millions, except per common share amounts)
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 791 $ 839 $ 745 $ 1,138 $ 3,513
Operating profit before
minority interest,
corporate expenses and
interest................. 147 208 111 195 661
Income from continuing
operations............... 28 62 2 102 194
Income before
extraordinary items...... 30 66 4 95 195
Net income (loss)......... 30 66 (144) 95 47
Basic earnings (loss) per
common share:
Income from continuing
operations............. .13 .29 .01 .47 .90
Income before
extraordinary items.... .14 .31 .02 .44 .91
Net income (loss)....... .14 .31 (.67) .44 .22
Diluted earnings (loss)
per common share:
Income from continuing
operations............. .13 .26 .01 .43 .84
Income before
extraordinary items.... .14 .28 .02 .40 .85
Net income (loss)....... .14 .28 (.65) .40 .27
<CAPTION>
1997
--------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ---------- ----------
(in millions, except per common share amounts)
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 624 $ 643 $ 615 $ 941 $ 2,823
Operating profit before
minority interest,
corporate expenses and
interest................. 91 124 82 135 432
Income from continuing
operations............... 6 26 6 9 47
Income before
extraordinary items...... 6 26 6 9 47
Net income................ 11 26 6 7 50
Basic earnings per common
share:
Income from continuing
operations............. .03 .12 .03 .04 .22
Income before
extraordinary items.... .03 .12 .03 .04 .22
Net income.............. .05 .12 .03 .03 .23
Diluted earnings per
common share:
Income from continuing
operations............. .03 .12 .03 .04 .22
Income before
extraordinary items.... .03 .12 .03 .04 .22
Net income.............. .05 .12 .03 .03 .23
</TABLE>
F-43
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Millions)
<TABLE>
<CAPTION>
March 26,
1999
-----------
(unaudited)
<S> <C>
ASSETS
Property and equipment, net........................................ $7,173
Notes and other receivables (including amounts due from affiliates
of $133 million and $134 million, respectively)................... 201
Rent receivable.................................................... 78
Due from managers.................................................. --
Investments in affiliates.......................................... 44
Other assets....................................................... 391
Cash and cash equivalents.......................................... 284
------
$8,171
======
LIABILITIES AND PARTNERS' CAPITAL
Debt
Senior notes..................................................... $2,545
Mortgage debt.................................................... 2,111
Convertible debt obligation to Host Marriott..................... 567
Other............................................................ 457
------
5,680
Accounts payable and accrued expenses.............................. 161
Deferred income taxes.............................................. 97
Other liabilities.................................................. 439
------
Total liabilities.............................................. 6,377
------
Minority interest.................................................. 150
Limited Partnership interests of third parties at redemption value
(representing 64.6 million units at March 26, 1999 and December
31, 1998)......................................................... 718
Partners' capital
General partner.................................................. 1
Limited partner.................................................. 930
Accumulated other comprehensive loss............................. (5)
------
Total partner's capital........................................ 926
------
$8,171
======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-44
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended March 26, 1999 and March 27, 1998
(Unaudited, in Millions)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES
Rental income (Note 2)............................................ $286 $--
Hotel sales
Rooms........................................................... -- 509
Food and beverage............................................... -- 222
Other........................................................... -- 56
Interest income................................................... 8 14
Net gains on property transactions................................ 12 1
Equity in earnings of affiliates.................................. 1 1
Other............................................................. -- 2
---- ----
Total revenues................................................ 307 805
---- ----
EXPENSES
Depreciation...................................................... 66 53
Property-level expenses........................................... 58 62
Hotel operating expenses
Rooms........................................................... -- 114
Food and beverage............................................... -- 163
Other department costs and deductions........................... -- 189
Management fees (including Marriott International management
fees of $55 million in 1998)................................... -- 58
Minority interest................................................. 5 16
Interest expense.................................................. 108 76
Dividends on Host Marriott-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust whose sole
assets are the convertible subordinated debentures due 2026
("Convertible Preferred Securities")............................. -- 9
Corporate expenses................................................ 8 12
Other expenses.................................................... 4 5
---- ----
249 757
---- ----
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES............... 58 48
Provision for income taxes.......................................... -- (20)
---- ----
INCOME FROM CONTINUING OPERATIONS................................... 58 28
Income from discontinued operations................................. -- 2
---- ----
NET INCOME.......................................................... $ 58 $ 30
==== ====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-45
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONT.)
Twelve Weeks Ended March 26, 1999 and March 27, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
BASIC EARNINGS PER UNIT:
CONTINUING OPERATIONS................................................ $.20 $.13
Discontinued operations (net of income taxes)...................... -- .01
---- ----
BASIC EARNINGS PER UNIT:............................................. $.20 $.14
==== ====
DILUTED EARNINGS PER UNIT:
CONTINUING OPERATIONS.............................................. $.19 $.13
Discontinued operations (net of income taxes)...................... -- .01
---- ----
DILUTED EARNINGS PER UNIT............................................ $.19 $.14
==== ====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-46
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Weeks Ended March 26, 1999 and March 27, 1998
(Unaudited, in Millions)
<TABLE>
<CAPTION>
1999 1998
----- ----
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations................................. $ 58 $ 28
Adjustments to reconcile to income from continuing operations:
Depreciation and amortization.................................... 68 54
Income taxes..................................................... (4) 18
Gain on sale of hotel properties................................. (12) (1)
Equity in earnings of affiliates.................................. (1) (1)
Changes in operating accounts..................................... (123) (20)
Other............................................................. 18 19
----- ----
Cash from continuing operations.................................. 4 97
Cash from discontinued operations................................ -- 2
----- ----
Cash from operations............................................. 4 99
----- ----
INVESTING ACTIVITIES
Proceeds from sales of assets..................................... 36 1
Acquisitions...................................................... (4) (118)
Capital expenditures:
Renewals and replacements........................................ (50) (40)
New development projects......................................... (20) (12)
New investment capital expenditures.............................. (6) (9)
Purchases of short-term marketable securities..................... -- (53)
Sales of short-term marketable securities......................... -- 246
Note receivable collections....................................... 2 --
Affiliate collections, net........................................ -- 14
Other............................................................. -- (6)
----- ----
Cash (used in) from investing activities from continuing
operations...................................................... (42) 23
Cash used in investing activities from discontinued operations... -- (28)
----- ----
Cash used in investing activities................................ (42) (5)
----- ----
FINANCING ACTIVITIES
Issuances of debt, net............................................ 299 1
Repurchase of units............................................... (4) --
Distribution...................................................... (69) --
Scheduled principal repayments.................................... (12) (6)
Debt prepayments.................................................. (323) (1)
Other............................................................. (5) (16)
----- ----
Cash used in financing activities from continuing operations..... (114) (22)
Cash used in financing activities from discontinued operations... -- (27)
----- ----
Cash used in financing activities................................ (114) (49)
----- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. $(152) $ 45
===== ====
Non-cash financing activities:
Assumption of mortgage debt for the acquisition of, or purchase
of controlling interests in, certain hotel properties........... $ -- $164
===== ====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-47
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Host Marriott Corporation ("Host Marriott"), operating through an umbrella
partnership REIT structure, is the owner of full-service hotel properties. Host
Marriott operates as a self-managed and self-administered real estate
investment trust ("REIT") and its operations are conducted solely through an
operating partnership and its subsidiaries. As REITs are not permitted to
derive revenues directly from the operation of hotels, Host Marriott leases
substantially all of its hotels to subsidiaries of Crestline Capital
Corporation ("Crestline" or the "Lessee") and certain other lessees.
In these condensed consolidated interim financial statements, the "Company"
or "Host Marriott" refers to Host Marriott Corporation before, and Host
Marriott, L.P. (the "Operating Partnership"), after Host Marriott Corporation's
conversion to a REIT (the "REIT Conversion"). Host Marriott Corporation is
presented as the predecessor to the Operating Partnership since the Operating
Partnership and its subsidiaries received substantially all of the continuing
operations, assets and liabilities of Host Marriott Corporation and its
subsidiaries.
On December 15, 1998, shareholders of Host Marriott approved a plan to
reorganize Host Marriott's business operations through the spin-off of Host
Marriott's senior living business as part of Crestline and the contribution of
Host Marriott's hotels and certain other assets and liabilities to a newly
formed Delaware limited partnership, Host Marriott, L.P. Host Marriott merged
into HMC Merger Corporation (the "Merger"), a newly formed Maryland corporation
(renamed Host Marriott Corporation) which intends to qualify, effective January
1, 1999 as a REIT and is the sole general partner of the Operating Partnership.
On December 29, 1998, Host Marriott completed the previously announced spin-off
of Crestline through a taxable stock dividend to its shareholders. Each Host
Marriott shareholder of record on December 28, 1998 received one share of
Crestline for every ten shares of Host Marriott Corporation owned. In
connection with the REIT Conversion, Host Marriott contributed its hotels and
substantially all of its other assets and liabilities to the Operating
Partnership and subsidiaries (the "Contribution") in exchange for units of
partnership interest in the Operating Partnership. The Contribution was
accounted for at Host Marriott's historical basis. As of March 26, 1999, Host
Marriott owned approximately 78% of the Operating Partnership.
As a result of the spin-off noted above, the Company's financial statements
have been restated to present the senior living communities business results of
operations and cash flows as discontinued operations. All historical financial
statements presented have been restated to conform to this presentation.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated interim financial
statements of the Company and its subsidiaries have been prepared without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes the disclosures
made are adequate to make the information presented not misleading. However,
the unaudited condensed consolidated interim financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1998.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company as of March 26, 1999, and the
results of operations and cash flows for the twelve weeks ended March 26, 1999
and March 27, 1998. The statements of operations and cash flows for the twelve
weeks ended March 27,
F-48
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
1998 reflect the historical results of Host Marriott Corporation as discussed
in Note 1. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations.
The Company's leases have remaining terms ranging from 2 to 10 years,
subject to earlier termination upon the occurrence of certain contingencies, as
defined. The rent due under each lease is the greater of base rent or
percentage rent, as defined. Percentage rent applicable to room, food and
beverage and other types of hotel revenue varies by lease and is calculated by
multiplying fixed percentages by the total amounts of such revenues over
specified threshold amounts. Both the minimum rent and the revenue thresholds
used in computing percentage rents are subject to annual adjustments based on
increases in the United States Consumer Price Index and the Labor Index, as
defined. Certain amounts of the percentage rent recognized are considered
contingent until such time as the revenue recognized exceeds annual thresholds,
which are determined individually by property. For the twelve weeks ended March
26, 1999, $115 million of contingent rent is included in the statement of
operations.
3. Rental Revenue
The Company's 1999 rental revenue represents earnings from its leased hotels
and is not comparable to 1998 hotel revenues which reflect gross sales
generated by the properties. Also, in December 1998 the Company retroactively
adopted Emerging Issues Task Force Issue No. 97-2, "Application of FASB
Statement No. 94 and APB Opinion No. 16 to Physician Management Entities and
Certain Other Entities with Contractual Management Arrangements." The impact of
the adoption of Issue 97-2 on the condensed consolidated financial statements
for the twelve weeks ended March 27, 1998 was to increase both revenues and
operating expenses by approximately $466 million with no impact on net income
or earnings per share.
The comparison of the 1999 quarterly results with 1998 is also affected by a
change in the reporting period for the Company's hotels not managed by Marriott
International, which resulted in the inclusion of only two months of results in
the 1999 first quarter versus three months in 1998 for the 24 such hotels
(8,524 rooms) that the Company owned as of the beginning of 1998. The change in
reporting was required as part of the REIT Conversion. The 1998 hotel revenues
include approximately $54 million representing the incremental month of
operations.
The table below represents hotel sales for both periods for comparative
purposes.
<TABLE>
<CAPTION>
Twelve Weeks Ended
-------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Hotel Sales
Rooms.................................................. $600 $509
Food and beverage...................................... 268 222
Other.................................................. 63 56
---- ----
Total hotel sales.................................... $931 $787
==== ====
</TABLE>
4. Earnings Per Unit
Basic earnings per unit is computed by dividing net income by the weighted
average number of units. Diluted earnings per unit is computed by dividing net
income as adjusted for potentially dilutive securities, by the weighted average
number of units outstanding plus other potentially dilutive securities. For
1998 diluted
F-49
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
earnings per unit was not adjusted for the impact of the Convertible Preferred
Securities as they were anti-dilutive.
A reconciliation of the number of units utilized for the calculation of
diluted earnings per unit follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
-------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Weighted average number of units outstanding............ 291.5 215.7
Assuming distribution of units to Host Marriott
Corporation for Host Marriott Corporation common shares
granted under the comprehensive stock plan, less shares
assumed purchased at average market price.............. 5.9 4.4
Assuming distribution of common shares issuable for
warrants, less shares assumed purchased at average
market price........................................... -- 0.3
Assuming conversion of minority operating partnership
units outstanding or issuable.......................... 9.8 --
Assuming conversion of Convertible Preferred
Securities............................................. -- --
----- -----
Units utilized for the calculation of diluted earnings
per unit............................................. 307.2 20.4
===== =====
</TABLE>
A reconciliation of net income to earnings used for the calculation of
diluted earnings per unit follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
-------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Net income............................................. $58 $30
Dividends of Convertible Preferred Securities.......... -- --
Minority interest expense, assuming conversion of OP
units................................................. 1 --
--- ---
Earnings used for the calculation of diluted earnings
per unit.............................................. $59 $30
=== ===
</TABLE>
5. Dividends and Distributions Payable
On March 15, 1999, the Board of Directors of Host Marriott declared a cash
dividend of $0.21 per share of Host Marriott Corporation common stock and a
corresponding distribution of $0.21 per unit of limited partnership interest
("OP Unit"). The dividend and distribution was paid on April 14, 1999 to
shareholders and unitholders of record on March 31, 1999.
On December 18, 1998, in conjunction with the REIT Conversion, the Company
declared a special dividend which entitled shareholders of record on December
28, 1998 to elect to receive either $1.00 in cash or .087 of a share of common
stock of the Company for each outstanding share of the Company's common stock
owned by such shareholder on the record date (the "Special Dividend"). Cash
totaling $69 million and 11.9 million shares of common stock that were elected
in the Special Dividend were paid and/or issued on February 10, 1999. The 1998
earnings per share has been restated to reflect the impact of the stock
portion of the Special Dividend.
F-50
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Disposition
In February 1999, the Company sold the 479-room Minneapolis/Bloomington
Marriott for $35 million and recorded a pre-tax gain of $11 million.
7. Debt Issuances
In February 1999, the Company issued $300 million of 83/8% Series D senior
notes due in 2006. The senior notes were used to refinance, or purchase, debt
which had been acquired through the merger of certain partnerships or the
purchase of hotel properties in connection with the REIT Conversion in December
1998.
8. Geographic and Business Segment Information
The Company operates one business segment, hotel ownership. The Company's
hotels are primarily operated under the Marriott or Ritz-Carlton brands.
Substantially all of the Company's revenues are earned through leases with
Crestline. The allocation of taxes is not evaluated at the segment level or
reflected in the following information because the Company does not believe the
information is material to the consolidated financial statements.
The Company's segmented revenues and income (loss) from continuing
operations before income taxes are as follows (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended March 26, 1999
-------------------------------------
Hotels Corporate & Other Consolidated
------ ----------------- ------------
<S> <C> <C> <C>
Revenues............................. $304 $ 3 $307
Income (loss) from continuing
operations before income taxes...... 75 (17) 58
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended March 27, 1998
-------------------------------------
Hotels Corporate & Other Consolidated
------ ----------------- ------------
<S> <C> <C> <C>
Revenues............................. $801 $ 4 $805
Income (loss) from continuing
operations before income taxes...... 71 (23) 48
</TABLE>
As of March 26, 1999, the Company's foreign operations consisted of four
hotel properties located in Canada. There were no intercompany sales between
the properties and the Company. The following table presents rental revenues in
1999 and hotel revenues in 1998 for each of the geographical areas in which the
Company owns hotels (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended
-------------------
March 26, March 27,
1999 1998
--------- ---------
<S> <C> <C>
United States............................................ $303 $779
International............................................ 4 26
---- ----
Total.................................................. $307 $805
==== ====
</TABLE>
9. Comprehensive Income
The Company's other comprehensive income consists of foreign currency
translation adjustments and the right to receive up to 1.4 million shares of
Host Marriott Services Corporation's common stock or an
F-51
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
equivalent cash value subsequent to the exercise of the options held by certain
former and current employees of Marriott International. For the twelve weeks
ended March 26, 1999, comprehensive income totaled $57 million. Comprehensive
income was equivalent to net income for the twelve weeks ended March 27, 1998.
As of March 26, 1999 and December 31, 1998 the Company's accumulated other
comprehensive loss was approximately $5 million and $4 million, respectively.
10. Subsequent Events
In April 1999, a subsidiary of the Company completed the refinancing of the
mortgage on the New York Marriott Marquis. The mortgage is for $245 million
maturing in June 2000 and bears interest at a rate of LIBOR plus 2.125% for the
period from March 31, 1999 through December 31, 1999 and LIBOR plus 2.5% until
maturity. The Company is required to make principal payments of $1.25 million
on June 30, 1999 and September 30, 1999 in addition to $10 million and $5
million on December 31, 1999 and March 31, 2000, respectively, as well as pay
an extension fee of 0.5% of the principal balance of the loan outstanding at
December 31, 1999.
On December 30, 1998, the Operating Partnership acquired a portfolio of
twelve luxury hotels and other assets from the Blackstone Group, a Delaware
limited partnership, and a series of funds controlled by affiliates of
Blackstone Real Estate Partners. The Operating Partnership issued approximately
43.9 million OP Units and assumed debt and made cash payments of approximately
$920 million and distributed 1.4 million of the shares of Crestline common
stock to the Blackstone Real Estate Partners. An additional 3.8 million OP
Units were issued in April 1999 in accordance with the purchase agreement based
on certain adjustments determined on March 31, 1999.
The Company also completed a 210-room extension of the Philadelphia Marriott
Convention Center in April 1999 at a cost of approximately $43 million
including debt of $9 million.
11. Summarized Lease Pool Financial Statements
As discussed in Note 2, as of March 26, 1999, almost all the properties of
the Company and its subsidiaries were leased to Crestline Capital Corporation
and managed by Marriott International, Inc. In conjunction with these leases,
Crestline and certain of its subsidiaries entered into limited guarantees of
the lease obligations of each lessee. The full- service hotel leases are
grouped into four lease pools, with Crestline's guarantee limited to the
greater of 10% of the aggregate rent payable for the preceding year or 10% of
the aggregate rent payable under all leases in the respective pool.
Additionally, the lessee's obligation under each lease agreement is guaranteed
by all other lessees in the respective lease pool. As a result, the Company
believes that the operating results of each full- service pool may be material
to the Company's financial statements. Financial information of certain pools
related to the sublease agreements for limited service properties are not
presented, as the Company believes they are not material to the Company's
financial statements. Financial information of Crestline may be found in its
quarterly and annual filings with the Securities and Exchange Commission.
Further information regarding these leases and Crestline's limited guarantees
may be found in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1998. The results of operations for the twelve weeks ended
March 26, 1999 and summarized balance sheet data of the lease pools in which
the Company's hotels are organized are as follows (in millions):
F-52
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms................................ $129 $137 $127 $128 $521
Food and beverage.................... 59 61 61 72 253
Other................................ 14 13 19 15 61
---- ---- ---- ---- ----
Total hotel sales.................. 202 211 207 215 835
Operating Costs and Expenses
Rooms................................ 31 32 29 27 119
Food and beverage.................... 46 47 44 48 185
Other................................ 53 52 50 48 203
Management fees...................... 9 14 11 16 50
Lease expense........................ 61 64 70 74 269
---- ---- ---- ---- ----
Total operating expenses........... 200 209 204 213 826
---- ---- ---- ---- ----
Operating Profit....................... 2 2 3 2 9
Corporate and Interest Expenses........ (1) -- (1) (1) (3)
---- ---- ---- ---- ----
Income before taxes.................. 1 2 2 1 6
Income taxes......................... -- (1) (1) (1) (3)
---- ---- ---- ---- ----
Net Income......................... $ 1 $ 1 $ 1 $-- $ 3
==== ==== ==== ==== ====
<CAPTION>
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets................................. $ 47 $ 37 $ 46 $ 47 $177
Liabilities............................ $ 46 $ 36 $ 45 $ 46 $173
Equity................................. $ 1 $ 1 $ 1 $ 1 $ 4
</TABLE>
12. Supplemental Guarantor and Non-Guarantor Subsidiary Information
All subsidiaries of the operating partnership guarantee the Company's senior
notes except those among the twenty full service hotels listed below and HMH
HPT Residence Inn, LLC and HMH HPT Courtyard, LLC, the lessees of the Residence
Inn and Courtyard properties, respectively. The separate financial statements
of each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not
presented because management has concluded that such financial statements are
not material to investors. The guarantee of each Guarantor Subsidiary is full
and unconditional and joint and several and each Guarantor Subsidiary is a
wholly owned subsidiary of the Company. The non-guarantor subsidiaries (the
"Non-Guarantor Subsidiaries") own the following full-service hotels: the Albany
Marriott; Atlanta Marriott Marquis; Grand Hyatt, Atlanta; Harbor Beach Resort;
Hartford Marriott; Hyatt Regency, Cambridge; Hyatt Regency, Reston; Manhattan
Beach Marriott; Minneapolis Southwest Marriott; New York Marriott Marquis;
Ontario Airport Marriott; Pittsburgh City Center Marriott; The Ritz-Carlton,
Amelia Island; San Diego Marriott Hotel and Marina; San Diego Mission Valley;
Swissotel, Atlanta; Swissotel, Boston; Swissotel, Chicago; The Drake
(Swissotel) New York; and the Oklahoma City Waterford Marriott.
The following condensed combined consolidating information sets forth the
financial position as of March 26, 1999 and December 31, 1998 and results of
operations and cash flows for the twelve weeks ended March 26, 1999 and March
27, 1998 of the parent, Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries.
F-53
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Consolidating Balance Sheets
(In Millions)
March 26, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,227 $3,723 $2,223 $ -- $7,173
Investments in
affiliate.............. 1,109 -- -- (1,065) 44
Notes and other
receivables............ 777 51 19 (646) 201
Other assets............ 261 178 167 (137) 469
Cash and cash
equivalents............ 101 155 28 -- 284
------ ------ ------ ------- ------
Total assets........... $3,475 $4,107 $2,437 $(1,848) $8,171
====== ====== ====== ======= ======
Debt.................... $1,491 $2,833 $1,113 $ (324) $5,113
Convertible debt
obligations to Host
Marriott............... 567 -- -- -- 567
Deferred income taxes... 51 39 7 -- 97
Other liabilities....... 90 576 260 (326) 600
------ ------ ------ ------- ------
Total liabilities...... 2,199 3,448 1,380 (650) 6,377
Minority interests...... 16 59 75 -- 150
Limited partner interest
of third parties at
redemption value....... 718 -- -- -- 718
Owner's capital......... 542 600 982 (1,198) 926
------ ------ ------ ------- ------
Total liabilities and
owner's capital....... $3,475 $4,107 $2,437 $(1,848) $8,171
====== ====== ====== ======= ======
</TABLE>
F-54
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Operations
(In Millions)
Twelve Weeks Ended March 26, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 62 $ 161 $ 86 $ (2) $ 307
Depreciation............ (13) (35) (18) -- (66)
Property-level
expenses............... (10) (22) (26) -- (58)
Hotel operating
expenses............... -- -- -- -- --
Minority interest....... (1) (3) (1) -- (5)
Interest expense........ (41) (48) (21) 2 (108)
Dividends on convertible
preferred securities... -- -- -- -- --
Corporate expenses...... (1) (4) (3) -- (8)
Other expenses.......... (4) -- -- -- (4)
----- ----- ----- ---- -----
NET INCOME (LOSS)....... $ (8) $ 49 $ 17 $-- $ 58
===== ===== ===== ==== =====
Twelve Weeks Ended March 27, 1998
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 249 $ 378 $ 194 $(16) $ 805
Depreciation............ (14) (27) (12) -- (53)
Property-level
expenses............... (11) (20) (31) -- (62)
Hotel operating
expenses............... (152) (251) (121) -- (524)
Minority interest....... (12) (13) (4) 13 (16)
Interest expense........ (19) (46) (14) 3 (76)
Dividends on convertible
preferred securities... (9) -- -- -- (9)
Corporate expenses...... (3) (6) (3) -- (12)
Other expenses.......... (5) -- -- -- (5)
----- ----- ----- ---- -----
Income from continuing
operations before
taxes.................. 24 15 9 -- 48
Provision for income
taxes.................. (10) (6) (4) -- (20)
----- ----- ----- ---- -----
Income from continuing
operations............. 14 9 5 -- 28
Income from discontinued
operations............. 2 -- -- -- 2
----- ----- ----- ---- -----
NET INCOME.............. $ 16 $ 9 $ 5 -- $ 30
===== ===== ===== ==== =====
</TABLE>
F-55
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Cash Flows
(In Millions)
Twelve Weeks Ended March 26, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash (used in) from
operations................... $ (10) $ 21 $(7) $ 4
----- ---- --- -----
INVESTING ACTIVITIES
Cash received from sales of
assets....................... 2 34 -- 36
Capital expenditures.......... (21) (46) (9) (76)
Acquisitions.................. -- -- (4) (4)
Other......................... 2 -- -- 2
----- ---- --- -----
Cash used in investing
activities.................... (17) (12) (13) (42)
----- ---- --- -----
FINANCING ACTIVITIES
Repayment of debt............. (1) (267) (67) (335)
Issuances of debt............. 40 259 -- 299
Transfers to/from Parent...... (162) 62 100 --
Dividends..................... (69) -- -- (69)
Repurchase of common stock.... (4) -- -- (4)
Other......................... (5) -- -- (5)
----- ---- --- -----
Cash (used in) from financing
activities.................... (201) 54 33 (114)
----- ---- --- -----
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. $(228) $ 63 $13 $(152)
===== ==== === =====
</TABLE>
F-56
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Twelve Weeks Ended March 27, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations................... $ 45 $ 36 $ 16 $ 97
Cash from discontinued
operations................... 2 -- -- 2
----- ---- ----- -----
Cash from operations........... 47 36 16 99
----- ---- ----- -----
INVESTING ACTIVITIES
Cash received from sales of
assets....................... 1 -- -- 1
Capital expenditures.......... (18) (34) (9) (61)
Acquisitions.................. -- -- (118) (118)
Sales of short-term marketable
securities................... 193 -- -- 193
Other......................... (4) 2 10 8
----- ---- ----- -----
Cash from (used in) investing
activities from continuing
operations.................... 172 (32) (117) 23
Cash used in investing
activities from discontinued
operations.................... (28) -- -- (28)
----- ---- ----- -----
Cash from (used in) investing
activities.................... 144 (32) (117) (5)
----- ---- ----- -----
FINANCING ACTIVITIES
Repayment of debt............. (2) (3) (2) (7)
Issuances of debt............. -- -- 1 1
Transfers to/from Parent...... (119) 4 115 --
Other......................... (16) -- -- (16)
----- ---- ----- -----
Cash (used in) from financing
activities from continuing
operations.................... (137) 1 114 (22)
Cash used in financing
activities from discontinued
operations.................... (27) -- -- (27)
----- ---- ----- -----
Cash (used in) from financing
activities.................... (164) 1 114 (49)
----- ---- ----- -----
INCREASE IN CASH AND CASH
EQUIVALENTS................... $ 27 $ 5 $ 13 $ 45
===== ==== ===== =====
</TABLE>
F-57
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus. You must not rely upon any
information or representation not contained or incorporated by reference in
this prospectus as if we had authorized it. This prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which it relates, nor does
this prospectus constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 20
Use of Proceeds.......................................................... 21
Capitalization........................................................... 21
Pro Forma Financial Information.......................................... 22
Selected Financial Data.................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business and Properties.................................................. 48
Investment and Other Policies............................................ 74
Management............................................................... 76
Security Ownership of Certain Beneficial Owners and Management........... 85
Certain Relationships and Related Transactions........................... 88
The Exchange Offer....................................................... 90
Description of Notes..................................................... 98
Material Federal Income Tax Consequences of the Exchange................. 141
Plan of Distribution..................................................... 142
Legal Matters............................................................ 143
Experts.................................................................. 143
Where You Can Find More Information...................................... 143
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------
PROSPECTUS
---------------
HOST MARRIOTT, L.P.
Offer to Exchange
up to
$300,000,000
of
8 3/8% Series D Senior Notes Due 2006,
which have been registered under
the Securities Act,
for up to
$300,000,000
of outstanding
8 3/8% Series E Senior Notes Due 2006
[ ], 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Host Marriott Corporation's Articles of Amendment and Restatement of
Articles of Incorporation (the "Articles of Incorporation") authorize it, to
the maximum extent permitted by Maryland law, to obligate itself to indemnify
and to pay or reimburse reasonable expenses in advance of final disposition of
a proceeding to: (i) any present of former director of officer or (ii) any
individual who, while a director of Host Marriott and at the request of Host
Marriott, serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or any other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former director of Host Marriott Corporation. Host Marriott
Corporation's Bylaws obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of Host Marriott
Corporation and at the request of Host Marriott Corporation, serves or has
served another corporation, real state investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
trustee, officer or partner of such corporation, real estate investment trust
partnership, joint venture, trust, employee benefit plan or other enterprise
and who is made a party to the proceeding by reason of his service in that
capacity, against any claim or liability to which he may become subject by
reason of such status. Host Marriott's Articles of Incorporation and Bylaws
also permit Host Marriott to indemnify and advance expenses to any person who
served as a predecessor of Host Marriott in any of the capacities described
above any to any employee or agent of Host Marriott or a predecessor of Host
Marriott. Host Marriott's Bylaws require Host Marriott to indemnify a director
or officer who has been successful, on the merits or otherwise, in the defense
of any proceeding to which he is made a party by reason of his service in that
capacity.
The Maryland General Corporation Law, as amended (the "MGCL"), permits a
Maryland corporation to indemnify and advance expenses to its directors,
officers, employees and agents, and permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason
of their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director of officer
actually received an improper personal benefit in money, property, or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify a director or officer
in a suit by or in the right of the corporation if such director or officer has
been adjudged to be liable to the corporation. In accordance with the MGCL,
Host Marriott's Bylaws require it, as a condition to advancing expenses, to
obtain (1) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
Host Marriott as authorized by Host Marriott's Bylaws and (2) a written
statement by or on his behalf to repay the amount paid of reimbursed by Host
Marriott shall ultimately be determined that the standard of conduct was not
met.
Host Marriott intends to enter into indemnification agreements with each of
its directors and officers. The indemnification agreements will require, among
other things, that Host Marriott indemnify its directors and officers to the
fullest extent permitted by law and advance to its directors and officers all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.
The Amended and Restated Agreement of Limited Partnership of Host Marriott,
L.P. (the "Partnership Agreement") also provides for indemnification of Host
Marriott and its officers and directors to the same extent that indemnification
is provided to officers and directors of Host Marriott in its Articles of
Incorporation,
II-1
<PAGE>
and limit liability of Host Marriott and its officers and directors to the
Operating Partnership and its respective partners to the same extent that the
liability of the officers and directors of Host Marriott to Host Marriott and
its stockholders is limited under Host Marriott's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, Host Marriott has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan by and among Host Marriott Corporation, HMC Merger
Corporation and Host Marriott L.P. (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
3.3 Bylaws of Host Marriott Corporation dated September 28, 1998
(incorporated by reference to Host Marriott Corporation Registration
Statement No. 333-64793).
3.4 Articles of Amendment and Restatement of Articles of Incorporation of
Host Marriott Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
4.1 Indenture by and among HMH Properties, Inc., as Issuer, and the
Subsidiary Guarantors named therein, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Current Report on Form 8-K dated August 6, 1998).
4.2 Fourth Supplemental Indenture, dated February 25, 1999, between Host
Marriott, L.P., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee.
5.1 Opinion of Christopher G. Townsend as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
10.1 Second Amended and Restated Agreement of Limited Partnership of Host
Marriott, L.P., (incorporated by reference to Exhibit 3.1 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.2 Indenture between Host Marriott L.P., as Issuer, and Marine Midland
Bank, as Indenture Trustee, and Form of 6.56% Callable Note due
December 15, 2005 (incorporated by reference to Exhibit 4.1 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.3 Amended and Restated Credit Agreement dated as of June 19, 1997 and
Amended and Restated as of August 5, 1998 among Host Marriott
Corporation, Host Marriott Hospitality, Inc., HMH Properties, Inc.,
Host Marriott, L.P., HMC Capital Resources Corp., Various Banks, Wells
Fargo Bank, National Association, The Bank of Nova Scotia and Credit
Lyonnais New York Branch, as Co-Arrangers, and Bankers Trust Company
as Arranger and Administrative Agent (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated September
11, 1998).
10.4 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5,
1998, among Host Marriott Corporation, Host Marriott Hospitality Inc.,
HMH Properties, Inc., Host Marriott, L.P., HMC Capital Resources
Corp., Various Banks, Wells Fargo Bank, National Association, The Bank
of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers
and Bankers Trust Company as Arranger and Administrative Agent dated
as of November 25, 1998 (incorporated by reference to Exhibit 10.4 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.5 Second Amendment and Consent to Credit Agreement of Amended and
Restated Credit Agreement dated as of June 19, 1997 and Amended and
Restated as of August 5, 1998, among Host Marriott Corporation, Host
Marriott Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P.,
HMC Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of December 17, 1998 (incorporated by
reference to Exhibit 10.5 of Host Marriott Corporation's Form 10-K for
the year ended December 31, 1998).
10.6 Third Amendment and Waiver to Credit Agreement Amended and Restated
Credit Agreement dated as of June 19, 1997 and Amended and Restated as
of August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC
Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of March 15, 1999 (incorporated by
reference to Exhibit 10.6 of Host Marriott Corporation's Form 10-K for
the year ended December 31, 1998).
10.7 Host Marriott L.P. Executive Deferred Compensation Plan effective as
of December 29, 1998 (formerly the Marriott Corporation Executive
Deferred Compensation Plan) (incorporated by reference to Exhibit 10.7
of Host Marriott Corporation's Form 10-K for the year ended December
31, 1998).
10.8 Host Marriott Corporation 1997 Comprehensive Incentive Stock Plan
(incorporated by reference to Host Marriott Corporation's Proxy
Statement filed April 3, 1997).
10.9 Distribution Agreement dated as of September 15, 1993 between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference from Host Marriott Corporation Current Report on Form 8-K
dated October 23, 1993).
10.10 Amendment No. 1 to the Distribution Agreement dated December 29,1 995
by and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International, Inc., (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K
dated January 16, 1996).
10.11 Amendment No. 2 to the Distribution Agreement dated June 21, 1997 by
and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Registration Statement No. 333-
64793).
10.12 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5,
1998, among Host Marriott Corporation, Host Marriott Hospitality Inc.,
HMH Properties, Inc., Host Marriott, L.P., HMC Capital Resources
Corp., Various Banks, Wells Fargo Bank, National Association, The Bank
of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers
and Bankers Trust Company as Arranger and Administrative Agent dated
as of November 25, 1998 (incorporated by reference to Exhibit 10.4 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.13 Amendment No. 4 to the Distribution Agreement by and among Host
Marriott Corporation and Marriott International Inc. (incorporated by
reference to Host Marriott Corporation Registration Statement No. 333-
64793).
10.14 Amendment No. 5 to the Distribution Agreement dated December 18, 1998
by and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International Inc., (incorporated by
reference to Exhibit 10.14 of Host Marriott Corporation's Form 10-K
for the year ended December 31, 1998).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.15 Distribution Agreement dated December 22, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.16 Amendment to Distribution Agreement dated December 22, 1995 by and
between Host Marriott Corporation and Host Marriott Services
Corporation (incorporated by reference to Exhibit 10.16 of Host
Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.17 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K
dated October 23, 1993).
10.18 License Agreement dated as December 29, 1998 by and among Host
Marriott Corporation, Host Marriott, L.P., Marriott International,
Inc., and Marriott Worldwide Corporation (incorporated by reference to
Exhibit 10.18 of Host Marriott Corporation's Form 10-K for the year
ended December 31, 1998).
10.19 Noncompetition Agreement between Host Marriott Corporation, Host
Marriott, L.P., and Crestline Capital Corporation and other parties
named therein (incorporated by reference to Exhibit 10.19 of Host
Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.20 Tax Administration Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.,
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated October 23, 1993).
10.21 Restated Noncompetition Agreement dated March , 1998 by and among Host
Marriott Corporation, Marriott International, Inc., and Sodexho
Marriott Services, Inc., (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.22 First Amendment to Restated Noncompetition Agreement by and among Host
Marriott Corporation, Marriott International, Inc., Sodexho Marriott
Services, Inc. (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.23 Host Marriott Lodging Management Agreement--Marriott Hotels, Resorts
and Hotels dated September 25, 1993 by and between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation registration Statement No. 33-
51707)
10.24 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of December 29, 1995 by and between Host Marriott Corporation
and Host Marriott Services Corporation (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated January 16,
1996).
10.25 Tax Sharing Agreement dated as of December 29, 1995 by and between
Host Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.26 Host Marriott, L.P. Retirement and Savings Plan and Trust
(incorporated by reference to Exhibit 10.26 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.27 Contribution Agreement dated as of April 16, 1998 among Host Marriott
Corporation, Host Marriott, L.P. and the contributors named therein,
together with Exhibit B (incorporated by reference to Exhibit 10.18 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.28 Amendment No. 1 to Contribution Agreement dated May 8, 1998 among
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.19 of Host Marriott
Corporation Registration Statement No. 333-55807).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.29 Amendment No. 2 to Contribution Agreement dated May 18, 1998 among
Host Marriott Corporation, Host Marriott, L.P. and the contributors
named therein (incorporated by reference to Exhibit 10.20 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.30 Form of Lease Agreement (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.31 Form of Management Agreement of Full-Service Hotels (incorporated by
reference to Host Marriott Corporation Registration Statement No. 33-
51707).
10.32 Form of Owner's Agreement between Host Marriott Corporation, Marriott
International and Crestline Capital Corporation (incorporated by
reference to Crestline Capital Corporation Registration Statement No.
333-64657).
10.33 Employee Benefits and Other Employment Matters Allocation Agreement
between Host Marriott Corporation, Host Marriott, L.P. and Crestline
Capital Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.34 Amendment to the Employee Benefits and Other Employment Matters
Allocation Agreement effective as of December 29, 1998 by and between
Host Marriott Corporation, Marriott International, Sodexho Marriott
Services, Inc., Crestline Capital Corporation and Host Marriott, L.P.
(incorporated by reference to Exhibit 10.34 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.35 Pool Guarantee Agreement between Host Marriott Corporation, the
lessees referred to therein and Crestline Capital Corporation
(incorporated by reference to Host Marriott Registration Statement No.
333-64793).
10.36 Pooling and Security Agreement by and among Host Marriott Corporation
and Crestline Capital Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
10.37 Amended and Restated Communities Noncompetition Agreement
(incorporated by reference to Host Marriott Corporation Registration
Statement No. 333-64793).
10.38 Asset Management Agreement between Host Marriott, L.P., and Crestline
Capital Corporation (incorporated by reference to Crestline Capital
Corporation Registration Statement No. 333-64657).
10.39 Registration Rights Agreement, dated as of February 25, 1999, by and
among Host Marriott, L.P., the Guarantors named therein and the
Purchasers named therein.
12.1 Computation of Ratios of Earnings to Fixed Charges.
21.1 List of Subsidiaries of Host Marriott, L.P. (incorporated by reference
to Exhibit 21 of Host Marriott, L.P.'s Form 10-K for the year ended
December 31, 1998).
23.1 Consent of Christopher G. Townsend (included as part of Exhibit 5).
23.2 Consent of Latham & Watkins (included as part of Exhibit 8).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on signature page).
25.1 Statement of Eligibility and Qualification on Form T-1 of HSBC Bank
USA, as trustee for the 8 3/8% Series E Senior Notes due 2006 of the
Registrant.
99.1 Form of Letter of Transmittal and related documents to be used in
conjunction with the exchange offer.
99.2 Form of Notice of Guaranteed Delivery to be used in conjunction with
the exchange offer.
</TABLE>
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
A. 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 provisions described under Item 20 above, 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 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expense 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 against the registrant 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
E. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145, the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933,
as amended, and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST MARRIOTT, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Host Marriott Corporation, do
hereby constitute and appoint Christopher G. Townsend, our true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to do any and all acts and things in our names and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us in the capacities indicated below, which said attorney and agent may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933 and any rules, regulations and agreements of the Securities and
Exchange Commission, in connection with this registration statement, or any
registration statement for this offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including post-
effective amendments) hereto; and we hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-4 has been signed below by the following
persons in their capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Terence C. Golden President, Chief Executive May 24, 1999
______________________________________ Officer and Director
Terence C. Golden (Principal Executive
Officer)
/s/ Robert E. Parsons, Jr. Executive Vice President May 24, 1999
______________________________________ and Chief Financial
Robert E. Parsons, Jr. Officer (Principal
Financial Officer)
/s/ Donald D. Olinger Senior Vice President and May 24, 1999
______________________________________ Corporate Controller
Donald D. Olinger (Principal Accounting
Officer)
/s/ Richard E. Marriott Chairman of the Board of May 24, 1999
______________________________________ Directors
Richard E. Marriott
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ R. Theodore Ammon Director May 24, 1999
______________________________________
R. Theodore Ammon
/s/ Robert M. Baylis Director May 24, 1999
______________________________________
Robert M. Baylis
/s/ J.W. Marriott, Jr. Director May 24, 1999
______________________________________
J.W. Marriott, Jr.
/s/ Anne Dore McLaughlin Director May 24, 1999
______________________________________
Anne Dore McLaughlin
/s/ John G. Schreiber Director May 24, 1999
______________________________________
John G. Schreiber
/s/ Harry L. Vincent, Jr. Director May 24, 1999
______________________________________
Harry L. Vincent, Jr.
/s/ John Schreiber Director May 24, 1999
______________________________________
John Schreiber
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH RIVERS, L.P.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH MARINA LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC SBM TWO LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PLP LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC RETIREMENT PROPERTIES, L.P.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH PENTAGON LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH SFO LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
AIRPORT HOTELS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
CHESAPEAKE FINANCIAL SERVICES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC CAPITAL RESOURCES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
YBG ASSOCIATES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
PRM LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST PARK RIDGE LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST OF BOSTON, LTD.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST OF HOUSTON, LTD.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST OF HOUSTON 1979
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
PHILADELPHIA AIRPORT HOTEL LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC HARTFORD LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH NORFOLK LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH NORFOLK L.P.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PARK RIDGE LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PARK RIDGE II LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PARK RIDGE LP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PARTNERSHIP HOLDINGS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC SUITES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC SUITES LIMITED PARTNERSHIP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
WELLSFORD--PARK RIDGE MARRIOTT HOTEL
LIMITED PARTNERSHIP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
CITY CENTER INTERSTATE PARTNERSHIP
LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
FARRELL'S ICE CREAM PARLOR
RESTAURANTS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC BURLINGAME LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC CALIFORNIA LEASING LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC CAPITAL LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC GRAND LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC HOTEL DEVELOPMENT LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC MEXPARK LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC POLANCO LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC NGL LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC OLS I L.P.
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC RTZ LOAN I LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC RTZ II LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC SEATTLE LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC SWISS HOLDINGS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC WATERFORD LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH RESTAURANTS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH RIVERS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-54
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH WTC LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMP CAPITAL VENTURES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMP FINANCIAL SERVICES LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HOST LA JOLLA LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-58
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
CITY CENTER HOTEL LIMITED
PARTNERSHIP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
MFR OF ILLINOIS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
MFR OF VERMONT LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-61
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
MFR OF WISCONSIN LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-62
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC MARQUIS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
PM FINANCIAL LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
PM FINANCIAL LP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC CHICAGO LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-66
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC HPP LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-67
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC DESERT LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-68
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC HANOVER LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-69
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC DIVERSIFIED LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Partsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-70
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PROPERTIES I LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-71
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC POTOMAC LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-72
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC EAST SIDE II LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-73
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC MANHATTAN BEACH LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
CHESAPEAKE HOTEL LIMITED PARTNERSHIP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-75
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMH GENERAL PARTNER HOLDINGS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-76
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC IHP HOLDINGS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC OP BN LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-78
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
S.D. HOTELS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC GATEWAY LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-80
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PACIFIC GATEWAY LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-81
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC DESERT SPRINGS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-82
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
MDSM FINANCE LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-83
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
MARKET STREET MARRIOTT LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-84
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC MARKET STREET LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-85
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
NEW MARKET STREET LP
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-86
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
TIMES SQUARE LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-87
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
TIMES SQUARE GP LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-88
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
SAGA PROPERTY LEASING LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-89
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
SAGA RESTAURANTS LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-90
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC ATLANTA LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-91
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
IVY STREET LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-92
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
HMC PROPERTIES II LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-93
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 24th day of May, 1999.
SANTA CLARA HMC LLC
By:Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial
Officer
II-94
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan by and among Host Marriott Corporation, HMC Merger
Corporation and Host Marriott L.P. (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
3.3 Bylaws of Host Marriott Corporation dated September 28, 1998
(incorporated by reference to Host Marriott Corporation Registration
Statement No. 333-64793).
3.4 Articles of Amendment and Restatement of Articles of Incorporation of
Host Marriott Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
4.1 Indenture by and among HMH Properties, Inc., as Issuer, and the
Subsidiary Guarantors named therein, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Current Report on Form 8-K dated August 6, 1998).
4.2 Supplemental Indenture, dated February 25, 1999, between Host
Marriott, L.P., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee.
5.1 Opinion of Christopher G. Townsend as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
10.1 Second Amended and Restated Agreement of Limited Partnership of Host
Marriott, L.P., (incorporated by reference to Exhibit 3.1 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.2 Indenture between Host Marriott L.P., as Issuer, and Marine Midland
Bank, as Indenture Trustee, and Form of 6.56% Callable Note due
December 15, 2005 (incorporated by reference to Exhibit 4.1 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.3 Amended and Restated Credit Agreement dated as of June 19, 1997 and
Amended and Restated as of August 5, 1998 among Host Marriott
Corporation, Host Marriott Hospitality, Inc., HMH Properties, Inc.,
Host Marriott, L.P., HMC Capital Resources Corp., Various Banks, Wells
Fargo Bank, National Association, The Bank of Nova Scotia and Credit
Lyonnais New York Branch, as Co-Arrangers, and Bankers Trust Company
as Arranger and Administrative Agent (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated September
11, 1998).
10.4 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5,
1998, among Host Marriott Corporation, Host Marriott Hospitality Inc.,
HMH Properties, Inc., Host Marriott, L.P., HMC Capital Resources
Corp., Various Banks, Wells Fargo Bank, National Association, The Bank
of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers
and Bankers Trust Company as Arranger and Administrative Agent dated
as of November 25, 1998 (incorporated by reference to Exhibit 10.4 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.5 Second Amendment and Consent to Credit Agreement of Amended and
Restated Credit Agreement dated as of June 19, 1997 and Amended and
Restated as of August 5, 1998, among Host Marriott Corporation, Host
Marriott Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P.,
HMC Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of December 17, 1998 (incorporated by
reference to Exhibit 10.5 of Host Marriott Corporation's Form 10-K for
the year ended December 31, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.6 Third Amendment and Waiver to Credit Agreement Amended and Restated
Credit Agreement dated as of June 19, 1997 and Amended and Restated as
of August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC
Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of March 15, 1999 (incorporated by
reference to Exhibit 10.6 of Host Marriott Corporation's Form 10-K for
the year ended December 31, 1998).
10.7 Host Marriott L.P. Executive Deferred Compensation Plan effective as
of December 29, 1998 (formerly the Marriott Corporation Executive
Deferred Compensation Plan) (incorporated by reference to Exhibit 10.7
of Host Marriott Corporation's Form 10-K for the year ended December
31, 1998).
10.8 Host Marriott Corporation 1997 Comprehensive Incentive Stock Plan
(incorporated by reference to Host Marriott Corporation's Proxy
Statement filed April 3, 1997).
10.9 Distribution Agreement dated as of September 15, 1993 between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference from Host Marriott Corporation Current Report on Form 8-K
dated October 23, 1993).
10.10 Amendment No. 1 to the Distribution Agreement dated December 29,1 995
by and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International, Inc., (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K
dated January 16, 1996).
10.11 Amendment No. 2 to the Distribution Agreement dated June 21, 1997 by
and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Registration Statement No. 333-
64793).
10.12 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5,
1998, among Host Marriott Corporation, Host Marriott Hospitality Inc.,
HMH Properties, Inc., Host Marriott, L.P., HMC Capital Resources
Corp., Various Banks, Wells Fargo Bank, National Association, The Bank
of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers
and Bankers Trust Company as Arranger and Administrative Agent dated
as of November 25, 1998 (incorporated by reference to Exhibit 10.4 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.13 Amendment No. 4 to the Distribution Agreement by and among Host
Marriott Corporation and Marriott International Inc. (incorporated by
reference to Host Marriott Corporation Registration Statement No. 333-
64793).
10.14 Amendment No. 5 to the Distribution Agreement dated December 18, 1998
by and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International Inc., (incorporated by
reference to Exhibit 10.14 of Host Marriott Corporation's Form 10-K
for the year ended December 31, 1998).
10.15 Distribution Agreement dated December 22, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.16 Amendment to Distribution Agreement dated December 22, 1995 by and
between Host Marriott Corporation and Host Marriott Services
Corporation (incorporated by reference to Exhibit 10.16 of Host
Marriott Corporation's Form 10-K for the year ended December 31,
1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.17 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K
dated October 23, 1993).
10.18 License Agreement dated as December 29, 1998 by and among Host
Marriott Corporation, Host Marriott, L.P., Marriott International,
Inc., and Marriott Worldwide Corporation (incorporated by reference to
Exhibit 10.18 of Host Marriott Corporation's Form 10-K for the year
ended December 31, 1998).
10.19 Noncompetition Agreement between Host Marriott Corporation, Host
Marriott, L.P., and Crestline Capital Corporation and other parties
named therein (incorporated by reference to Exhibit 10.19 of Host
Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.20 Tax Administration Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.,
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated October 23, 1993).
10.21 Restated Noncompetition Agreement dated March , 1998 by and among Host
Marriott Corporation, Marriott International, Inc., and Sodexho
Marriott Services, Inc., (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.22 First Amendment to Restated Noncompetition Agreement by and among Host
Marriott Corporation, Marriott International, Inc., Sodexho Marriott
Services, Inc. (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.23 Host Marriott Lodging Management Agreement--Marriott Hotels, Resorts
and Hotels dated September 25, 1993 by and between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation registration Statement No. 33-
51707)
10.24 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of December 29, 1995 by and between Host Marriott Corporation
and Host Marriott Services Corporation (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated January 16,
1996).
10.25 Tax Sharing Agreement dated as of December 29, 1995 by and between
Host Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.26 Host Marriott, L.P. Retirement and Savings Plan and Trust
(incorporated by reference to Exhibit 10.26 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.27 Contribution Agreement dated as of April 16, 1998 among Host Marriott
Corporation, Host Marriott, L.P. and the contributors named therein,
together with Exhibit B (incorporated by reference to Exhibit 10.18 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.28 Amendment No. 1 to Contribution Agreement dated May 8, 1998 among
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.19 of Host Marriott
Corporation Registration Statement No. 333-55807).
10.29 Amendment No. 2 to Contribution Agreement dated May 18, 1998 among
Host Marriott Corporation, Host Marriott, L.P. and the contributors
named therein (incorporated by reference to Exhibit 10.20 of Host
Marriott Corporation Registration Statement No. 333-55807).
10.30 Form of Lease Agreement (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.31 Form of Management Agreement of Full-Service Hotels (incorporated by
reference to Host Marriott Corporation Registration Statement No. 33-
51707).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.32 Form of Owner's Agreement between Host Marriott Corporation, Marriott
International and Crestline Capital Corporation (incorporated by
reference to Crestline Capital Corporation Registration Statement No.
333-64657).
10.33 Employee Benefits and Other Employment Matters Allocation Agreement
between Host Marriott Corporation, Host Marriott, L.P. and Crestline
Capital Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.34 Amendment to the Employee Benefits and Other Employment Matters
Allocation Agreement effective as of December 29, 1998 by and between
Host Marriott Corporation, Marriott International, Sodexho Marriott
Services, Inc., Crestline Capital Corporation and Host Marriott, L.P.
(incorporated by reference to Exhibit 10.34 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.35 Pool Guarantee Agreement between Host Marriott Corporation, the
lessees referred to therein and Crestline Capital Corporation
(incorporated by reference to Host Marriott Registration Statement No.
333-64793).
10.36 Pooling and Security Agreement by and among Host Marriott Corporation
and Crestline Capital Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
10.37 Amended and Restated Communities Noncompetition Agreement
(incorporated by reference to Host Marriott Corporation Registration
Statement No. 333-64793).
10.38 Asset Management Agreement between Host Marriott, L.P., and Crestline
Capital Corporation (incorporated by reference to Crestline Capital
Corporation Registration Statement No. 333-64657).
10.39 Registration Rights Agreement, dated as of February 25, 1999, by and
among Host Marriott, L.P., the Guarantors named therein and the
Purchasers named therein.
12.1 Computation of Ratios of Earnings to Fixed Charges.
21.1 List of Subsidiaries of Host Marriott, L.P. (incorporated by reference
to Exhibit 21 of Host Marriott, L.P.'s Form 10-K for the year ended
December 31, 1998).
23.1 Consent of Christopher G. Townsend (included as part of Exhibit 5).
23.2 Consent of Latham & Watkins (included as part of Exhibit 8).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on signature page).
25.1 Statement of Eligibility and Qualification on Form T-1 of HSBC Bank
USA, as trustee for the 8 3/8% Series E Senior Notes due 2006 of the
Registrant.
99.1 Form of Letter of Transmittal and related documents to be used in
conjunction with the exchange offer.
99.2 Form of Notice of Guaranteed Delivery to be used in conjunction with
the exchange offer.
</TABLE>
<PAGE>
EXHIBIT 4.2
FOURTH SUPPLEMENTAL INDENTURE TO
AMENDED AND RESTATED INDENTURE
FOURTH SUPPLEMENTAL INDENTURE, dated as of February 25, 1999, among HOST
MARRIOTT, L.P., a Delaware limited partnership (the "Company"), the Subsidiary
Guarantors signatory to this Fourth Supplemental Indenture and MARINE MIDLAND
BANK, as Trustee (the "Trustee") to the Amended and Restated Indenture, dated as
of August 5, 1998, as amended and supplemented through the date of this Fourth
Supplemental Indenture (the "Indenture").
RECITALS
WHEREAS, the Company, its Parents, certain of the Subsidiary Guarantors and
the Trustee executed and delivered the Amended and Restated Indenture, dated as
of August 5, 1998, amending and restating the form of Indenture previously filed
as Exhibit 4.1 to the Registration Statement (No. 333-50729) filed with the
Securities and Exchange Commission ("Commission") on Form S-3 by the Company,
its Parents and certain of the Subsidiary Guarantors;
WHEREAS, the Company and the Subsidiary Guarantors desire to create two
series of Securities to be issued under the Indenture, as hereby supplemented,
to be known as (i) the 8% Series D Senior Notes due 2006 and Subsidiary
Guarantees thereof of the Subsidiary Guarantors (hereinafter, the "Series D
Notes") and (ii) the 8% Series E Senior Notes due 2006 and the Subsidiary
Guarantees thereof of the Subsidiary Guarantors to be exchanged for the Series D
Notes (hereinafter, the "Series E Notes");
WHEREAS, Section 9.1(e) of the Indenture provides that the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture
without the written consent of the Holders of the outstanding Securities to
provide for the issuance of and establish the form and terms and conditions of
Securities of any Series as permitted by the Indenture;
WHEREAS, Section 9.1(g) of the Indenture provides that the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture
without the written consent of the Holders of outstanding Securities to provide
for the addition of guarantors to Securities of any Series as permitted by the
Indenture;
WHEREAS, all acts and things prescribed by the Indenture, by law and by the
Certificate of Incorporation and the Bylaws of the Company, the Subsidiary
Guarantors and the Trustee necessary to make this Fourth Supplemental Indenture
a valid instrument legally binding on the Company, the Subsidiary Guarantors and
the Trustee, in accordance with its terms, have been duly done and performed;
and
WHEREAS, all conditions precedent to amend or supplement the Indenture have
been met;
NOW, THEREFORE, to comply with the provisions of the Indenture, and in
consideration of the above premises, the Company, the Subsidiary Guarantors and
the Trustee covenant and agree as follows:
ARTICLE 1
Section 1.01. Nature of Supplemental Indenture. This Fourth Supplemental
--------------------------------
Indenture supplements the Indenture and does and shall be deemed to form a part
of, and shall be construed in connection with and as part of, the Indenture for
any and all purposes.
<PAGE>
Section 1.02. Establishment of New Series. Pursuant to Section 2.2 of the
---------------------------
Indenture, there is hereby established the Series D Notes and the Series E Notes
(collectively, the "8 Notes") having the terms, in addition to those set forth
in the Indenture and this Fourth Supplemental Indenture, set forth in the form
of 8 Note, attached to this Fourth Supplemental Indenture as Exhibit A, which is
incorporated herein as a part of this Fourth Supplemental Indenture.
Section 1.03. Redemption. The Company will not have the right to redeem
----------
any 8 Notes at its option prior to the final maturity thereof.
The 8 Notes will not have the benefit of any sinking fund.
ARTICLE 2
Section 2.01. The term "Subsidiary Guarantors" means, with respect to the
8% Notes, (A) the Subsidiary Guarantors listed in Section 2.03 below and (B) any
Future Subsidiary Guarantors that become Subsidiary Guarantors pursuant to the
terms of the Indenture, but excluding any Persons whose Guarantees have been
released pursuant to the terms of the Indenture. The provisions of Article 12
of the Indenture will be applicable to the 8 Notes.
Section 2.02. The second sentence of the definition of "Subsidiary
Guarantee" set forth in Section 1.1 of the Indenture shall read, for purposes of
the 8 Notes, as follows:" Each Subsidiary Guarantee with respect to the 8%
Notes will be a senior obligation of the Subsidiary Guarantor and will be full
and unconditional regardless of the enforceability of the 8% Notes, the Fourth
Supplemental Indenture or the Indenture."
Section 2.03. The following entities shall constitute the "Subsidiary
Guarantors" with respect to the 8% Notes, the Series A Notes, the Series B Notes
and the Series C Notes until such time as their guarantees are released in
accordance with the terms of the Indenture:
(1) HMH Rivers, L.P. (successor to HMH Rivers, Inc.);
(2) HMH Marina LLC (successor to HMH Marina, Inc.);
(3) HMC SBM Two LLC (successor to Marriott SBM Two Corporation);
(4) HMC PLP LLC (successor to Marriott PLP Corporation);
(5) HMC Retirement Properties, L.P. (successor to HMC Retirement
Properties, Inc.
(6) HMH Pentagon LLC (successor to HMH Pentagon Corporation);
(7) HMH SFO LLC (successor to HMC SFO, Inc.);
(8) Airport Hotels LLC (successor to Host Airport Hotels, Inc.);
(9) Chesapeake Financial Services LLC (successor to Marriott Financial
Services, Inc.);
(10) HMC Capital Resources LLC (successor to Marriott Capital Resources
Corp. and Marriott SBM One Corporation);
(11) YBG Associates LLC;
(12) PRM LLC (successor to PRM Corporation);
(13) Host Park Ridge LLC (successor to Marriott Park Ridge Corporation);
(14) Host of Boston, Ltd.
(15) Host of Houston, Ltd.
(16) Host of Houston 1979
(17) Philadelphia Airport Hotel LLC
(18) HMC Retirement Properties, LLC
(19) HMC Hartford LLC
2
<PAGE>
(20) HMH Norfolk LLC
(21) HMH Norfolk, L.P.
(22) HMC Park Ridge LLC
(23) HMC Park Ridge 11 LLC
(24) HMC Park Ridge LP
(25) HMC Partnership Holdings LLC
(26) HMC Suites LLC
(27) Marriott Suites Limited Partnership
(28) Wellsford-Park Ridge Marriott Hotel Limited Partnership
(29) City Center Interstate Partnership LLC
(30) Farrell's Ice Cream Parlor Restaurants LLC
(31) HMC Burlingame LLC
(32) HMC California Leasing LLC
(33) HMC Capital LLC
(34) HMC Grand LLC
(35) HMC Hotel Development LLC
(36) HMC Mexpark LLC
(37) HMC Polanco LLC
(38) HMC NGL LLC
(39) HMC OLS I L.P.
(40) HMC RTZ Loan I LLC
(41) HMC RTZ II LLC
(42) HMC Seattle LLC
(43) HMC Swiss Holdings LLC
(44) HMC Waterford LLC
(45) HMH Restaurants LLC
(46) HMH Rivers LLC
(47) HMH WTC LLC
(48) HMP Capital Ventures LLC
(49) HMP Financial Services LLC
(50) Host La Jolla LLC
(51) City Center Hotel Limited Partnership
(52) MFR of Illinois LLC
(53) MFR of Vermont LLC
(54) MFR of Wisconsin LLC
(55) HMC Marquis LLC
(56) PM Financial LLC
(57) PM Financial LP
(58) HMC Chicago LLC
(59) HMC HPP LLC
(60) HMC Desert LLC
(61) HMC Hanover LLC
(62) HMC Diversified LLC
(63) HMC Properties I LLC
(64) HMC Potomac LLC
(65) HMC East Side II LLC
(66) HMC Manhattan Beach LLC
(67) Chesapeake Hotel Limited Partnership
(68) HMH General Partner Holdings LLC
3
<PAGE>
(69) HMC IHP Holding LLC
(70) HMC OP BN LLC
(71) S.D. Hotels LLC
(72) HMC Gateway LLC
(73) HMC Pacific Gateway LLC
(74) HMC Desert Springs LLC
(75) MDSM Finance LLC
(76) Market Street Marriott LLC
(77) HMC Market Street LLC
(78) New Market Street LP
(79) Times Square LLC
(80) Times Square GP LLC
(81) Saga Property Leasing LLC
(82) Saga Restaurants LLC
(83) HMC Atlanta LLC
(84) Ivy Street LLC
(85) HMC Properties II LLC
(86) Santa Clara HMC LLC
By execution of this Fourth Supplemental Indenture, each of the Subsidiary
Guarantors makes and confirms the guarantees set forth in Section 12.1 of the
Indenture and shall be deemed to have signed the notation of guarantee set forth
on the Securities as provided in Section 12.2 of the Indenture.
ARTICLE 3
Section 3.01. Subject to the further provisions of this Article 3, the
covenants set forth in Article 4 of the Indenture shall be applicable to the 8
3/8% Notes. By virtue of the occurrence of the REIT Conversion, Section 4.15 of
the Indenture is applicable, and Section 4.9 of the Indenture is inapplicable,
to the 8% Notes.
Section 3.02. The provisions of Sections 4.8, 4.10, 4.11, 4.12 and 4.15 of
the Indenture shall be applicable to the 8% Notes only for so long as and during
any time that such 8% Notes are not rated Investment Grade.
ARTICLE 4
Section 4.01. The following definitions are hereby added to the Indenture
solely with respect to the 8% Notes:
"8 Notes" means, collectively, the Series D Notes and, when and if issued
as provided in the Registration Rights Agreement, the Exchange Notes.
"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depository, Euroclear and Cedel that apply to such transfer or exchange at the
relevant time.
"Cedel" means Cedel Bank, S.A., or its successors.
"Certificated Note" means a certificated 8% Note registered in the name of
the Holder thereof and issued in accordance with Section 5.01 of this Fourth
Supplemental Indenture, in the form of Exhibit
4
<PAGE>
A to this Fourth Supplemental Indenture except that such 8% Note shall not
include the information called for by footnotes 2, 5 and 8 thereof.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, or its successor, as operator of the Euroclear system.
"Exchange Notes" means the Series E Notes, which will be issued in exchange
for Series D Notes pursuant to an Exchange Offer.
"Exchange Offer" means the offer that is to be made by the Company and the
Subsidiary Guarantors in accordance with the terms of the Registration Rights
Agreement.
"Global Note" means an 8% Note that includes the information referred to in
footnotes 2, 5 and 8 to the form of 8% Note, attached to this Fourth
Supplemental Indenture as Exhibit A, issued under the Indenture, that is
deposited with or on behalf of and registered in the name of the Depository or a
nominee of the Depository.
"Global Note Legend" means the legend set forth in Section 5.01 (g)(ii) of
this Fourth Supplemental Indenture, which is required to be placed on all Global
Notes issued under the Indenture.
"Indirect Participant" means an entity that, with respect to DTC, clears
through or maintains a direct or indirect custodial relationship with a
Participant.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated, Barclays Capital Inc., Bear, Steams &
Co. Inc., Credit Lyonnais Securities (USA) Inc., Deutsche Bank Securities Inc.,
NationsBanc Montgomery Securities LLC, Salomon Smith Barney Inc., Scotia Capital
Markets (USA) Inc. and SG Cowen Securities Corporation.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who is not also a QIB.
"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Series D Notes for use by such
Holders in connection with the Exchange Offer.
"Offering Memorandum" means the Offering Memorandum of the Company and the
Subsidiary Guarantors dated February 18, 1999 with respect to the 83/8% Notes.
"Participant" means, with respect to the Depository, Euroclear or Cedel, a
Person who has an account with the Depository, Euroclear or Cedel, respectively
(and, with respect to The Depository Trust Company, shall include Euroclear and
Cedel).
"Private Placement Legend" means the legend set forth in Section 5.01(g)(i)
of this Fourth Supplemental Indenture to be placed on all Series D Notes issued
under the Indenture except where otherwise permitted by the provisions of the
Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of February 25, 1999, by and among the Company, the Subsidiary
Guarantors and the Initial Purchasers, as such agreement may be amended,
modified or supplemented from time to time.
5
<PAGE>
"Restricted Certificated Note" means a Certificated Note that includes the
information called for in footnotes 6 and 7 (and not in footnotes 2, 5 and 8) to
the form of 8%% Note, attached to this Fourth Supplemental Indenture as Exhibit
A, issued under the Indenture.
"Restricted Global Note" means a Global Note that includes the information
called for in footnotes 2, 5, 6, 7 and 8 to the form of 8% Note, attached to
this Fourth Supplemental Indenture as Exhibit A, issued under the Indenture;
provided, that in no case shall an Exchange Note issued in accordance with the
Indenture and the terms of the Registration Rights Agreement be a Restricted
Global Note.
"Rule 144A" means Rule 144A promulgated under the Securities Act, as it may
be amended from time to time, and any successor provision thereto.
"Shelf Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Transfer Restricted Notes" means Series D Notes that include the
information called for by footnotes 6 and 7 to the form of 8% Note, attached to
this Fourth Supplemental Indenture as Exhibit A, issued under the Indenture.
"Unrestricted Certificated Notes" means one or more Certificated Notes that
do not include and are not required to include the information called for by
footnotes 6 and 7 to the form 8% Note, attached to this Fourth Supplemental
Indenture as Exhibit A, issued under the Indenture.
"Unrestricted Global Note" means a permanent Global Note in the form of
Exhibit A attached to this Fourth Supplemental Indenture that includes the
information referred to in footnotes 2, 5 and 8 thereof, and that is deposited
with or on behalf of and registered in the name of the Depository.
ARTICLE 5
Section 5.01. For purposes of the 8 % Notes, Section 2.7 of the Indenture
is hereby supplemented with, and where inconsistent replaced by, the following
provisions:
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depository to a nominee of the
Depository, by a nominee of the Depository to the Depository or to another
nominee of the Depository, or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. All Global Notes
will be exchanged by the Company for Certificated Notes if (i) the Company
delivers to the Trustee notice from the Depository (A) that it is unwilling or
unable to continue to act as Depository and a successor Depository is not
appointed by the Company within 90 days after the date of such notice from the
Depository or (B) that it is no longer a clearing agency registered under the
Exchange Act and a successor Depository is not appointed by the Company within
90 days after the date of such notice from the Depository, (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Certificated Notes or (iii) upon request of the Trustee or Holders of a
majority of the aggregate principal amount of outstanding 8 % Notes if there
shall have occurred and be continuing a Default or Event of Default with respect
to the 8% Notes. Upon the occurrence of any of the preceding events in (i), (ii)
or (iii) above, upon surrender by such holders of their interest in the Global
Note, Certificated Notes shall be issued in such names as the Depository shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.8 and 2.11 of the Indenture. A Global Note
6
<PAGE>
may not be exchanged for another 8% Note other than as provided in this Section
5.01 (a); however, beneficial interests in a Global Note may be transferred and
exchanged as provided in Section 5.01(b), (c) or (f) of this Fourth Supplemental
Indenture.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depository, in accordance with the provisions of
the Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein. Transfers of beneficial interests in the Global Notes
also shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to Persons
who take delivery thereof in the form of a beneficial interest in the same
Restricted Global Note in accordance with the transfer restrictions set forth in
the Private Placement Legend. Beneficial interests in any Unrestricted Global
Note may be transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to effect the
transfers described in this Section 5.01(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 5.01(b)(i) above, the transferor of
such beneficial interest must deliver to the Registrar either (A) (1) an order
from a Participant or an Indirect Participant given to the Depository in
accordance with the Applicable Procedures directing the Depository to credit or
cause to be credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures containing
information regarding the Participant account to be credited with such increase
or (B) (1) an order from a Participant or an Indirect Participant given to the
Depository in accordance with the Applicable Procedures directing the Depository
to cause to be issued a Certificated Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depository to the Registrar containing information regarding the Person in whose
name such Certificated Note shall be registered to effect the transfer or
exchange referred to in (B)(1) above. Upon consummation of an Exchange Offer by
the Company in accordance with Section 5.01(f) of this Fourth Supplemental
Indenture, the requirements of this Section 5.01(b)(ii) shall be deemed to have
been satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial interests
in the Restricted Global Notes. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Notes contained in the
Indenture and the 8% Notes, the Trustee shall adjust the principal amount of the
relevant Global Note(s) pursuant to Section 5.01(h) of this Fourth Supplemental
Indenture.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a beneficial
interest in another Restricted Global Note if the transfer complies with the
requirements of Section 5.01(b)(ii) above and the Registrar receives a
certificate in the form of Exhibit B to this Fourth Supplemental Indenture,
including the certifications in item (1) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted Global Note.
A beneficial interest in any Restricted
7
<PAGE>
Global Note may be exchanged by any holder thereof for a beneficial interest in
an Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note if
the exchange or transfer complies with the requirements of Section 5.01(b)(ii)
above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and Section
5.01(f) of this Fourth Supplemental Indenture, and the holder of the beneficial
interest to be transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of Transmittal that
it is not (1) a Broker-Dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company or the Subsidiary Guarantors;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) such transfer occurs on or after February 25,2001 and
the Registrar receives the following: (1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global Note, a certificate
from such holder in the form of Exhibit C to this Fourth Supplemental Indenture,
including the certifications in item (1)(a) thereof; or (2) if the holder of
such beneficial interest in a Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate from such
holder in the form of Exhibit B to this Fourth Supplemental Indenture, including
the certifications in item (3) thereof; and, in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the
Registrar and the Company to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (A), (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of a Company Order in accordance with
Section 2.3 of the Indenture, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (A), (B) or (D) above. Beneficial interests in an Unrestricted
Global Note cannot be exchanged for, or transferred to Persons who take delivery
thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Certificated
Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Certificated Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Certificated Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Restricted Certificated Note, then,
if the exchange or transfer complies with the requirements of Section 5.01(a)
above, upon receipt by the Registrar of the following documentation:
8
<PAGE>
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Certificated Note, a certificate from such holder in the form of
Exhibit C to this Fourth Supplemental Indenture, including the certifications in
item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a certificate to the
effect set forth in Exhibit B to this Fourth Supplemental Indenture, including
the certifications in item (1) thereof,
(C) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B to this Fourth Supplemental Indenture, including
the certifications in item (2)(a) thereof,
(D) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) and (C) above, a certificate to the effect set forth in
Exhibit B to this Fourth Supplemental Indenture, including the certifications,
certificates and Opinion of Counsel required by item (2)(d) thereof, if
applicable;
(E) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set forth in
Exhibit B to this Fourth Supplemental Indenture, including the certifications in
item (2)(b) thereof, or
(F) if such beneficial interest is being transferred
pursuant to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B to this Fourth Supplemental
Indenture, including the certifications in item (2)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Note to be reduced accordingly pursuant to Section 5.01(h) of
this Fourth Supplemental Indenture, and the Company shall execute and, upon
receipt of a Company Order pursuant to Section 2.3 of the Indenture, the Trustee
shall authenticate and deliver to the Person designated in the instructions a
Restricted Certificated Note in the appropriate principal amount. Any
Restricted Certificated Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 5.01(c) shall be registered in
such name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depository and the Participant or Indirect Participant.
The Trustee shall deliver such Restricted Certificated Notes to the Persons in
whose names such Series D Notes are so registered. Any Restricted Certificated
Note issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 5.01 (c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Certificated Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an Unrestricted
Certificated Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Certificated Note only if the
exchange or transfer complies with the requirements of Section 5.01 (a) above
and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and Section
5.01(f) of this Fourth
9
<PAGE>
Supplemental Indenture, and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company or the Subsidiary
Guarantors;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) such transfer occurs on or after February 25,2001 and
the Registrar receives the following: (1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such beneficial
interest for a Certificated Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit C to this Fourth
Supplemental Indenture, including the certifications in item (1)(b) thereof, or
(2) if the holder of such beneficial interest in a Restricted Global Note
proposes to transfer such beneficial interest to a Person who shall take
delivery thereof in the form of a Certificated Note that does not bear the
Private Placement Legend, a certificate from such holder in the form of Exhibit
B to this Fourth Supplemental Indenture, including the certifications in item
(3) thereof, and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Certificated Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for an
Unrestricted Certificated Note or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted Certificated
Note, then, if the exchange or transfer Complies with the requirements of
Section 5.01(a) above and upon satisfaction of the Trustee shall cause the
aggregate principal amount of the applicable Unrestricted Global conditions set
forth in Section 5.01(b)(ii) of this Fourth Supplemental Indenture, the Note to
be reduced accordingly pursuant to Section 5.01(h) of this Fourth Supplemental
Indenture, and the Company shall execute and, upon receipt of a Company Order
pursuant to Section 2.3 of the Indenture, the Trustee shall authenticate and
deliver to the Person designated in the instructions an Unrestricted
Certificated Note in the appropriate principal amount. Any Unrestricted
Certificated Note issued in exchange for a beneficial interest pursuant to this
Section 5.01(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depository
and the Participant or Indirect Participant. The Trustee shall deliver such
Unrestricted Certificated Notes to the Persons in whose names such 8%% Notes are
so registered. Any Unrestricted Certificated Note issued in exchange for a
beneficial interest pursuant to this Section 5.01(c)(iii) shall not bear the
Private Placement Legend.
(d) Transfer and Exchange of Certificated Notes for Beneficial
Interests.
(i) Restricted Certificated Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Certificated Note
proposes to exchange such Series D Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Certificated Notes to a
10
<PAGE>
Person who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted Certificated Note
proposes to exchange such Series D Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the form of Exhibit C
to this Fourth Supplemental Indenture, including the certifications in item
(2)(b) thereof, or
(B) if such Restricted Certificated Note is being
transferred to a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B to this Fourth Supplemental
Indenture, including the certifications in item (1) thereof,
the Trustee shall cancel the Restricted Certificated Note, increase or cause to
be increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, and in the case of clause (B) above, the
Restricted Global Note.
(ii) Restricted Certificated Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Certificated Note may
exchange such 8% Note for a beneficial interest in an Unrestricted Global Note
or transfer Restricted Certificated Note to a Person who takes delivery thereof
in the form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and Section
5.01(f) of this Fourth Supplemental Indenture, and the Holder, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company or the Subsidiary
Guarantors;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) such transfer occurs on or after February 25,2001 and
the Registrar receives the following: (1) if the Holder of such Restricted
Certificated Notes proposes to exchange such 8% Notes for a beneficial interest
in the Unrestricted Global Note, a certificate from such Holder in the form of
Exhibit C to this Fourth Supplemental Indenture, including the certifications in
item (1)(c) thereof; or (2) if the Holder of such Restricted Certificated Notes
proposes to transfer such Series D Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B to this Fourth
Supplemental Indenture, including the certifications in item (3) thereof, and,
in each such case set forth in this subparagraph (D), an Opinion of Counsel in
form reasonably acceptable to the Registrar and the Company to the effect that
such exchange or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private Placement Legend
are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section
5.01(d)(ii), the Trustee shall cancel the Restricted Certificated Notes so
transferred or exchanged and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
11
<PAGE>
(iii) Unrestricted Certificated Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Certificated Note may
exchange such 8% Note for a beneficial interest in an Unrestricted Global Note
or transfer such Certificated Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any time.
Upon receipt of a request for such an exchange or registration of transfer, the
Trustee shall cancel the applicable Unrestricted Certificated Note and increase
or cause to be increased the aggregate principal amount of one of the
Unrestricted Global Notes. If any such exchange or registration of transfer
from a Certificated Note to a beneficial interest is effected pursuant to
subparagraphs (ii)(B), (ii)(D) or (iii) of this Section 5.01(d) at a time when
an Unrestricted Global Note has not yet been issued, the Company shall issue
and, upon receipt of a Company Order in accordance with Section 2.3 of the
Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes
in an aggregate principal amount equal to the principal amount of Certificated
Notes so transferred.
(e) Transfer and Exchange of Certificated Notes for Certificated
Notes. Upon request by a Holder of Certificated Notes and such Holder's
compliance with the provisions of this Section 5.01(e), the Registrar shall
register the transfer or exchange of Certificated Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Certificated Notes duly endorsed or accompanied
by a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by its attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 5.01(e).
(i) Restricted Certificated Notes to Restricted Certificated
Notes. Any Restricted Certificated Note may be transferred to and registered in
the name of Persons who take delivery thereof in the form of a Restricted
Certificated Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B to this Fourth Supplemental Indenture, including the
certifications in item (1) thereof; and
(B) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B to this Fourth
Supplemental Indenture, including the certifications, certificates and Opinion
of Counsel required by item (2) thereof, if applicable.
(ii) Restricted Certificated Notes to Unrestricted Certificated
Notes. Any Restricted Certificated Note may be exchanged by the Holder thereof
for an Unrestricted Certificated Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Certificated Note if.-
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and Section
5.01(f) of this Fourth Supplemental Indenture, and the Holder, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
12
<PAGE>
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) such transfer occurs on or after February 25,2001 and
the Registrar receives the following: (1) if the Holder of such Restricted
Certificated Notes proposes to exchange such 8% Notes for an Unrestricted
Certificated Note, a certificate from such Holder in the form of Exhibit C to
this Fourth Supplemental Indenture, including the certifications in item (1)(d)
thereof, or (2) if the Holder of such Restricted Certificated Notes proposes to
transfer such 8% Notes to a Person who shall take delivery thereof in the form
of an Unrestricted Certificated Note, a certificate from such Holder in the form
of Exhibit B to this Fourth Supplemental Indenture, including the certifications
in item (3) thereof, and, in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
(iii) Unrestricted Certificated Notes to Unrestricted
Certificated Notes. A Holder of Unrestricted Certificated Notes may transfer
such 8% Notes to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Note. Upon receipt of a request to register such a
transfer, the Registrar shall register the Unrestricted Certificated Notes
pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of a Company Order in accordance with Section 2.3 of the Indenture
and an Opinion of Counsel for the Company as to certain matters discussed in
this Section 5.01(f), the Trustee shall authenticate (i) one or more
Unrestricted Global Notes in an aggregate principal amount equal to the sum of
(A) the principal amount of the beneficial interests in the Restricted Global
Notes tendered for acceptance by Persons who certify in the applicable Letters
of Transmittal that (x) they are not Broker-Dealers, (y) they are not
participating in a distribution of the Exchange Notes and (z) they are not
affiliates (as defined in Rule 144) of the Company, and accepted for exchange in
the Exchange Offer and (B) the principal amount of Certificated Notes exchanged
or transferred for beneficial interests in Unrestricted Global Notes in
connection with the Exchange Offer pursuant to Section 5.01(d)(ii) and (ii)
Certificated Notes in an aggregate principal amount equal to the principal
amount of the Restricted Certificated Notes accepted for exchange in the
Exchange Offer (other than Certificated Notes described in clause (i)(B)
immediately above). Concurrently with the issuance of such Series E Notes, the
Trustee shall cause the aggregate principal amount of the applicable Restricted
Global Notes to be reduced accordingly, and the Company shall execute and, upon
receipt of a Company Order pursuant to Section 2.3 of the Indenture, the Trustee
shall authenticate and deliver to the Persons designated by the Holders of
Certificated Notes so accepted Certificated Notes in the appropriate principal
amount.
The Opinion of Counsel for the Company referenced above shall state that:
(1) the Exchange Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
in exchange for Series D Notes in accordance with the Indenture and the Exchange
Offer, will be entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with their terms
except as (x) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally, (y) rights of
acceleration and the availability of equitable remedies
13
<PAGE>
may be limited by equitable principles of general applicability and (z)other
customary limitations and exceptions for opinions of such type; and
(2) when the Exchange Notes are executed and authenticated in accordance
with the provisions of the Indenture and delivered in exchange for Series D
Notes in accordance with the Indenture and the Exchange Offer, the Guarantees of
the Exchange Notes by the Subsidiary Guarantors will be entitled to the benefits
of the Indenture and will be valid and binding obligations of the Subsidiary
Guarantors, enforceable in accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally, (y) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability and (z) other customary limitations and exceptions for
opinions of such type.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Certificated Notes issued under the Indenture unless
specifically stated otherwise in the applicable provisions of the Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Certificated Note (and all 8% Notes issued in exchange
therefor or substitution thereof) shall bear the legend in substantially the
following form:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT IT IS NOT (A) AN AFFILIATE (AS DEFINED IN RULE 144
UNDER THE SECURITIES ACT) OF THE COMPANY OR THE SUBSIDIARY GUARANTORS, (B) IT IS
EITHER (i) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB") OR (ii) IS ACQUIRING THIS NOTE OTHER THAN IN
CONNECTION WITH THE OFFER AND SALE OF THE NOTES BY THE INITIAL PURCHASERS (AS
DEFINED IN THE INDENTURE) ON THE TERMS SET FORTH IN THE OFFERING MEMORANDUM (AS
DEFINED IN THE INDENTURE)AND IN ACCORDANCE WITH THE REQUIREMENTS SET FORTH IN
PARAGRAPH TWO BELOW AND (C) IT IS PURCHASING THIS NOTE FOR ITS OWN ACCOUNT OR AN
ACCOUNT OVER WHICH IT EXERCISES SOLE INVESTMENT DISCRETION, AND IT AND ANY SUCH
ACCOUNT IS A "QUALIFIED PERSON" (AS DEFINED IN SECTION 49(a)(1)(D)(iv) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE")), FOR THIS PURPOSE, A
PERSON WOULD BE CONSIDERED A "QUALIFIED PERSON" IF IT IS A BANK, SAVINGS & LOAN
ASSOCIATION, INSURANCE COMPANY, PENSION TRUST, FUND (INCLUDING PARTNERSHIPS,
TRUSTS, MUTUAL FUNDS, HEDGE FUNDS, SEPARATE ACCOUNTS AND PORTFOLIO MANAGERS) OR
ANOTHER ENTITY THAT REGULARLY LENDS MONEY OR PURCHASES DEBT SECURITIES FROM
ISSUERS IN PRIMARY OFFERINGS. A PERSON, HOWEVER, WOULD NOT BE A QUALIFIED
PERSON IF IT (A) DIRECTLY OR INDIRECTLY OWNS MORE THAN 10% OF THE OPERATING
PARTNERSHIP OR (B) HAS A DIRECT OR INDIRECT MORE-THAN-10% OWNER
14
<PAGE>
WHO ALSO DIRECTLY OR INDIRECTLY OWNS MORE THAN 1O% OF THE OPERATING PARTNERSHIP;
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY GUARANTOR WHOLLY OWNED BY THE COMPANY OR
ANY OF THEIR RESPECTIVE WHOLLY OWNED SUBSIDIARIES, (B) TO A PERSON WHO IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),(3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
OPERATING PARTNERSHIP THAT SUCH TRANSFER IS EXEMPT UNDER THE SECURITIES ACT, (E)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION; PROVIDED THAT, FOR ANY TRANSACTION
PURSUANT TO CLAUSE (B), (C), (D), OR (E) WITHIN TWO YEARS OF THE ISSUANCE OF
THIS NOTE, THE TRANSFEREE REPRESENTS THAT IT IS A "QUALIFIED PERSON" (AS DEFINED
ABOVE); AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE AS TO THE ABOVE RESTRICTIONS.
(B) Notwithstanding the foregoing, any Global Note or
Certificated Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 5.01 (and all 8%
Notes issued in exchange therefor or substitution thereof) shall not bear the
Private Placement Legend.
(ii) Global Note Legend. To the extent required by the
Depository, each Global Note shall bear a legend in substantially the following
form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 5.01 OF THE FOURTH SUPPLEMENTAL
INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 5.01 (a) OF THE FOURTH SUPPLEMENTAL INDENTURE, (III)
THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.12 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A
15
<PAGE>
SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Certificated Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.12 of the
Indenture. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note or
for Certificated Notes, the principal amount of 8% Notes represented by such
Global Note shall be reduced accordingly and an endorsement shall be made on
such Global Note by the Trustee or by the Depository at the direction of the
Trustee to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depository at the direction of the Trustee to
reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes and
Certificated Notes upon receipt of a Company Order.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Certificated Note for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections 2.11,
3.6, 4.12 and 10.1 of the Indenture).
(iii) The Registrar shall not be required to register the
transfer of or exchange any 8% Note selected for redemption in whole or in part,
except the unredeemed portion of any 8% Note being redeemed in part.
(iv) All Global Notes and Certificated Notes issued upon any
registration of transfer or exchange of Global Notes or Certificated Notes shall
be the valid obligations of the Company, evidencing the same Indebtedness, and
entitled to the same benefits under the Indenture, as the Global Notes or
Certificated Notes surrendered upon such registration of transfer or exchange.
(v) Prior to due presentment for the registration of a transfer
of any 8% Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any 8% Note is registered as the absolute owner of such 8%
Note for the purpose of receiving payment of principal of and interest on such
8% Notes and for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and
Certificated Notes in accordance with the provisions of Section 2.3 of the
Indenture.
16
<PAGE>
(vii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 5.01 to
effect a registration of transfer or exchange may be submitted by facsimile.
Notwithstanding anything herein to the contrary, as to any certifications
and certificates delivered to the Registrar pursuant to this Section 5.01, the
Registrar's duties shall be limited to confirming that any such certifications
and certificates delivered to it are in the form of Exhibits A, B, C and D
attached to this Fourth Supplemental Indenture. The Registrar shall not be
responsible for confirming the truth or accuracy of representations made in any
such certifications or certificates.
ARTICLE 6
Section 6.01. Except as specifically modified herein, the Indenture is in
all respects ratified and confirmed and shall remain in full force and effect in
accordance with its terms.
Section 6.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed or shall be construed to be assumed
by the Trustee by reason of this Fourth Supplemental Indenture. This Fourth
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect to this Fourth Supplemental Indenture.
Section 6.03. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company and the Subsidiary Guarantors.
Section 6.04. THIS FOURTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B). EACH OF THE
COMPANY AND THE SUBSIDIARY GUARANTORS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY AND THE SUBSIDIARY
GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE FIGHT OF THE TRUSTEE OR ANY SECURITY HOLDER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY AND THE SUBSIDIARY GUARANTORS IN ANY OTHER JURISDICTION.
17
<PAGE>
Section 6.05. The parties may sign any number of copies of this Fourth
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
Section 6.06. All capitalized terms used in this Fourth Supplemental
Indenture which are not otherwise defined herein, shall have the respective
meanings specified in the Indenture, unless the context otherwise requires.
Section 6.07. The 8 % Notes may be issued in whole or in part in the form
of one or more Global Securities, registered in the name of Cede & Co., as
nominee of the Depository Trust Company ("DTC").
18
<PAGE>
IN WITNESS WHEREOF, the parties to this Fourth Supplemental Indenture have
caused this Fourth Supplemental Indenture to be duly executed, all as of the
date first written above.
COMPANY
-------
HOST MARRIOTT, L.P.
By:__________________________________
Name:
Title:
SUBSIDIARY GUARANTORS
---------------------
HME RIVERS, L.P.
By:__________________________________
Name:
Title:
HMH MARINA LLC
By:__________________________________
Name:
Title:
HMC SBM TWO LLC
By:__________________________________
Name:
Title:
HMC PLP LLC
By:__________________________________
Name:
Title:
19
<PAGE>
HMC RETIREMENT PROPERTIES, L.P.
By:__________________________________
Name:
Title:
HMH PENTAGON LLC
By:__________________________________
Name:
Title:
HMH SFO LLC
By:__________________________________
Name:
Title:
AIRPORT HOTELS LLC
By:__________________________________
Name:
Title:
CHESAPEAKE FINANCIAL SERVICES LLC
By:__________________________________
Name:
Title:
HMC CAPITAL RESOURCES LLC
By:__________________________________
Name:
Title:
YBG ASSOCIATES LLC
20
<PAGE>
By:__________________________________
Name:
Title:
PRM LLC
By:__________________________________
Name:
Title:
HOST PARK RIDGE LLC
By:__________________________________
Name:
Title:
HOST OF BOSTON, LTD.
By:__________________________________
Name:
Title:
HOST OF HOUSTON, LTD.
By:__________________________________
Name:
Title:
HOST OF HOUSTON 1979
By:__________________________________
Name:
Title:
21
<PAGE>
PHILADELPHIA AIRPORT HOTEL LLC
By:__________________________________
Name:
Title:
HMC RETIREMENT PROPERTIES, LLC
By:__________________________________
Name:
Title:
HMC HARTFORD LLC
By:__________________________________
Name:
Title:
HMH NORFOLK LLC
By:__________________________________
Name:
Title:
HMH NORFOLK, L.P.
By:__________________________________
Name:
Title:
HMC PARK RIDGE LLC
By:__________________________________
Name:
Title:
22
<PAGE>
HMC PARK RIDGE II LLC
By:__________________________________
Name:
Title:
HMC PARK RIDGE LP
By:__________________________________
Name:
Title:
HMC PARTNERSHIP HOLDINGS LLC
By:__________________________________
Name:
Title:
HMC SUITES LLC
By:__________________________________
Name:
Title:
MARRIOTT SUITES LIMITED PARTNERSHIP
By:__________________________________
Name:
Title:
WELLSFORD-PARK RIDGE MARRIOTT
HOTEL LIMITED PARTNERSHIP
By:__________________________________
Name:
Title:
23
<PAGE>
CITY CENTER INTERSTATE PARTNERSHIP LLC
By:___________________________________________
Name:
Title:
FARRELL'S INC. CREAM PARLOR RESTAURANTS LLC
By:___________________________________________
Name:
Title:
HMC BURLINGAME LLC
By:___________________________________________
Name:
Title:
HMC CALIFORNIA LEASING LLC
By:___________________________________________
Name:
Title:
HMC CAPITAL LLC
By:___________________________________________
Name:
Title:
HMC GRAND LLC
By:___________________________________________
Name:
Title:
24
<PAGE>
HMC HOTEL DEVELOPMENT LLC
By:___________________________________________
Name:
Title:
HMC MEXPARK LLC
By:___________________________________________
Name:
Title:
HMC POLANCO LLC
By:___________________________________________
Name:
Title:
HMC NGL LLC
By:___________________________________________
Name:
Title:
HMC OLS I L.P.
By:___________________________________________
Name:
Title:
HMC RTZ LOAN I LLC
By:___________________________________________
Name:
Title:
25
<PAGE>
HMC RTZ II LLC
By:___________________________________________
Name:
Title:
HMC SEATTLE LLC
By:___________________________________________
Name:
Title:
HMC SWISS HOLDINGS LLC
By:___________________________________________
Name:
Title:
HMC WATERFORD LLC
By:___________________________________________
Name:
Title:
HMH RESTAURANTS LLC
By:___________________________________________
Name:
Title:
HMH RIVERS LLC
By:___________________________________________
Name:
Title:
26
<PAGE>
HMH WTC LLC
By:___________________________________________
Name:
Title:
HMP CAPITAL VENTURES LLC
By:___________________________________________
Name:
Title:
HMP FINANCIAL SERVICES LLC
By:___________________________________________
Name:
Title:
HOST LA JOLLA LLC
By:___________________________________________
Name:
Title:
CITY CENTER HOTEL LIMITED PARTNERSHIP
By:___________________________________________
Name:
Title:
MFR OF ILLINOIS LLC
By:___________________________________________
Name:
Title:
27
<PAGE>
MFR OF VERMONT LLC
By:___________________________________________
Name:
Title:
MFR OF WISCONSIN LLC
By:___________________________________________
Name:
Title:
HMC MARQUIS LLC
By:___________________________________________
Name:
Title:
PM FINANCIAL LLC
By:___________________________________________
Name:
Title:
PM FINANCIAL LP
By:___________________________________________
Name:
Title:
HMC CHICAGO LLC
By:___________________________________________
Name:
Title:
HMC HPP LLC
28
<PAGE>
By:___________________________________________
Name:
Title:
HMC DESERT LLC
By:___________________________________________
Name:
Title:
HMC HANOVER LLC
By:___________________________________________
Name:
Title:
HMC DIVERSIFIED LLC
By:___________________________________________
Name:
Title:
HMC PROPERTIES I LLC
By:___________________________________________
Name:
Title:
HMC POTOMAC LLC
By:___________________________________________
Name:
Title:
29
<PAGE>
HMC EAST SIDE II LLC
By:___________________________________________
Name:
Title:
HMC MANHATTAN BEACH LLC
By:___________________________________________
Name:
Title:
CHESAPEAKE HOTEL LIMITED PARTNERSHIP
By:___________________________________________
Name:
Title:
HMH GENERAL PARTNER HOLDINGS LLC
By:___________________________________________
Name:
Title:
HMC IHP HOLDING LLC
By:___________________________________________
Name:
Title:
HMC OP BN LLC
By:___________________________________________
Name:
Title:
30
<PAGE>
S.D. HOTELS LLC
By:_______________________________________________
Name:
Title:
HMC GATEWAY LLC
By:_______________________________________________
Name:
Title:
HMC PACIFIC GATEWAY LLC
By:_______________________________________________
Name:
Title:
HMC DESERT SPRINGS LLC
By:_______________________________________________
Name:
Title:
MDSM FINANCE LLC
By:_______________________________________________
Name:
Title:
MARKET STREET MARRIOTT LLC
By:_______________________________________________
Name:
Title:
31
<PAGE>
HMC MARKET STREET LLC
By:_______________________________________________
Name:
Title:
NEW MARKET STREET LP
By:_______________________________________________
Name:
Title:
TIMES SQUARE LLC
By:_______________________________________________
Name:
Title:
TIMES SQUARE GP LLC
By:_______________________________________________
Name:
Title:
SAGA PROPERTY LEASING LLC
By:_______________________________________________
Name:
Title:
SAGA RESTAURANTS LLC
By:_______________________________________________
Name:
Title:
32
<PAGE>
HMC ATLANTA LLC
By:_______________________________________________
Name:
Title:
IVY STREET LLC
By:_______________________________________________
Name:
Title:
HMC PROPERTIES II LLC
By:_______________________________________________
Name:
Title:
SANTA CLARA HMC LLC
By:_______________________________________________
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By:_______________________________________________
Name:
Title:
33
<PAGE>
EXHIBIT A
FORM OF 8% [SERIES D] [SERIES E]/1/ SENIOR NOTE
Unless and until it is exchanged in whole or in part for 8% Notes in
definitive form, this Security may not be transferred except as a whole 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 by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative of
DTC (and any payment is made to Cede & Co. or such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein./2/
HOST MARRIOTT, L.P.
8% [SERIES D] [SERIES E]/3/ SENIOR NOTE DUE 2006
CUSIP No.
No. $
Host Marriott, L.P., a Delaware limited partnership (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ____________, or
registered assigns, the principal sum of $_______, on February 15, 2006. This
Security is one of the 8%% [Series D] [Series E] Senior Notes due 2006 referred
to in such Indenture (hereinafter referred to for purposes of this 8% Senior
Note collectively as the "8% Securities").
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security on the reverse
side, which will, for all purposes, have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed.
Dated:
HOST MARRIOTT, L.P.,
a Delaware limited partnership
______________________________
/1/ Series D should be replaced with Series E in the Exchange Notes
/2/ To be used only if the Security is issued as a Global Note.
/3/ Series D should be replaced with Series E in the Exchange Notes.
A-1
<PAGE>
By:_____________________________
Name:
Title:
Attest:____________________________
Name:
Title:
A-2
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 8 3/8% Securities of the Series designated therein
referred to in the within-mentioned Indenture.
MARINE MIDLAND BANK,
as Trustee
By:_______________________________________
Authorized Signatory
<PAGE>
HOST MARRIOTT, L.P.
83/8% [SERIES D] [SERIES E]/4/ SENIOR NOTE DUE 2006
THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 5.01 OF THE FOURTH SUPPLEMENTAL INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 5.01 (a) OF
THE FOURTH SUPPLEMENTAL INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO
THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12 OF THE INDENTURE AND (IV)
THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY./5/
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS NOT AN AFFILIATE (AS DEFINED IN RULE 144
UNDER THE SECURITIES ACT) OF THE COMPANY OR THE SUBSIDIARY GUARANTORS, (B)
EITHER (i) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) (A "QIB") OR (ii) IS ACQUIRING THIS NOTE OTHER THAN IN
CONNECTION WITH THE OFFER AND SALE OF THE NOTES BY THE INITIAL PURCHASERS (AS
DEFINED IN THE INDENTURE) ON THE TERMS SET FORTH IN THE OFFERING MEMORANDUM (AS
DEFINED IN THE INDENTURE)AND IN ACCORDANCE WITH THE REQUIREMENTS SET FORTH IN
PARAGRAPH TWO BELOW AND (C) IT IS PURCHASING THIS NOTE FOR ITS OWN ACCOUNT OR AN
ACCOUNT OVER WHICH IT EXERCISES SOLE INVESTMENT DISCRETION, AND IT AND ANY SUCH
ACCOUNT IS A "QUALIFIED PERSON" (AS DEFINED IN SECTION 49(a)(1)(D)(iv) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE")), FOR THIS PURPOSE, A
PERSON WOULD BE CONSIDERED A "QUALIFIED PERSON" IF IT IS A BANK, SAVINGS & LOAN
ASSOCIATION, INSURANCE COMPANY, PENSION TRUST, FUND (INCLUDING PARTNERSHIPS,
TRUSTS, MUTUAL FUNDS, HEDGE FUNDS, SEPARATE ACCOUNTS AND PORTFOLIO MANAGERS) OR
ANOTHER ENTITY THAT REGULARLY LENDS MONEY OR PURCHASES DEBT SECURITIES FROM
ISSUERS IN PRIMARY OFFERINGS. A PERSON, HOWEVER, WOULD NOT BE A QUALIFIED
PERSON IF IT (A) DIRECTLY OR INDIRECTLY OWNS MORE THAN 10% OF THE OPERATING
PARTNERSHIP OR (B) HAS A DIRECT OR INDIRECT MORE-THAN-10% OWNER WHO ALSO
DIRECTLY OR INDIRECTLY OWNS MORE THAN 10% OF THE OPERATING PARTNERSHIP;
_______________________________
/4/ Series D should be replaced with Series E in the Exchange Notes.
/5/ To be included only on Global Notes deposited with DTC as Depository.
A-4
<PAGE>
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY GUARANTOR WHOLLY OWNED BY THE COMPANY OR
ANY OF THEIR RESPECTIVE WHOLLY OWNED SUBSIDIARIES, (B) TO A PERSON WHO IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL "
ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
OPERATING PARTNERSHIP THAT SUCH TRANSFER IS EXEMPT UNDER THE SECURITIES ACT, (E)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION; PROVIDED THAT, FOR ANY TRANSACTION
PURSUANT TO CLAUSE (B), (C), (D), OR (E) WITHIN TWO YEARS OF THE ISSUANCE OF
THIS NOTE, THE TRANSFEREE REPRESENTS THAT IT IS A "QUALIFIED PERSON" (AS DEFINED
ABOVE); AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE AS TO THE ABOVE RESTRICTIONS./6/
1. Interest.
--------
Host Marriott, L.P., a Delaware limited partnership (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Security
at the rate of 8 3/8% per annum from February 25, 1999 until maturity. To the
extent it is lawful, the Company promises to pay interest on any interest
payment due but unpaid on such principal amount at a rate of 8 3/8% per annum
compounded semi-annually.
The Company will pay interest semi-annually on March 15 and September 15 of
each year (each, an "Interest Payment Date"), commencing September 1 5, 1 999.
Interest on the 8 3/8% Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the 8 3/8%
Securities, from the date of the original issuance. Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest on the 8 3/8% Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender 8 3/8% Securities to a Paying Agent to collect principal
payments. Principal of, premium, if any, and interest on the 83/8% Securities
will be payable in United States Dollars at the office or agency of the Company
maintained for such purpose, in
____________________________
/6/ To be included only on Transfer Restricted Notes.
A-5
<PAGE>
the Borough of Manhattan, The City of New York or at the option of the Company,
payment of interest may be made by check mailed to the Holders of the 8 3/8%
Securities at the addresses set forth upon the registry books of the Company;
provided, however, Holders of Global Securities will be entitled to receive
interest payments (other than at maturity) by wire transfer of immediately
available funds, if appropriate wire transfer instructions have been received in
writing by the Trustee not fewer than 15 days prior to the applicable Interest
Payment Date. Such wire instructions, upon receipt by the Trustee, shall remain
in effect until revoked by such Holder. No service charge will be made for any
registration of transfer or exchange of 8 3/8% Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
3. Paying Agent and Registrar.
--------------------------
Initially, Marine Midland Bank will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders. The Company or any of its Subsidiaries may, subject to certain
exceptions, act as Paying Agent, Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the 8 3/8% Securities and the Subsidiary Guarantors
issued their Guarantees under an Amended and Restated Indenture, dated as of
August 5, 1998, as supplemented (the "Indenture"), between the Company, its
Parents, the Subsidiary Guarantors and the Trustee. Capitalized terms herein
are used as defined in the Indenture unless otherwise defined herein. The 8
3/8% Securities are limited in aggregate principal amount to $300,000,000. The
terms of the 8 3/8% Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
in effect on the date of the Indenture. The 8 3/8% Securities are subject to
all such terms, and Holders of 8 3/8% Securities are referred to the Indenture
and said Act for a statement of them. The 83/8% Securities are senior, general
obligations of the Company, secured initially by a pledge of Capital Stock of
certain Subsidiaries of the Company, which pledge is shared equally and ratably
with the Credit Facility, the Existing Senior Notes, the Series A Notes, the
Series B Notes, the Series C Notes and certain future Indebtedness of the
Company ranking pari passu with the 8 3/8% Securities. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by the
provisions of the Indenture, (b) authorizes and directs the Trustee on his
behalf to take such action as may be provided in the Indenture and (c) appoints
the Trustee his attorney-in-fact for such purpose.
5. Redemption.
----------
The 8 3/8% Securities may not be redeemed by the Company at its option
prior to the final maturity thereof. The 8 3/8% Securities will not have the
benefit of a sinking fund.
6. Denominations; Transfer; Exchange.
---------------------------------
The 8 3/8% Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange 8 3/8% Securities in accordance with, the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange any 83/8% Securities (a) selected for redemption
except the unredeemed portion of any Security being redeemed in part or (b) for
a period beginning 15 Business Days before the mailing of a notice of an offer
to repurchase or redemption and ending at the close of business on the day of
such mailing.
A-6
<PAGE>
7. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it for
all purposes.
8. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee and the Paying Agent(s) will pay the money back to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
9. Discharge Prior to Redemption or Maturity.
-----------------------------------------
Except as set forth in the Indenture, if the Company irrevocably deposits
with the Trustee, in trust, for the benefit of the Holders, U.S. legal tender,
U.S. Government Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
83/8% Securities on the stated date for payment thereof or on the redemption
date of such principal or installment of principal of, premium, if any, or
interest on such 8 3/8% Securities, the Company will be discharged from certain
provisions of the Indenture and the 8 3/8% Securities (including the restrictive
covenants described in paragraph II below, but excluding its obligation to pay
the principal of, premium, if any, and interest on the 8 3/8% Securities). Upon
satisfaction of certain additional conditions set forth in the Indenture, the
Company may elect to have its obligations and the obligations of the Subsidiary
Guarantors discharged with respect to outstanding 8 3/8% Securities.
10. Amendment; Supplement; Waiver.
-----------------------------
The Company, the Subsidiary Guarantors and the Trustee may enter into a
supplemental indenture for certain limited purposes without the consent of the
Holders. Subject to certain exceptions, the Indenture or the 8 3/8% Securities
may be amended or supplemented with the written consent of the Holders of not
less than a majority in aggregate principal amount of the 8 3/8% Securities then
outstanding (except that any amendments or supplements to the provisions
relating to security interests or with respect to the Guarantees of the
Subsidiary Guarantors shall require the consent of the holders of not less than
662/3% of the aggregate principal amount of the 8 3/8% Securities then
outstanding), and any existing Default or Event of Default or compliance with
any provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the 8 3/8% Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may under certain
circumstances amend or supplement the indenture or the 8 3/8% Securities to,
among other things, cure any ambiguity, defect or inconsistency, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
11. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the Company,
the Subsidiary Guarantors and any of their respective Restricted Subsidiaries
to, among other things, incur additional Indebtedness and issue Disqualified
Stock, pay dividends or make certain other Restricted Payments, enter into
certain transactions with Affiliates, incur Liens, sell assets and subsidiary
stock, merge or consolidate with any other Person or transfer (by lease,
assignment or otherwise) substantially all of the properties and assets of the
Company. The limitations are subject to a number of important qualifications
and exceptions and certain restrictive covenants will cease to be applicable
under certain
A-7
<PAGE>
circumstances. The Company must periodically report to the Trustee on compliance
with such limitations.
12. Repurchase at Option of Holder.
------------------------------
(a) If there is a Change of Control Triggering Event, the Company
shall be required to offer irrevocably to purchase on the Change of Control
Purchase Date all outstanding 8 3/8% Securities at a purchase price equal to
101% of the principal amount thereof, plus (subject to the right of Holders of
record on a Record Date that is on or prior to such Change of Control Purchase
Date to receive interest due on the Interest Payment Date to which such Record
Date relates) accrued and unpaid interest, if any, to the Change of Control
Purchase Date. Holders of 8 3/8% Securities will receive a Change of Control
Offer from the Company prior to any related Change of Control Purchase Date and
may elect to have such 8 3/8% Securities purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company, the Subsidiary Guarantors or any of their respective Restricted
Subsidiaries to sell assets and subsidiary stock. In the event the Net Cash
Proceeds from a permitted Asset Sale exceed certain amounts, as specified in the
Indenture, the Company will be required either to reinvest the proceeds of such
Asset Sale in a Related Business or other permitted investments, repay certain
Indebtedness or to make an offer to purchase each Holder's 83/8% Securities at I
00% of the principal amount thereof, plus accrued interest, if any, to the
purchase date. The limitations and the Company's obligations with respect to
the use of proceeds from an Asset Sale are subject to a number of important
qualifications and exceptions and will cease to be applicable under certain
circumstances.
13. Notation of Guarantee.
---------------------
As set forth more fully in the Indenture, the Persons constituting
Subsidiary Guarantors from time to time, in accordance with the provisions of
the Indenture, irrevocably and unconditionally and jointly and severally
guarantee, in accordance with Section 12.1 of the Indenture, to the Holders and
to the Trustee and its successors and assigns, that (i) the principal of and
interest on the 8 3/8% Securities will be paid, whether at the Stated Maturity
or Interest Payment Dates, by acceleration, call for redemption or otherwise,
and all other obligations of the Company to the Holders or the Trustee under the
Indenture or this Security will be promptly paid in full or performed, all in
accordance with the terms of the Indenture and this Security, and (ii) in the
case of any extension of payment or renewal of this Security or any of such
other obligations, they will be paid in full when due or performed in accordance
with the terms of such extension or renewal, whether at the Stated Maturity, as
so extended, by acceleration or otherwise. Such Guarantees shall cease to
apply, and shall be null and void, with respect to any such guarantor who,
pursuant to Article 12 of the Indenture, is released from its Guarantees, or
whose Guarantees otherwise cease to be applicable pursuant to the terms of the
Indenture.
14. Successor.
---------
When a successor assumes all the obligations of its predecessor under the
Securities and the Indenture, the predecessor will be released from those
obligations.
A-8
<PAGE>
15. Defaults and Remedies.
---------------------
If an Event of Default with respect to the 8 3/8% Securities occurs and is
continuing (other than an Event of Default relating to bankruptcy, insolvency or
reorganization of the Company), then either the Trustee or the Holders of 25% in
aggregate principal amount of the 8 3/8% Securities then outstanding may declare
all 8 3/8% Securities to be due and payable immediately in the manner and with
the effect provided in the Indenture. Holders of 8 3/8% Securities may not
enforce the Indenture or the 8 3/8% Securities, except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the 8 3/8% Securities. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding 8
3/8% Securities may direct the Trustee in its exercise of any trust or power
with respect to such 8 3/8% Securities. The Trustee may withhold from Holders
of 83/8% Securities notice of any continuing Default or Event of Default (except
a Default in payment of principal or interest) if it determines that withholding
notice is in their interest.
16. Trustee and Agent Dealings with Company.
---------------------------------------
The Trustee and each Agent under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or any Subsidiary Guarantor or any of their Subsidiaries or any
of their respective Affiliates, and may otherwise deal with such Persons as if
it were not the Trustee or such agent.
17. No Recourse Against Others.
--------------------------
No recourse for the payment of the principal of, premium, if any, or
interest on the 8 3/8% Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company or the Subsidiary Guarantors in the Indenture, or in
the 8 3/8% Securities or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporation, partner, stockholder, officer,
director, employee or controlling Person of the Company or the Subsidiary
Guarantors or of any successor Person thereof, except as an obligor or guarantor
of the 8 3/8% Securities pursuant to the Indenture. Each Holder, by accepting
the 8 3/8% Securities, waives and releases all such liability.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/NVA (= Uniform Gifts to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the 8 3/8% Securities as a convenience to the Holders of the 8 3/8%
Securities. No representation is made as to the
A-9
<PAGE>
accuracy of such numbers as printed on the 8 3/8% Securities and reliance may be
placed only on the other identification numbers printed hereon.
21. Additional Rights of Holders of Transfer Restricted Notes./7/
---------------------------------------------------------
In addition to the rights provided to Holders of 8 3/8% Securities under
the Indenture, Holders of Transfer Restricted Notes shall have all the rights
set forth in the To be included only on Transfer Restricted Notes. Registration
Rights Agreement dated as of the date of the Fourth Supplemental indenture,
among the Company, the Subsidiary Guarantors and the Initial Purchasers.
22. Governing Law.
-------------
THE INDENTURE AND THE 83/8% SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B).
_____________________________
/7/ To be included only on Transfer Restricted Notes.
A-10
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee _____
_____________________________________________
and irrevocably appoint____________to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
Dated:_________________Signed:
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee**
_____________________________
** NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized signature Guarantee Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock
Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program
(SEMP); or (iv) in such other guarantee program acceptable to the Trustee.
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.12 or Article 10 of the Indenture, check the appropriate
box:
[ ] Section 4.12
[ ] Article 10.
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.12 or Article 10 of the Indenture, as the case may
be, state the amount you want to be purchased: $ .
Date:___________________Signature:
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee***
_______________________
*** NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized signature Guarantee Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock
Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program
(SEMP); or (iv) in such other guarantee program acceptable to the Trustee.
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES/8/
The following exchanges of a part of this Global Security for Certificated
Securities have been made:
<TABLE>
<S> <C> <C> <C> <C>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Principal Amount Principal Amount of Global Note following such officer of Trustee or Note
Date of Exchange of this Global Note this Global Note decrease (or increase) Custodian
</TABLE>
___________________________
/8/ This should be included only if the Security is issued in global form.
A-13
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Host Marriott, L.P.
10400 Femwood Road
Bethesda, Maryland 20817
Attention: [ ]
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Department
Re: 8 3/8% Series D Senior Notes due 2006
Dear Sirs:
Reference is hereby made to the Amended and Restated Indenture, dated as of
August 5, 1998 (the "Base Indenture"), with HMH Properties, Inc., its Parents
and the Subsidiary Guarantors named therein (collectively, the "Subsidiary
Guarantors") and Marine Midland Bank, as trustee (the "Trustee"), and the Fourth
Supplemental Indenture to the Base Indenture, dated as of February 25, 1999 (the
"Fourth Supplemental Indenture" and, together with the Base Indenture, the
"Indenture"), among Host Marriott, L.P., as issuer (the "Company"), the
Subsidiary Guarantors and the Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture. ___________, (the
"Transferor") owns and proposes to transfer the Note[s] or interest in such
Note[s] specified in Annex A hereto, in the principal amount of $_______ in such
Note[s] or interests (the "Transfer"), to ______________ (the "Transferee"), as
further specified in Annex A hereto. In connection with the Transfer, the
Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] Check if Transferee will take delivery of a beneficial
interest in the Restricted Global Note or a Certificated Note Pursuant to Rule
144A. The Transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
beneficial interest or Certificated Note is being transferred to a Person that
the Transferor reasonably believed and believes is purchasing the beneficial
interest or Certificated Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and such
Person and each such account is a Qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Transfer is in compliance with any applicable blue sky securities laws of
any State of the United States with the restrictions set forth in the Private
Placement Legend. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Certificated
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Note and/or the Certificated
Note and in the Indenture and the Securities Act.
2. [ ] Check and complete if Transferee will take delivery of a
beneficial interest in a Certificated Note pursuant to any provision of the
Securities Act other than Rule 144A. The Transfer is
B-1
<PAGE>
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Certificated
Notes and pursuant to and in accordance with the Securities Act and any
applicable blue sky securities laws of any State of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) [ ] Such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act; or
(b) [ ] Such Transfer is being effected to the Company or a
subsidiary thereof-, or
(c) [ ] Such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act; or
(d) such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, or Rule 144,
and the Transferor hereby further certifies that it has not engaged in
any general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Note or Restricted Certificated Notes (including those set forth in
the Private Placement Legend) and the requirements of the exemption
claimed, which certification is supported by (1) a certificate
executed by the Transferee in a form of Exhibit D to the Fourth
Supplemental Indenture and (2) if such Transfer is in respect of a
principal amount of Series D Notes at the time of transfer of less
than $250,000, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification and provided to the Company, which has confirmed its
acceptability), to the effect that such Transfer is in compliance with
the Securities Act. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the Certificated Note will
be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Certificated Notes and in the
Indenture and the Securities Act.
3. [ ] Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Certificated Note.
(a) [ ] Check if Transfer is Pursuant to RulE 144. (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under
the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws
of any State of the United States and (ii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend
are not required in order to maintain compliance with the Securities
Act. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or
Certificated Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the
Restricted Global Notes, on Restricted Certificated Notes and in the
Indenture and the Securities Act.
(b) Check if Transfer is Pursuant to Other Exemption. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from
the registration
B-2
<PAGE>
requirements of the Securities Act other than Rule 144 and in
compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order
to maintain compliance with the Securities Act. Upon consummation of
the proposed Transfer in accordance with the terms of the Indenture,
the transferred beneficial interest or Certificated Note will not be
subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes or Restricted
Certificated Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
___________________________________ Dated:_________________________
[Insert Name of Transferor]
By:__________________________
Name:
Title:
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the Restricted Global Note (CUSIP
44108EAJ7), or
(b) [ ] a Restricted Certificated Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] Restricted Global Note (CUSIP 44108EAJ7), or
(ii) [ ] Unrestricted Global Note (CUSIP or
(b) [ ] a Restricted Certificated Note; or
(c) [ ] an Unrestricted Certificated Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Host Marriott, L.P.
10400 Femwood Road
Bethesda, Maryland 20817
Attention: [ ]
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
ATTENtion: Corporate Trust Department
Re: 8 3/8% Series D Senior Notes due 2006
Dear Sirs:
Reference is hereby made to the Amended and Restated Indenture, dated as of
August 5, 1998 (the "Base Indenture"), among HNM Properties, Inc., its Parents
and the Subsidiary Guarantors named therein (collectively, the "Subsidiary
Guarantors") and Marine Midland Bank, as trustee (the "Trustee"), and the Fourth
Supplemental Indenture to the Base Indenture, dated as of February 25, 1999 (the
"Fourth Supplemental Indenture" and, together with the Base Indenture, the
"Indenture"), among Host Marriott, L.P., as issuer (the "Company"), the
Subsidiary Guarantors and the Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
__________, (the "Owner") owns and proposes to exchange the Note[s] or
interest in such Note[s] specified herein, in the principal amount of $ in such
Note[s] or interests (the "Exchange"). In connection with the Exchange, the
Owner hereby certifies that:
1. Exchange of Restricted Certificated Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Certificated Notes or Beneficial
Interests in an Unrestricted Global Note
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
193 3, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any State of the United States.
(b) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Certificated Note. In connection with the Exchange
of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Certificated Note, the Owner hereby certifies (i) the Certificated
Note is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes
C-1
<PAGE>
and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Certificated Note is being acquired in compliance with any
applicable blue sky securities laws of any State of the United States.
(c) [_] Check if exchange is from Restricted Certificated Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Certificated Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Certificated Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any State
of the United States.
(d) [_] Check if exchange is from Restricted Certificated Note to
Unrestricted Certificated Note. In connection with the Owner's Exchange of a
Restricted Certificated Note for an Unrestricted Certificated Note, the Owner
hereby certifies (i) the Unrestricted Certificated Note is being acquired for
the Owner's own account without transfer, (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to Restricted
Certificated Notes and pursuant to and in accordance with the Securities Act,
(iii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the Unrestricted Certificated Note is being acquired in
compliance with any applicable blue sky securities laws of any State of the
United States.
2. Exchange of Restricted Certificated Notes or Beneficial Interests in
Restricted Global Notes for Restricted Certificated Notes or Beneficial
Interests in Restricted Global Notes
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Certificated Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Certificated Note with an equal principal amount, the Owner hereby certifies
that the Restricted Certificated Note is being acquired for the Owner's own
account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Certificated Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Certificated Note and in
the Indenture and the Securities Act.
(b) [_] Check if exchange is from Restricted Certificated Note to
beneficial interest in a Restricted Global Note. In connection with the Exchange
of the Owner's Restricted Certificated Note for a beneficial interest in the
Restricted Global Note with an equal principal amount, the Owner hereby
certifies (i) the beneficial interest is being acquired for the Owner's own
account without transfer and (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to the Restricted Global Notes and
pursuant to and in accordance with the Securities Act, and in compliance with
any applicable blue sky securities laws of any State of the United States. Upon
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the beneficial interest issued will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the relevant
Restricted Global Note and in the Indenture and the Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made for your benefit
and the benefit of the Company.
__________________________________
[Insert Name of Owner]
By:_______________________________
Name:
Title:
Dated:____________________________
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM ACQUIRING
INSTITUTIONAL ACCREDITED INVESTOR
Host Marriott, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: [
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Department
Re: 8 3/8% Series D Senior Notes due 2006
Dear Sirs:
Reference is hereby made to the Amended and Restated Indenture, dated as of
August 5, 1998 (the "Base Indenture"), among HMH Properties, Inc., its Parents
and the Subsidiary Guarantors named therein (collectively, the "Subsidiary
Guarantors") and Marine Midland Bank, as trustee (the "Trustee"), and the Fourth
Supplemental Indenture to the Base Indenture, dated as of February 25, 1999 (the
"Fourth Supplemental Indenture" and, together with the Base Indenture, the
"Indenture"), among Host Marriott, L.P., as issuer (the "Company"), the
Subsidiary Guarantors and the Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $ amount of. (a) a
beneficial interest in a Global Note, or (b) a Certificated Note, we confirm
that:
1. We understand that any subsequent transfer of the Securities or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which
we are acting as hereinafter stated, that if we should sell the Securities or
any interest therein, we will do so only (a) to the Company or any Subsidiary
Guarantor or any of their respective wholly owned subsidiaries, (b) to a person
who is a QIB purchasing for its own account or for the account of a QIB in a
transaction meeting the requirements of Rule 144A, (c) in a transaction meeting
the requirements of a Rule 144 under the Securities Act, (d) to an Institutional
"Accredited Investor" (as defined in Rule 501 (a)(1), (2), (3) or (7) of
Regulation D under the Securities Act) that, prior to such transfer, furnishes
the trustee a signed letter containing certain representations and agreements
relating to the transfer of this Security (the form of which can be obtained
from the trustee) and, if such transfer is in respect of an aggregate principal
amount of Notes less than $250,000, an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Securities Act, (e) in
accordance with another
D-1
<PAGE>
exemption from the registration requirements of the Securities Act, (and based
upon an opinion of counsel acceptable to the Company), or (f) pursuant to an
effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and in accordance with the other provisions of the
Private Placement Legend.
3. We understand that, on any proposed resale of the Securities or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Securities purchased
by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule 501
(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Securities, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Securities or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion and we are and any such account is a "qualified person" as
defined in Section 49(a)(1)(D)(iv) of the Internal Revenue Code of 1986, as
amended. For this purpose we are relying on the Company's representation that a
person would be considered a "Qualified person" if it is a bank, savings & loan
association, insurance company, pension trust, fund (including partnerships,
trusts, mutual funds, hedge funds, separate accounts and portfolio managers) or
another entity that regularly lends money or purchases debt securities from
issuers in primary offerings. We understand, however, that a person would not
be a Qualified Person if it (a) directly or indirectly owns more than 10% of the
operating partnership or (b) has a direct or indirect more-than 10% owner who
also directly or indirectly owns more than 10% of the operating partnership.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Dated:__________________________
_________________________________________
[Insert Name of Accredited Investor]
By:______________________________________
Name:
Title:
D-2
<PAGE>
Exhibit 5.1
[LETTERHEAD OF CHRISTOPHER G. TOWNSEND APPEARS HERE]
May 25, 1999
Host Marriott, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
Re: 8 3/8% Series E Senior Notes due 2008 of Host Marriott, L.P.
-------------------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of $300,000,000 aggregate principal amount of 8
3/8% Series E Senior Notes due 2008 (the "Series E senior notes") by Host
Marriott, L.P., a Delaware limited partnership (the "Company"), and guarantees
thereof ("Guarantees" and together with the Series E senior notes, the
"Securities") by certain subsidiaries of the Company (the "Subsidiary
Guarantors") to be registered under the Securities Act of 1933, as amended, on a
registration statement on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on May 25, 1999 (the "Registration Statement")
relating to the offer by the Company to exchange its outstanding 8 3/8% Series D
Senior Notes due 2008 for Series E senior notes, you have requested my opinion
with respect to the matters set forth below.
In my capacity as general counsel of Host Marriott Corporation, the general
partner of the Company, I am familiar with the proceedings taken by the Company
in connection with the authorization, issuance and sale of the Series E senior
notes. In addition, I have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to my satisfaction of such documents, corporate records and
instruments, as I have deemed necessary or appropriate for purposes of this
opinion.
<PAGE>
May 25, 1999
Page 2
In my examination, I have assumed the genuiness of all signatures, the
authenticity of all documents submitted to me as originals, and the conformity
to authentic original documents of all documents submitted to me as copies.
I am opining herein as to the effect on the subject transaction only of the
General Corporation Law of the State of Delaware, I express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or, in the case of Delaware, any other laws, or as to any
matters of municipal law or the laws of any local agencies within any state.
Subject to the foregoing and other matters set forth herein, it is my opinion
that as of the date hereof, the Series E senior notes have been duly authorized
by all necessary action of the Company, and when executed, authenticated and
delivered by or on behalf of the Company against exchange therefor in accordance
with the terms of the indenture, will constitute legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
Subject to the foregoing and other matters set forth herein, it is my opinion
that as of the date hereof, the Guarantees have been duly authorized by all
necessary action of the applicable Subsidiary Guarantors, and when the Series E
senior notes are executed, authenticated and delivered by or on behalf of the
Company, will constitute legally valid and binding obligations of the applicable
Subsidiary Guarantors, enforceable against the applicable Subsidiary Guarantors
in accordance with their terms.
The opinions rendered above relating to the enforceability of the Securities are
subject to the following exceptions, limitations and qualifications: (i) the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors; (ii) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity of law, and the discretion
of the court before which any proceeding therefor may be brought; (iii) I
express no opinion concerning the enforceability of the waiver of rights or
defenses contained in the indenture.
To the extent that the obligations of the Company and/or the Subsidiary
Guarantors under the Indenture may be dependent upon such matters, I assume for
purposes of this opinion that the Trustee is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization; that
the Trustee is duly qualified to engage in the activities contemplated by the
Indenture; that the Indenture has been duly authorized, executed and delivered
by the Trustee and constitutes the legally valid, binding and enforceable
obligation of the Trustee enforceable against the Trustee in accordance with its
terms; that the Trustee is in compliance, generally and with respect to acting
as a trustee under the Indenture, with all applicable laws and regulations; and
that the Trustee has the requisite organizational and legal power and authority
to perform its obligations under the Indenture.
I consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to me contained under the heading "Legal
Matters."
Very truly yours,
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LATHAM & WATKINS APPEARS HERE]
May 25, 1999
Host Marriott, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
Re: Federal Income Tax Consequences
-------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning the material federal income
tax consequences of the exchange of 8 3/8% Series E senior notes due 2006 of
Host Marriott, L.P. (the "Partnership") which have been registered under the
Securities Act of 1933, as amended, for outstanding 8 3/8% Series D senior notes
due 2006 of the Partnership, in connection with the Registration Statement on
Form S-4 filed herewith (the "Registration Statement").
The facts, as we understand them, and upon which with your permission
we rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the
statements in the Registration Statement set forth under the caption "Material
Federal Income Tax Consequences of the Exchange," to the extent such statements
constitute matters of law summaries of legal matters or legal conclusions, are
the material federal income tax consequences of the exchange of the Series D
senior notes for Series E senior notes. No opinion is expressed as to any matter
not discussed therein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion subsequent to the date hereof.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters all of which are subject to change
either prospectively or retroactively. Also, any variation or difference in the
facts from those set forth in the Registration Statement may affect the
conclusions stated herein.
This opinion is rendered to you for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement, and to the reference to our firm under the headings
"Material Federal Income Tax Consequences of the Exchange" and "Legal Matters."
Very truly yours,
<PAGE>
EXHIBIT 10.39
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of February 25, 1999
by and among
HOST MARRIOTT, L.P.,
as Issuer,
the Guarantors named herein
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
BT ALEX. BROWN INCORPORATED,
BARCLAYS CAPITAL INC.,,
BEAR, STEARNS & CO. INC.,)
CREDIT LYONNAIS SECURITIES (USA) INC.,
DEUTSCHE BANK SECURITIES INC.,
NATIONSBANC MONTGOMERY SECURITIES LLC,
SALOMON SMITH BARNEY INC.,
SCOTIA CAPITAL MARKETS (USA) INC.
and
SG COWEN SECURITIES CORPORATION
as Purchasers
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of February 25, 1999, among HOST MARRIOTT, L.P., a Delaware
limited partnership (the "Issuer"), the Guarantors named herein and DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, BT ALEX. BROWN INCORPORATED, BARCLAYS
CAPITAL INC., BEAR, STEARNS & CO. INC., CREDIT LYONNAIS SECURITIES (USA) INC.,
DEUTSCHE BANK SECURITIES INC., NATIONSBANC MONTGOMERY SECURITIES LLC, SALOMON
SMITH BARNEY INC., SCOTIA CAPITAL MARKETS (USA) INC. and SG COWEN SECURITIES
CORPORATION (collectively, the "Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
February 18, 1999, among the Issuer, the Guarantors named therein and the
Purchasers (the "Purchase Agreement"), which provides for the sale by the Issuer
and the Guarantors to the Purchasers of $300,000,000 aggregate principal amount
of 8 3/8% Series D Senior Notes due 2006 of the Issuer and the guarantees
thereof by the Guarantors (collectively, the "Securities"). In order to induce
the Purchasers to enter into the Purchase Agreement, the Issuer and the
Guarantors named herein have agreed to provide to the Purchasers and their
respective direct and indirect transferees, among other things, the registration
rights for the Securities set forth in this Agreement. The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the meanings ascribed to them by the
Purchase Agreement):
Advice: See Section 5.
------
Applicable Period: See Section 2.
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Effectiveness Period: See Section 3.
--------------------
Effectiveness Target Date: The 160th day following the Closing Date.
-------------------------
Event Date: See Section 4.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Offer: See Section 2.
--------------
Exchange Registration Statement: See Section 2.
-------------------------------
Exchange Securities: See Section 2.
-------------------
<PAGE>
Filing Date: The 90th day after the Closing Date.
-----------
Guarantors: Subsidiary Guarantors, as defined in the Indenture.
----------
Holder: Any holder of Transfer Restricted Securities.
------
Indenture: The Indenture, dated as of August 5, 1998, among Host
---------
Marriott, L.P. (formerly known as HMH Properties, Inc.), Host Marriott
Corporation, the Guarantors and Marine Midland Bank, as trustee, as supplemented
and amended, pursuant to which the Securities are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Issuer: See the introductory paragraph of this Agreement.
------
Liquidated Damages: See Section 4.
------------------
Participating Broker-Dealer: See Section 2.
---------------------------
Person: An individual, trustee, corporation, partnership, joint stock
------
company, trust, unincorporated association, union, business association, firm or
other legal entity.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act) as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Exchange Securities and/or the Transfer Restricted Securities (as
applicable) covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
Purchasers: See the introductory paragraph to this Agreement.
----------
Registration Default: See Section 4.
--------------------
Registration Statement: Any registration statement of the Issuer and
----------------------
the Guarantors, including, but not limited to, the Exchange Registration
Statement, that covers any of the Transfer Restricted Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated pursuant to the Securities Act, as
--------
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated pursuant to the Securities Act, as
---------
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated pursuant to the Securities Act, as
--------
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
2
<PAGE>
SEC: The Securities and Exchange Commission.
---
Securities: See the introductory paragraphs to this Agreement.
----------
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2.
-------------
Shelf Registration: See Section 3.
------------------
TIA: The Trust Indenture Act of 1939, as amended.
----
Transfer Restricted Securities: The Securities upon original issuance
-------------------------------
thereof and at all times subsequent thereto, until in the case of any such
Securities (i) a Registration Statement covering such Securities has been
declared effective by the SEC and such Securities have been disposed of in
accordance with such effective Registration Statement, (ii) such Securities have
been transferred in compliance with Rule 144 under the Securities Act (or any
successor provision thereto), or are transferable pursuant to paragraph (k) of
such Rule 144 (or any successor provision thereto), (iii) such Securities have
otherwise been transferred and a new Security not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of the
Company in accordance with the terms of the Indenture, or (iv) such Securities
cease to be outstanding.
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Securities.
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Issuer or a Guarantor are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
--------------
(a) The Issuer and the Guarantors agree to use their reasonable best
efforts to file with the SEC as soon as practicable after the Closing Date, but
in no event later than the Filing Date, an offer to exchange (the "Exchange
Offer") any and all of the Transfer Restricted Securities for a like aggregate
principal amount of debt securities of the Issuer and the Guarantors which are
substantially identical to the Securities, except that the identity of the
Guarantors may be different from those Subsidiary Guarantors that initially
guaranteed the Securities pursuant to the Indenture so long as the Securities
are at all times guaranteed in compliance with the Indenture (the "Exchange
Securities") (and which are entitled to the benefits of the Indenture or a trust
indenture which is identical to the Indenture (other than such changes to the
Indenture or any such identical trust indenture as are necessary to comply with
any requirements of the SEC to effect or maintain the qualification thereof
under the TIA) and which, in either case, has been qualified under the TIA),
except that the Exchange Securities shall have been registered pursuant to an
effective Registration Statement in compliance with the Securities Act. The
Exchange Offer will be registered pursuant to the Securities Act on the
appropriate form (the "Exchange Registration Statement") and will comply with
all applicable tender offer rules and regulations promulgated pursuant to the
Exchange Act and shall be duly registered or qualified pursuant to all
applicable state securities or Blue Sky laws. The Exchange Offer shall not be
subject to any condition, other than that the Exchange Offer does not violate
any applicable law or interpretation of the Staff of the SEC. No securities
shall be included in the Registration Statement covering the Exchange Offer
other than the Transfer Restricted Securities and the Exchange Securities. The
Issuer and the
3
<PAGE>
Guarantors agree to use their reasonable best efforts to (x) cause the Exchange
Registration Statement to become effective pursuant to the Securities Act on or
before the Effectiveness Target Date; (y) keep the Exchange Offer open for not
less than 20 business days (or such longer period required by applicable law)
after the date that the notice of the Exchange Offer referred to below is mailed
to Holders; and (z) consummate the Exchange Offer within 190 days after the
Closing Date. Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Securities received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any person to participate in the distribution of the Exchange
Securities, and that such Holder is not an affiliate of the Issuer within the
meaning of Rule 405 of the Securities Act (or that if it is such an affiliate,
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable). Each Holder that is not a
Participating Broker-Dealer will be required to represent that it is not engaged
in, and does not intend to engage in, the distribution of the Exchange
Securities. Each Holder that is a Participating Broker-Dealer will be required
to acknowledge that it will deliver a prospectus as required by law in
connection with any resale of such Exchange Securities. Upon consummation of the
Exchange Offer in accordance with this Agreement, the Issuer and the Guarantors
shall have no further obligation to register Transfer Restricted Securities
pursuant to Section 3 of this Agreement.
(b) The Issuer and the Guarantors shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution, "reasonably acceptable to the Purchasers, which shall contain a
summary statement of the positions taken or policies made by the Staff of the
SEC with respect to the potential "underwriter" status of any broker-dealer that
is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"). Such "Plan of Distribution" section shall also
allow the use of the Prospectus by all persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating Broker-
Dealers, and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Securities.
The Issuer and the Guarantors shall use their reasonable best efforts
to keep the Exchange Registration Statement effective and to amend and
supplement the Prospectus contained therein, in order to pen-nit such Prospectus
to be lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as such persons must
comply with such requirements in order to resell the Exchange Securities;
provided that such period shall not exceed 180 days after consummation of the
- --------
Exchange Offer (or such longer period if extended pursuant to the last paragraph
of Section 5) (the "Applicable Period").
In connection with the Exchange Offer, the Issuer shall:
(a) mail as promptly as practicable to each Holder a copy of the
prospectus forming part of the Exchange Offer Registration Statement, together
with an appropriate letter of transmittal and related documents;
(b) utilize the services of a Depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(c) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last business day on which the
Exchange Offer shall remain open.
4
<PAGE>
As soon as practicable after the close of the Exchange Offer, the
Issuer and the Guarantors shall:
(i) accept for exchange all Securities properly tendered and
not validly withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to
each Holder of Securities, Exchange Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer, applicable
interpretations of the Staff of the SEC do not permit the Issuer and the
Guarantors to effect the Exchange Offer as contemplated herein, or (2) the
Exchange Offer is commenced and not consummated within 190 days of the Closing
Date for any reason, then the Issuer shall promptly deliver to the Holders and
the Trustee written notice thereof (the "Shelf Notice") and the Issuer and the
Guarantors shall file a Registration Statement pursuant to Section 3. Following
the delivery of a Shelf Notice to the Holders of Transfer Restricted Securities,
the Issuer and the Guarantors shall not have any further obligation to conduct
the Exchange Offer pursuant to this Section 2, provided that the Issuers and the
--------
Guarantors shall have the right, nonetheless, to proceed to consummate the
Exchange Offer notwithstanding their obligations pursuant to this Section 2(c)
(and, upon such consummation, their obligation to consummate a Shelf
Registration shall terminate).
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Shelf Registration. The Issuer and the Guarantors shall use
------------------
their reasonable best efforts to prepare and file with the SEC, as promptly as
practicable following the delivery of the Shelf Notice, a Registration Statement
for an offering to be made on a continuous basis pursuant to Rule 415 covering
all of the Transfer Restricted Securities (the "Shelf Registration"). The Shelf
Registration shall be on Form S-1 or another appropriate form permitting
registration of such Transfer Restricted Securities for resale by the Holders in
the manner or manners reasonably designated by them (including, without
limitation, one or more underwritten offerings). The Issuer and the Guarantors
shall not permit any securities other than the Transfer Restricted Securities to
be included in the Shelf Registration. The Issuer and the Guarantors shall use
their reasonable best efforts, as described in Section 5(b), to cause the Shelf
Registration to be declared effective pursuant to the Securities Act as promptly
as practicable following the filing thereof and to keep the Shelf Registration
continuously effective under the Securities Act until the date which is 24
months from the Closing Date, or such shorter period ending when either (1) all
Transfer Restricted Securities covered by the Shelf Registration have been sold
in the manner set forth and as contemplated in the Shelf Registration or (2)
there ceases to be outstanding any Transfer Restricted Securities (the
"Effectiveness Period").
(b) Supplements and Amendments. The Issuer and the Guarantors shall
--------------------------
use their reasonable best efforts to keep the Shelf Registration Statement
continuously effective by supplementing and amending the Shelf Registration if
required by the rules, regulations or instructions applicable to the
5
<PAGE>
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the holders of a majority in
aggregate principal amount of the Transfer Restricted Securities covered by such
Registration Statement or by any underwriter of such Transfer Restricted
Securities.
4. Liquidated Damages
------------------
(a) The Issuer, the Guarantors and the Purchasers agree that the
Holders of Transfer Restricted Securities will suffer damages if the Issuer or
the Guarantors fail to fulfill their obligations pursuant to Section 2 or
Section 3 hereof and that it would not be possible to ascertain the extent of
such damages. Accordingly, in the event of such failure by Issuer or the
Guarantors to fulfill such obligations, the Issuer and the Guarantors hereby
agree to pay liquidated damages ("Liquidated Damages") to each Holder of
Transfer Restricted Securities under the circumstances and to the extent set
forth below:
(i) if the Exchange Registration Statement, or in the event a
Shelf Notice is delivered as contemplated by Section 2(c), the Shelf
Registration Statement, has not been filed with the SEC on or prior to the
Filing Date; or
(ii) if the Exchange Registration Statement, or in the event a
Shelf Notice is, delivered as contemplated by Section 2(c), the Shelf
Registration Statement, is not declared effective by the SEC on or prior to the
Effectiveness Target Date; or
(iii) if an Exchange Registration Statement is declared effective
by the SEC, on or prior to 190 days after the Closing Date, but the Issuer and
the Guarantors have not exchanged Exchange Securities for all Securities validly
tendered in accordance with the terms of the Exchange Offer; or
(iv) the Shelf Registration has been declared effective by the
SEC and such Shelf Registration ceases to be effective or usable at any time
during the Effectiveness Period, without being succeeded on the same day
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself immediately declared effective on the same
day; (any of the foregoing, a "Registration Default") then, with respect to the
first 90-day period following such Event Date (as defined below), the Issuer and
the Guarantors shall pay to each Holder of Transfer Restricted Securities
Liquidated Damages in an amount equal to $.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues. The amount of such
Liquidated Damages will increase by an additional $.05 per week per $ 1,000
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured;
provided, however, that Liquidated Damages shall not at any time exceed $.30 per
- -------- -------
week per $ 1,000 principal amount of Transfer Restricted Securities. Following
the cure of all Registration Defaults relating to any Transfer Restricted
Securities, the accrual of Liquidated Damages with respect to such Transfer
Restricted Securities will cease. A Registration Default under clause (i) above
shall be cured on the date that either the Exchange Registration Statement, or
in the event a Shelf Notice is delivered as contemplated by Section 2(c), the
Shelf Registration Statement, is filed with the SEC; a Registration Default
under clause (ii) above shall be cured on the date that either the Exchange
Registration Statement, or in the event a Shelf Notice is delivered as
contemplated by Section 2(c), the Shelf Registration Statement, is declared
effective by the SEC; a Registration Default under clause (iii) above shall be
cured on the earlier of the date (A) the Exchange Offer is consummated or (B)
the Issuer delivers a Shelf Notice to the Holders of Restricted Securities; and
a Registration Default under clause (iv) above shall be cured on the earlier of
(A) the date the Shelf Registration is declared effective or (B) the
Effectiveness Period expires.
6
<PAGE>
(b) The Issuer shall notify the Trustee within one business day after
each and every date on which a Registration Default occurs (an "Event Date").
Liquidated Damages shall be paid by the Issuer and the Guarantors to the Holders
by wire transfer of immediately available funds to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified on or before the semi-annual interest payment date provided in
the Indenture (whether or not any interest is then payable on the Securities).
Each obligation to pay Liquidated Damages shall be deemed to commence accruing
on the applicable Event Date and to cease accruing when all Registration
Defaults have been cured. In no event shall the Issuer pay Liquidated Damages
in excess of the applicable maximum weekly amount set forth above, regardless of
whether one or multiple Registration Defaults exist.
(c) Notwithstanding anything to the contrary in this Section 4,
neither the issuance by the Issuer of a notice (i) of the type set forth in
Section 5(c)(vii) declaring the Shelf Registration to be unusable during the
pendency of the Material Activity (as defined in Section 5(c)(viii)) nor (ii) of
the type set forth in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), 5(c)(v) and
5(c)(vi), shall be deemed to be a Registration Default and no Liquidated Damages
shall be payable or accrue with respect thereto; provided, that in the event the
aggregate number of days in any consecutive twelve-month period for which all
notices referenced above are issued and effective exceeds 30 days, then
Liquidated Damages shall be payable in accordance with Sections 4(a) and 4(b)
above for the number of such days in excess of 30 days in the aggregate.
5. Registration Procedures
-----------------------
In connection with the registration of any Exchange Securities or
Transfer Restricted Securities pursuant to Sections 2 or 3 hereof, the Issuer
and the Guarantors shall effect such registration to permit the sale of such
Exchange Securities or Transfer Restricted Securities (as applicable) in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Issuer and the Guarantors shall:
(a) Prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 or 3, and to use their
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; provided that, if (1) such filing is
--------
pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the Issuer
shall, if requested, furnish to and afford the Holders of the Transfer
Restricted Securities and each such Participating Broker-Dealer, as the case may
be, covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (at least 3 business days
prior to such filing, or such later date as is reasonable under the
circumstances). The Issuer and the Guarantors shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto in respect of
which the Holders, pursuant to this Agreement, must be afforded an opportunity
to review prior to the filing of such document, if the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities covered by such
Registration Statement, or such Participating Broker-Dealer, as the case may be,
their counsel, or the managing underwriters, if any, shall reasonably object.
7
<PAGE>
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been sold;
cause the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to it with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus; the Issuer and the Guarantors shall be deemed
not to have used their reasonable best efforts to keep a Registration Statement
effective during the Applicable Period if they voluntarily take any action that
would result in selling Holders of the Transfer Restricted Securities covered
thereby or Participating Broker-Dealers seeking to sell Exchange Securities not
being able to sell such Transfer Restricted Securities or such Exchange
Securities during that period, unless (i) such action is required by applicable
law, or (ii) such action is taken by them in good faith and for valid business
reasons (not including avoidance of their obligations hereunder), including the
acquisition or divestiture of assets.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, notify the selling Holders of Transfer Restricted Securities,
or each known Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, promptly and confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any post-
effective amendment, when the same has become effective (including in such
notice a written statement that any Holder may, upon request, obtain, without
charge, one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents incorporated
or deemed to be incorporated by reference and exhibits), (ii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii) if at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Transfer Restricted Securities the representations
and warranties of the Issuer or any Guarantor contained in any agreement
(including any underwriting agreement) contemplated by Section 5(l) below cease
to be true and correct, (iv) of the receipt by the Issuer or any Guarantor of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the Transfer
Restricted Securities or the Exchange Securities to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation of any
proceeding for such purpose, (v) of the happening of any event or any
information becoming known that makes any statement made in such Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, (vi) of the
Issuer's and the Guarantors' reasonable determination that a post-effective
amendment to a Registration
8
<PAGE>
Statement would be appropriate and (vii) if (A) the Issuer is engaged in or
proposes to engage in discussions or negotiations with respect to, or has
proposed or taken a substantial step to commence, or there is otherwise pending,
any material merger, acquisition, tender offer, financing or other transaction
(any such negotiation, step, event or state of facts being herein called a
"Material Activity"), (B) such Material Activity would, in the reasonable
opinion of counsel of the Issuer, require disclosure in a prospectus to be
delivered in connection with the sale of the Transfer Restricted Securities to
be sold in compliance with law, and (C) such disclosure would, in the reasonable
judgment of the Issuer, be adverse to its interests; provided, that the Issuer
shall have no obligation to include in any notice contemplated in (vii) above
any reference to or description of the facts upon which the Issuer is delivering
such notice.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Transfer Restricted Securities
or the Exchange Securities (as applicable) to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued,
to use their reasonable best efforts to obtain the withdrawal of any such order
at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities being sold in
connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or counsel reasonably request to
be included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Issuer has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement with such information as the managing
underwriter, if any, or such Holders or counsel reasonably request to be
included therein.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, furnish to each selling Holder of Transfer Restricted
Securities and to each such Participating Broker-Dealer who so requests and to
counsel and each managing underwriter, if any, without charge, one conformed
copy of the Registration Statement or Registration Statements and each post-
effective amendment thereto, including financial statements and schedules, and,
if requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, deliver to each selling Holder of Transfer Restricted
Securities, or each such Participating Broker-Dealer, as the case may be, their
counsel, and the underwriters, if any, without charge, as many copies of the
Prospectus or Prospectuses (including each form of preliminary prospectus) and
each amendment or supplement thereto and any documents incorporated by reference
therein as such Persons may reasonably request; and, subject to the last
paragraph of this Section 5, the Issuer and the Guarantors hereby consent to the
use of such Prospectus and each amendment or
9
<PAGE>
supplement thereto by each of the selling Holders of Transfer Restricted
Securities or each such Participating Broker-Dealer, as the case may be, and the
underwriters or agents, if any, and dealers (if any), in connection with the
offering and sale of the Transfer Restricted Securities covered by or the sale
by Participating Broker-Dealers of the Exchange Securities pursuant to such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted Securities or
any delivery of a Prospectus contained in the Exchange Registration Statement by
any Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, to use its reasonable best efforts to register or qualify,
and to cooperate with the selling Holders of Transfer Restricted Securities or
each such Participating Broker-Dealer, as the case may be, the underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Transfer Restricted Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions as any selling Holder, Participating Broker-
Dealer, or the managing underwriters reasonably request in writing, provided
--------
that where Exchange Securities held by Participating Broker-Dealers or Transfer
Restricted Securities are offered other than through an underwritten offering,
the Issuer and the Guarantors agree to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Exchange Securities held by Participating Broker-Dealers or the Transfer
Restricted Securities covered by the applicable Registration Statement; provided
--------
that the Issuer and the Guarantors shall not be required to (A) qualify
generally to do business in any jurisdiction where they are not then so
qualified, (B) take any action that would subject them to general service of
process in any such jurisdiction where they are not then so subject or (C)
subject themselves to taxation in excess of a nominal dollar amount in any such
jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section 3, cooperate
with the selling Holders of Transfer Restricted Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company, and enable such Transfer
Restricted Securities to be in such denominations and registered in such names
as the managing underwriters, if any, or Holders may reasonably request.
(j) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c) (v) or 5(c) (vi) above, as promptly as practicable prepare and (subject to
Section 5(a) above) file with the SEC, at the expense of the Issuer and the
Guarantors, a supplement or post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of the Transfer
Restricted Securities being sold thereunder or to the purchasers of the Exchange
Securities to whom such Prospectus will be delivered by a Participating Broker-
Dealer, any such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
10
<PAGE>
(k) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, (i) provide the Trustee with
certificates for the Transfer Restricted Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Transfer Restricted Securities.
(l) In connection with an underwritten offering of transfer
Restricted Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings and take all
such other actions as are reasonably requested by the managing underwriters in
order to expedite or facilitate the registration or the disposition of such
Transfer Restricted Securities, and in such connection, (i) make such
representations and warranties to the underwriters, with respect to the business
of the Issuer, the Guarantors and their subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Issuer and Guarantors and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by underwriters; (iii) obtain "cold comfort"
letters and updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants of the
Issuer and the Guarantors (and, if necessary, any other independent certified
public accountants of any subsidiary of the Issuer or the Guarantors or of any
business acquired by any of them for which financial statements and financial
data are, or are required to be, included in the Registration Statement),
addressed to each of the underwriters ' such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings and such other matters as are reasonably
requested by underwriters as permitted by Statement on Auditing Standards No.
72; and (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable than those
set forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of Transfer
Restricted Securities covered by such Registration Statement and the managing
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(m) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, make available for inspection by any selling Holder of such
Transfer Restricted Securities being sold, or each such Participating Broker-
Dealer, as the case may be, any underwriter participating in any such
disposition of Transfer Restricted Securities, if any, and any attorney,
accountant or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and properties of the Issuer, the Guarantors and their subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Issuer, the Guarantors and their subsidiaries to
supply all information in each case reasonably requested by any such Inspector
in connection with such Registration Statement. Records which the Issuer
determines, in good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a
11
<PAGE>
subpoena or other order from a court of competent jurisdiction or (iii) the
information in such Records has been made generally available to the public.
(n) Provide an indenture trustee for the Transfer Restricted
Securities or the Exchange Securities, as the case may be, and cause the
Indenture to be qualified under the TIA not later than the effective date of the
Exchange Offer or the first Registration Statement relating to the Transfer
Restricted Securities; and in connection therewith, cooperate with the trustee
under any such indenture and the holders of the Transfer Restricted Securities,
to effect such changes to such indenture as may be required for such indenture
to be so qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable such indenture to be so qualified in a timely
manner.
(o) Comply with all applicable rules and regulations of the SEC and,
as soon as reasonably practicable, make generally available to its security
holders consolidated earnings statements of the Issuer (including a condensed
consolidating footnote if required under SEC rules) (which need not be certified
by an independent public accountant) that satisfy the provisions of Section 11
(a) of the Securities Act and Rule 158 thereunder.
(p) If an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Securities by Holders to the Issuer (or to such other Person
as directed by the Issuer) in exchange for the Exchange Securities, the Issuer
and the Guarantors shall mark, or cause to be marked, on such Transfer
Restricted Securities that such Transfer Restricted Securities are being
cancelled in exchange for the Exchange Securities; in no event shall such
Transfer Restricted Securities be marked as paid or otherwise satisfied.
(q) Cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
(r) Use their best efforts to take all other steps necessary to
effect the registration of the Transfer Restricted Securities covered by a
Registration Statement contemplated hereby.
(s) Use their best efforts to cause the Transfer Restricted
Securities or the Exchange Securities, as applicable, covered by an effective
registration statement required by Section 2 or Section 3 hereof to be rated
with the appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Transfer Restricted Securities
relating to such registration statement or the managing underwriters in
connection therewith, if any.
The Issuer may require each seller of Transfer Restricted Securities
or Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Transfer Restricted Securities or
Exchange Securities to be sold by such Participating Broker-Dealer, as the case
may be, as the Issuer may, from time to time, reasonably request. The Issuer
may exclude from such registration the Transfer Restricted Securities of any
seller or Participating Broker-Dealer who fails to furnish such information
within a reasonable time after receiving such request.
12
<PAGE>
Each Holder of Transfer Restricted Securities and each Participating
Broker-Dealer agrees by acquisition of such Transfer Restricted Securities or
Exchange Securities to be sold by such Participating Broker-Dealer, as the case
may be, that, upon receipt of any notice from the Issuer of the happening of any
event of the kind described in Section 5(c) (ii), 5(c) (iv), 5(c) (v), 5 (c)
(vi) or 5(c)(vii), such Holder will forthwith discontinue disposition of such
Transfer Restricted Securities covered by such Registration Statement or
Prospectus or Exchange Securities to be sold by such Participating Broker-
Dealer, as the case may be, until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 50), or until it is
advised in writing (the "Advice") by the Issuer that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto; provided, that in the case of an event of the kind
described in Section 5(c)(vii), the Issuer may only cause such discontinuing of
dispositions for any number of periods not to exceed 3 0 days in the aggregate
in any consecutive 12-month period.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the Issuer and
the Guarantors, whether or not the Exchange Offer or a Shelf Registration is
filed or becomes effective, including, without limitation, (i) all registration
and filing fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Transfer Restricted Securities or
Exchange Securities and determination of the eligibility of the Transfer
Restricted Securities or Exchange Securities for investment under the laws of
such jurisdictions (x) where the Holders of Transfer Restricted Securities are
located, in the case of the Exchange Securities, or (y) as provided in Section
5(h), in the case of Transfer Restricted Securities or Exchange Securities to be
sold by a Participating Broker-Dealer during the Applicable Period)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Transfer Restricted Securities or Exchange Securities in a form
eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, or, in respect of Transfer Restricted Securities or
Exchange Securities to be sold by any Participating Broker-Dealer during the
Applicable Period, by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities included in any Registration Statement or of
such Exchange Securities, as the case may be), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Issuer and the
Guarantors, (v) fees and disbursements of all independent certified public
accountants refer-red to in Section 5(l) (iii) (including, without limitation,
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) the fees and expenses of any "qualified
independent underwriter" or other independent appraiser participating in an
offering pursuant to Section 3 of Schedule E to the By-laws of the NASD, (vii)
rating agency fees, (viii) Securities Act liability insurance, if the Issuer and
the Guarantors desire such insurance, (ix) fees and expenses of all other
Persons retained by the Issuer and the Guarantors, (x) internal expenses of the
Issuer and the Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Issuer and the Guarantors performing
legal or accounting duties), (xi) the expense of any annual audit, (xii) the
fees and expenses incurred in connection with the listing of the securities to
be registered on any securities exchange and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, and indentures. Nothing
contained in this Section 6 shall create an obligation on the part of the Issuer
or any Guarantor to pay or reimburse any Holder for any underwriting commission
or discount attributable to any such Holder's Transfer Restricted Securities
included in an underwritten offering pursuant to a Registration Statement filed
in
13
<PAGE>
accordance with the terms of this Agreement, or to guarantee such Holder any
profit or proceeds from the sale of such Securities.
(b) In connection with any Shelf Registration hereunder, the Issuer
and the Guarantors shall reimburse the Holders of the Transfer Restricted
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities to be included in such Registration Statement
and other reasonable out-of-pocket expenses of the Holders of Transfer
Restricted Securities reasonably incurred in connection with the registration of
the Transfer Restricted Securities.
7. Indemnification
---------------
The Issuer and the Guarantors agree to indemnify and hold harmless (i)
each of the Purchasers, each Holder of Transfer Restricted Securities, each
Holder of Exchange Securities, each Participating Broker-Dealer, (ii) each
person, if any, who controls (within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act) any such Person (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person"),
and (iii) the respective officers, directors ' partners, employees,
representatives and agents of any of such Person or any controlling person (any
person referred to in clause (i), (ii) or (iii) may hereinafter be referred to
as an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation, and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (as amended or supplemented if the Issuer shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by,
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by (i) any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Indemnified Person furnished to the Issuer or any underwriter in writing by
such Indemnified Person expressly for use therein, or (ii) any untrue statement
contained in or omission from a preliminary prospectus if a copy of the
Prospectus (as then amended or supplemented, if the Issuer shall have furnished
to or on behalf of the Holder participating in the distribution relating to the
relevant Registration Statement any amendments or supplements thereto) was not
sent or given by or on behalf of such Holder to the person asserting any such
losses, liabilities, claims, damages or expenses who purchased Securities, if
such is required by law at or prior to the written confirmation of the sale of
such Securities to such person and the untrue statement contained in or omission
from such preliminary prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented). The Issuer and the Guarantors shall
notify the Holders promptly of the institution, threat or assertion of any
claim, proceeding (including any governmental investigation) or litigation of
which it or they shall have become aware in connection with the matters
addressed by this Agreement which involves the Issuer, any Guarantor or an
Indemnified Person.
In connection with any Registration Statement in which an Indemnified
Person is participating, such Indemnified Person agrees, severally and not
jointly, to indemnify and hold harmless the Issuer, each Guarantor and their
directors and officers and each person who controls the Issuer and
14
<PAGE>
the Guarantors within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Issuer and the Guarantors to each Indemnified Person, but only with reference to
information relating to such Indemnified Person furnished to the Issuer in
writing by such Indemnified Person expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Indemnified Person pursuant to this paragraph
shall in no event exceed the net proceeds received by such Indemnified Person
from sales of Transfer Restricted Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
person") in writing, and the indemnifying person, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party, unless (i) the indemnifying person
and the indemnified party shall have mutually agreed in writing to the contrary,
(ii) the indemnifying person failed promptly to assume the defense and employ
counsel reasonably satisfactory to the indemnified party or (iii) the named
parties to any such action (including any impleaded parties) include both such
indemnified party and the indemnifying person, or any affiliate of the
indemnifying person and such indemnified party shall have been reasonably
advised by counsel that either (x) there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying person or such affiliate of the indemnifying person or (y) a
conflict may exist between such indemnified party and the indemnifying person or
such affiliate of the indemnifying person (in which case the indemnifying person
shall not have the right to assume the defense of such action on behalf of such
indemnified party), it being understood, however, that the indemnifying person
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such indemnified parties, which firm shall be designated in writing by
indemnified parties who sold a majority in interest of Transfer Restricted
Securities sold by all such indemnified parties and any such separate firm for
the Issuer and the Guarantors, their directors, their officers and such control
persons of the Issuer and the Guarantors shall be designated in writing by the
Issuer. The indemnifying person shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
person agrees to indemnify any indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying person
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities, or expenses referred to therein (other
than by reason of the exceptions provided therein), then each indemnifying
person under such paragraphs, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims,
15
<PAGE>
damages, liabilities, or expenses (i) in such proportion as is appropriate to
reflect the relative fault of the indemnified party on the one hand and the
indemnifying person(s) on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities, or
expenses or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative fault referred to in clause (i) above but also the relative benefits of
the indemnifying person(s) and the indemnified party, as well as any other
relevant equitable considerations. The relative fault of the Issuer and the
Guarantors on the one hand and any Indemnified Persons on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer and the Guarantors
or by such Indemnified Persons and the parties relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--------
(even if such indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Indemnified Person be required to contribute any amount in excess of the amount
by which proceeds received by such Indemnified Person from sales of Transfer
Restricted Securities exceeds the amount of any damages that such Indemnified
Person has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the indemnifying persons may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to Section 7 are several in
proportion to the respective principal amount of Securities sold by each of the
Indemnified Persons hereunder and not joint.
8. Rules 144 and 144A
------------------
The Issuer and the Guarantors covenant that they will file the reports
required to be filed by them pursuant to the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
and, if at any time the Issuer and the Guarantors are not required to file such
reports, they will, upon the request of any Holder of Transfer Restricted
Securities, make available information required by Rules 144 and 144A under the
Securities Act in order to permit sales pursuant to Rule 144 and Rule 144A. The
Issuer and the Guarantors further covenant that they will take such further
action as any Holder of Transfer Restricted Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Transfer Restricted Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A
under the Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC.
16
<PAGE>
9. Underwritten Registrations
--------------------------
(a) If any of the Transfer Restricted Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Securities included in such offering and reasonably
acceptable to the Issuer.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if requested
(pursuant to a timely written notice) by the managing underwriters in an
underwritten offering or placement agent in a private offering of the Company's
or the Guarantors' debt securities, not to effect any private sale or
distribution (including a sale pursuant to Rule 144(k) and Rule 144A, but
excluding nonpublic sales to any of its affiliates, officers, directors,
employees and controlling persons) of any of the Securities except pursuant to
an Exchange Offer), during the period beginning 10 days prior to, and ending 90
days after, the closing date of the underwritten offering.
The foregoing provisions shall not apply to any holder of Transfer
Restricted Securities if such holder is prevented by applicable statute or
regulation from entering into any such agreement.
The Issuer and the Guarantors agree without the written consent of the
managing underwriters in an underwritten offering of Transfer Restricted
Securities covered by a Registration Statement filed pursuant to Section 3
hereof, not to effect any public or private sale or distribution of its
respective debt securities, including a sale pursuant to Regulation D or Rule
144A under the Securities Act, during the period beginning I 0 days prior to,
and ending 90 days after, the closing date of each underwritten offering made
pursuant to such Registration Statement provided, however, that such period
-------- -------
shall be extended by the number of days from and including the date of the
giving of any notice pursuant to Section 5(c) (v) or (c) (vi) hereof to and
including the date when each seller of Transfer Restricted Securities covered by
such Registration Statement shall have received the copies of the supplemented
or amended Prospectus contemplated by Section 50) hereof).
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Issuer of any of its
--------
obligations under this Agreement, each Holder of Transfer Restricted Securities,
in addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Purchasers, in the Purchase Agreement, or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Issuer and the Guarantors
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by them of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate.
17
<PAGE>
(b) No Inconsistent Agreements. The Issuer and the Guarantors have
--------------------------
not, as of the date hereof, and they shall not, after the date of this
Agreement, enter into any agreement with respect to any of their respective
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Issuer and the Guarantors have not entered, and will not
enter, into any agreement with respect to any of their respective securities
which will grant to any Person piggyback registration rights with respect to a
Registration Statement.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Issuer has obtained the written consent of Holders
of at least a majority of the then outstanding aggregate principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Transfer Restricted Securities
whose securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect, impair, limit or compromise the rights
of other Holders of Transfer Restricted Securities may be given by Holders of at
least a majority in aggregate principal amount of the Transfer Restricted
Securities being sold by such Holders pursuant to such Registration Statement;
provided that the provisions of this sentence may not be amended, modified or
- --------
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(d) Notices. All notices and other communications (including without
-------
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or telecopier:
(i) if to a Holder of Transfer Restricted Securities, at the most
current address given by the Trustee to the Issuer; and
(ii) if to the Issuer or the Guarantors, 10400 Fernwood Road,
Bethesda, Maryland 20817, Attention: Christopher G. Townsend, Senior Vice
President and General Counsel.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities. The Issuer and the
Guarantors agree that the Holders of the Securities shall be third party
creditor beneficiaries to the agreements made hereunder by the Purchasers and
the Issuer, the Guarantors and each Holder shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder.
18
<PAGE>
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
ten-n, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(k) Securities Held by the Issuer, the Guarantors, or Its Affiliates.
----------------------------------------------------------------
Whenever the consent or approval of Holders of a specified percentage of
Transfer Restricted Securities is required hereunder, Transfer Restricted
Securities held by the Issuer, the Guarantors, or their affiliates (as such term
is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ISSUER
------
HOST MARRIOTT, L.P.
By: /s/ Christopher G. Townsend
----------------------------------------------
Name: Christopher G. Townsend
Title: Senior Vice President of Host Marriott
Corporation, its general partner
GUARANTORS
----------
HMH RIVERS, L.P.
By: /s/ Christopher G. Townsend
----------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMH Rivers
LLC, its general partner
HMH MARINA LLC
By: /s/ Christopher G. Townsend
----------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH SBM TWO LLC
By: /s/ Christopher G. Townsend
----------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH PLP LLC
By: /s/ Christopher G. Townsend
----------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMH RETIREMENT PROPERTIES, L.P.
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMC Retirement
Properties LLC, its general partner
HMH PENTAGON LLC
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH SFO LLC
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
AIRPORT HOTELS LLC
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
CHESAPEAKE FINANCIAL SERVICES LLC
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC CAPITAL RESOURCES LLC
By: /s/ Christopher G. Townsend
-----------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
YBG ASSOCIATES LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
PRM LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HOST PARK RIDGE LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HOST OF BOSTON, LTD
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of Airport Hotels
LLC, its general partner
HOST OF HOUSTON 1979
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of Airport Hotels
LLC, is general partner
PHILADELPHIA AIRPORT HOTEL LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMC RETIREMENT PROPERTIES, LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH HARTFORD LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH NORFOLK LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH PARK RIDGE II LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH PARK RIDGE LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMC Park Ridge
II LLC, its general manager
HMH PARTNERSHIP HOLDINGS LLC
By: /s/ Christopher G. Townsend
-------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
MFR OF VERMONT LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
MFR OF WISCONSIN LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC MARQUIS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
PM FINANCIAL LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
PM FINANCIAL LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
PM FINANCIAL LP
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of PM Financial
LLC, its general partner
<PAGE>
HMC CHICAGO LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC HPP LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH RIVERS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH WTC LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMP CAPITAL VENTURES LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMP FINANCIAL SERVICES LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HOST LA JOLLA LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
CITY CENTER HOTEL LIMITED PARTNERSHIP
By:/s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of Host La Jolla
LLC, its general partner
MFR OF ILLINOIS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC OLS I L.P.
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMC OLS I LLC,
its general partner
HMC RITZ LOAN I LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC RTZ II LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC SEATTLE, LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMC SWISS HOLDINGS, LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC WATERFORD LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMH RESTAURANTS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC FINANCIAL LEASING LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC CAPITAL LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC GRAND LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC HOTEL DEVELOPMENT LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMH DEVELOPMENT LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC MEXPARK LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC POLANCO LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC NGL LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC SUITES LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
MARRIOTT SUITES LIMITED PARTNERSHIP
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMC Suites LLC
its general partner
<PAGE>
WELLSFORD-PARK RIDGE MARRIOTT HOTEL LIMITED PARTNERSHIP
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of Host Park Ridge
LLC, its general partner
CITY CENTER INTERSTATE PARTNERSHIP LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
FARRELL'S INC. CREAM PARLOR RESTAURANTS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC BURLINGAME LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
SAGA PROPERTY LEASING LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
SAGA RESTAURANTS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMC ATLANTIC LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
IVY STREET LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC PROPERTIES II LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
SANTA CLARA HMC LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC DESERT LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC HANOVER LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC DIVERSIFIED LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
HMC PROPERTIES I LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC POTOMAC LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC EAST SIDE II LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC EAST SIDE IILLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC MANHATTAN BEACH LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
CHESAPEAKE HOTEL LIMITED PARTNERSHIP
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President OF HMC PLP LLC,
its general partner
<PAGE>
HMH GENERAL PARTNER HOLDINGS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC IHP HOLDING LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC OP BN LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
S.D. HOTELS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC GATEWAY LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC PACIFIC GATEWAY LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC DESERT SPRINGS LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
MDSM FINANCE LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
MARKET STREET MARRIOTT LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
HMC MARKET STREET LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
NEW MARKET STREET LP
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President of HMC New Market
Street LLC, its general partner
TIMES SQUARE LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
TIMES SQUARE GP LLC
By: /s/ Christopher G. Townsend
--------------------------------------------------
Name: Christopher G. Townsend
Title: Executive Vice President
<PAGE>
EXHIBIT 12.1
HOST MARRIOTT L.P. AND SUBSIDIARIES(1)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(in millions, except ratio amounts)
<TABLE>
<CAPTION>
First
Quarter Fiscal Year
---------- ----------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations before income
taxes................................ $ 58 $ 48 $174 $ 83 $ (8) $(75) $(16)
Add (deduct):
Fixed charges....................... 118 94 415 364 283 206 184
Capitalized interest................ (1) -- (4) (1) (3) (5) (10)
Amortization of capitalized
interest........................... 1 1 6 5 7 6 8
Net gains (losses) related to
certain 50% or less owned
affiliate.......................... 1 -- (1) (1) 1 2 5
Minority interest in consolidated
affiliates......................... 5 16 52 31 6 2 1
---- ---- ---- ---- ---- ---- ----
Adjusted earnings................... $182 $159 $642 $481 $286 $136 $172
==== ==== ==== ==== ==== ==== ====
Fixed charges:
Interest on indebtedness and
amortization of deferred financing
costs.............................. $108 $ 76 $335 $288 $237 $178 $165
Dividends on convertible preferred
securities of subsidiary trust..... -- 9 37 37 3 -- --
Portion of rents representative of
the interest factor................ 10 9 43 39 33 17 11
Debt service guarantee interest
expense of unconsolidated
affiliates......................... -- -- -- -- 10 11 8
---- ---- ---- ---- ---- ---- ----
Total fixed charges and preferred
stock dividends.................... $118 $ 94 $415 $364 $283 $206 $184
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges and
preferred stock dividends............ 1.55 1.70 1.54 1.32 1.01 -- --
Deficiency of earnings to fixed
charges and preferred stock
dividends............................ -- -- -- -- -- 70 12
</TABLE>
- --------
(1) The financial information utilized for the computation of ratio of
earnings to fixed charges and preferred stock dividends represents the
financial information of Host Marriott Corporation, predecessor to Host
Marriott, L.P. for all periods prior to the first quarter of 1999.
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
Washington, DC
May 21, 1999
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
HSBC Bank USA
(formerly known as Marine Midland Bank)
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, NY 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Warren L. Tischler
Senior Vice President
HSBC Bank USA
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-5167
(Name, address and telephone number of agent for service)
HOST MARRIOTT, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7011 52-2095412
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
(Address, including zip code, and telephone number, including area code,
of registrant's executive offices)
Christopher G. Townsend
Bethesda, Maryland 20817
(301) 380-9000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
8 3/8% Series E Senior Notes due 2006
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
--------------------------
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
-----------------
Exhibit
- -------
T1A(i) * - Copy of the Organization Certificate of HSBC
Bank USA.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of HSBC Bank USA
to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of HSBC Bank
USA as adopted on January 20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of HSBC Bank USA required by
Section 321(b) of the Trust Indenture Act
of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (December 31, 1998),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HSBC Bank USA, a banking corporation and trust company organized under the laws
of the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York on the 19th day of May 1999.
HSBC BANK USA
By: /s/ Anthony R. Bufinsky
-------------------------
Anthony R. Bufinsky
Corporate Trust Officer
<PAGE>
Exhibit T1A (vii)
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------
Please refer to page i, [ 1 ]
Table of Contents, for
the required disclosure
of estimated burden.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(19980930)
Consolidated Reports of Condition and Income for -----------
A Bank With Domestic and Foreign Offices--FFIEC 031 (RCRI 9030)
Report at the close of business December 31, 1998
This report is required by law; 12 U.S.C. (S)324 (State member banks);
12 U.S.C. (S) 1817 (State nonmember banks); and 12 U.S.C. (S)161
(National banks).
This report form is to be filed by banks with branches and
consolidated subsidiaries in U.S. territories and possessions, Edge or
Agreement subsidiaries, foreign branches, consolidated foreign
subsidiaries, or International Banking Facilities.
The Reports of Condition and Income are to be prepared in accordance
with Federal regulatory authority instructions.
We, the undersigned directors (trustees), attest to the correctness of
this Report of Condition (including the supporting schedules) and
declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority
and is true and correct.
NOTE: The Reports of Condition and Income must be signed by an
authorized officer and the Report of Condition must be attested to by
not less than two directors (trustees) for State nonmember banks and
three directors for State member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
- ---------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition
and Income (including the supporting schedules) have been prepared in
conformance with the instructions issued by the appropriate Federal
regulatory authority and are true to the best of my knowledge and
believe.
<TABLE>
<S> <C>
/s/ Gerald A. Ronning /s/ John R. H. Bond
- ---------------------------------------------------- -----------------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
1/22/99 /s/ Sal H. Alfiero
- ----------------------------------------------------- -----------------------------------------------------
Date of Signature Director (Trustee)
/s/ Bernard J. Kennedy
----------------------------------------------------
Director (Trustee)
</TABLE>
Submission of Reports
Each Bank must prepare its Reports of Condition and Income either:
(a) in automated format then file the computer data file directly
with the banking agencies' collection agent, Electronic Data System
Corporation (EDS), by modem or computer diskette; or
(b) in hard-copy (paper) form and arrange for another party to convert
the paper report to automated for. That party (if other than EDS) must
transmit the bank's computer data file to EDS
To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page
to the hard-copy f the completed report that the bank places in its
files.
FDIC Certificate Number [0] [0] [5] [8] [9]
-----------------------
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
To Tender
Unregistered 8 3/8% Series D Senior Notes due 2006
(including those in book-entry form)
of
HOST MARRIOTT, L.P.
Pursuant to the Exchange Offer and Prospectus dated [ ] 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [ ] 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER
IS EXTENDED BY HOST MARRIOTT, L.P.
The Exchange Agent for the Exchange Offer is:
HSBC Bank USA
Deliver to:
HSBC Bank USA, Exchange Agent
By Registered or Certified Mail: By Hand or Overnight Delivery:
140 Broadway 140 Broadway
A Level A Level
New York, New York 10005-1180 New York, New York 10005-1180
Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile:
(Eligible Institutions Only)
(212) 658-2292
Attn: Anthony Bufinsky
For Information or
Confirmation by Telephone:
(212) 658-5931
Originals of all documents sent by facsimile should be sent promptly by
registered or
certified mail, by hand or by overnight delivery service.
Delivery of this Letter of Transmittal to an address or transmission of
instructions via facsimile other than as set forth above will not constitute a
valid delivery.
IF YOU WISH TO EXCHANGE UNREGISTERED 8 3/8% SERIES D SENIOR NOTES DUE 2006
(THE "SERIES D NOTES"), FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 8
3/8% SERIES E SENIOR NOTES DUE 2006 (THE "SERIES E NOTES"), PURSUANT TO THE
EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD NOTES TO THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE
COMPLETING THIS LETTER OF TRANSMITTAL
<PAGE>
This Letter of Transmittal is to be completed by holders of Series D senior
notes either if Series D senior notes are to be forwarded herewith or if
tenders of Series D senior notes are to be made by book-entry transfer to an
account maintained by HSBC Bank USA (the "Exchange Agent") at The Depository
Trust Company pursuant to the procedures set forth in "The Exchange Offer--
Procedures for Tendering" in the Prospectus (as defined).
Holders of Series D senior notes whose certificates for such Series D senior
notes are not immediately available or who cannot deliver their certificates
and all other required documents to HSBC Bank USA on or prior to the Expiration
Date or who cannot complete the procedures for book-entry transfer on a timely
basis, must tender their Series D senior notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus.
- -----------------------------------------------------------------------
DESCRIPTION OF TENDERED OLD NOTES
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Names(s) and Address(es)
of Registered Owner(s) Aggregate
as it appears on the 8 Certificate Principal Amount
3/8% Senior Subordinated Notes due Number(s) of Series D
2008 of Series D senior
(Please fill in, if blank) senior notes notes Tendered
- -----------------------------------------------------------------------
<S> <C> <C>
----------------- -----------------
----------------- -----------------
----------------- -----------------
----------------- -----------------
Total Principal
Amount of Old
Notes Tendered
----------------- -----------------
</TABLE>
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _______________________________________________
Account Number ______________________________________________________________
Transaction Code Number _____________________________________________________
[_]CHECK HERE AND ENCLOSE A COPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ________________________________________________
Window Ticket Number (if any) _______________________________________________
Date of Execution of Notice of Guaranteed Delivery __________________________
Name of Institution which Guaranteed Delivery _______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution _______________________________________________
Account Number ______________________________________________________________
Transaction Code Number _____________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
3
<PAGE>
Ladies and Gentlemen:
1. The undersigned hereby tenders to Host Marriott, L.P., a Delaware limited
partnership (the "Company"), the Series D senior notes, described above
pursuant to the Company's offer of $1,000 principal amount of the Series E
senior notes, in exchange for each $1,000 principal amount of the Series D
senior notes, upon the terms and subject to the conditions contained in the
Prospectus dated [ ], 1999 (the "Prospectus"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Exchange Offer").
2. The undersigned hereby represents and warrants that it has full authority
to tender the Series D senior notes described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the tender of Series D senior notes.
3. The undersigned understands that the tender of the Series D senior notes
pursuant to all of the procedures set forth in the Prospectus will constitute
an agreement between the undersigned and the Company as to the terms and
conditions set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that;
(i) the Series E senior notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the undersigned,
whether or not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in or
intends to engage in a distribution of such Series E senior notes;
(iii) neither the undersigned nor any such other person has an arrangement
or understanding with any person to participate in the distribution
of such Series E senior notes;
(iv) if the undersigned is a resident of the State of California, it falls
under the self-executing institutional investor exemption set forth
under Section 25102(i) of the Corporate Securities Law of 1968 and
Rules 260.102.10 and 260.105.14 of the California Blue Sky
Regulations;
(v) if the undersigned is a resident of the Commonwealth of Pennsylvania,
it falls under the self-executing institutional investor exemption set
forth under Sections 203(c), 102(d) and (k) of the Pennsylvania
Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky
Regulations and an interpretive opinion dated November 16, 1985;
(vi) the undersigned acknowledges and agrees that any person who is a
broker-dealer registered under the Securities Exchange Act of 1934, as
amended, or is participating in the Exchange Offer for the purpose of
distributing the Series E senior notes must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction of the Series E
senior notes or interests therein acquired by such person and cannot
rely on the position of the staff of the Securities and Exchange
Commission set forth in certain no-action letters;
(vii) the undersigned understands that a secondary resale transaction
described in clause (vi) above and any resales of Series E senior
notes or interests therein obtained by such holder in exchange for
Series D senior notes or interests therein originally acquired by
such holder directly from the Company should be covered by an
effective registration statement containing the selling security
holder information required by Item 507 or Item 508, as applicable,
of Regulation S-K of the Commission; and
(viii) neither the holder nor any such other person is an "affiliate," as
such term is defined under Rule 405 promulgated under the Securities
Act of 1933, as amended, of the Company.
5. The undersigned may, if and only if unable to make all of the
representations and warranties contained in Item 4 above, elect to have its
Series D senior notes registered in the shelf registration described in the
Registration Rights Agreement, dated as of February 25, 1999, between the
Company and the initial
4
<PAGE>
purchasers in the form filed as an exhibit to the Registration Statement (all
terms used in this Item 5 with their initial letters capitalized, unless
otherwise defined herein, shall have the meanings given them in the
Registration Agreement). Such election may be made by checking the box under
"Special Registration Instructions" on page 6. By making such election, the
undersigned agrees, jointly and severally, as a holder of Transfer Restricted
Securities participating in a shelf registration, to indemnify and hold
harmless the Company, its directors and officers and each Person who controls
the Company within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act of 1934 against any and all losses,
claims, damages and liabilities whatsoever (including, without limitation, the
reasonable legal and other expenses actually incurred in connection with any
suit, action or proceeding or any claim asserted) caused by, arising out of or
based upon (1) any untrue statement or alleged untrue statement of any material
fact contained in the Shelf Registration Statement or the Prospectus or in any
amendment thereof or supplement thereto or (2) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the extent,
that any such loss, claim, damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with information
relating to the undersigned furnished to the Company in writing by or on behalf
of the undersigned expressly for use therein. Any such indemnification shall be
governed by the terms and subject to the conditions set forth in the
Registration Rights Agreement, including, without limitation, the provisions
regarding notice, retention of counsel, contribution and payment of expenses
set forth therein. The above summary of the indemnification provision of the
Registration Rights Agreement is not intended to be exhaustive and is qualified
in its entirety by reference to the Registration Rights Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Series E senior notes. If the undersigned is a broker-dealer that will receive
Series E senior notes for its own account in exchange for Series D senior notes
that were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such Series E senior notes, however, by so acknowledging and
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933. If the
undersigned is a broker-dealer and Series D senior notes held for its own
account were not acquired as a result of market-making or other trading
activities, such Series D senior notes cannot be exchanged pursuant to the
Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the Series E senior notes will be issued in the name of
the undersigned.
5
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the Series E senior notes are to be issued or
sent to someone other than the undersigned or to the undersigned at an
address other than that provided above.
Mail [_] Issue [_] (check appropriate boxes) certificates to:
Name: ______________________________________________________________________
(Please Print)
Address: ___________________________________________________________________
(Include Zip Code)
____________________________________________________________________________
____________________________________________________________________________
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (1) the undersigned satisfies the conditions set
forth in Item 5 above, (2) the undersigned elects to register its Series D
senior notes in the Shelf Registration described in the Registration Rights
Agreement and (3) the undersigned agrees to indemnify certain entities and
individuals as set forth in the Registration Rights Agreement and
summarized in Item 5 above.
[_] By checking this box the undersigned hereby (1) represents that it
is unable to make all of the representations and warranties set forth in
Item 4 above, (2) elects to have its Series D senior notes registered
pursuant to the Shelf Registration described in the Registration Rights
Agreement and (3) agrees to indemnify certain entities and individuals
identified in, and to the extent provided in, the Registration Rights
Agreement and summarized in Item 5 above.
6
<PAGE>
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by
registered holder exactly as name appears on Series D senior notes. If
signature is by trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
X _________________________________________________________________________
X _________________________________________________________________________
Signature(s) of Registered Holder(s) or Authorized Signature
Dated: ____________________________________________________________________
Names(s):__________________________________________________________________
(Please Type or Print)
Capacity: _________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Including Zip Code)
Area Code and Telephone
No.: ______________________________________________________________________
SIGNATURE GUARANTEE (If Required by Instruction 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
___________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
___________________________________________________________________________
(Address (including zip code) and Telephone Number (including area code) of
Firm)
___________________________________________________________________________
(Authorized Signature)
___________________________________________________________________________
(Printed Name)
___________________________________________________________________________
(Title)
Dated: ____________________________________________________________________
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL
7
<PAGE>
INSTRUCTIONS
1. Guarantee of Signatures. Signatures on this Letter of Transmittal must be
guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule l7Ad-15 promulgated under the Exchange
Act of 1934 (an "Eligible Institution") unless the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" above has not
been completed or the Series D senior notes described above are tendered for
the account of an Eligible Institution.
2. Delivery of Letter of Transmittal and Series D senior notes. The Series D
senior notes, together with a properly completed and duly executed Letter of
Transmittal (or copy thereof), should be mailed or delivered to the Exchange
Agent at the address set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES,
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. Signature on Letter of Transmittal, Bond Powers and Endorsements. If this
Letter of Transmittal is signed by a person other than a registered holder of
any Series D senior notes, such Series D senior notes must be endorsed or
accompanied by appropriate bond powers, signed by such registered holder
exactly as such registered holder's name appears on such Series D senior notes.
If this Letter of Transmittal or any Series D senior notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations, or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted with this Letter of Transmittal.
4. Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Series D
senior notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves
the absolute right to reject any or all Series D senior notes not properly
tendered or any Series D senior notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Series D senior notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) will be final and binding. Unless waived, any
defects or irregularities in connection with tenders of Series D senior notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent, nor any other person shall be under any duty to
give notification of defects in such tenders or shall incur any liability for
failure to give such notification. Tenders of Series D senior notes will not he
deemed to have been made until such defects or irregularities have been cured
or waived. Any Series D senior notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holder thereof as soon as practicable following the Expiration Date.
8
<PAGE>
LETTER TO CLIENTS
REGARDING THE OFFER TO EXCHANGE
$300,000,000 PRINCIPAL AMOUNT OF 8 3/8% SERIES E SENIOR NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING
$300,000,000 PRINCIPAL AMOUNT OF 8 3/8% SERIES D SENIOR NOTES DUE 2006
OF
HOST MARRIOTT, L.P.
To Our Clients:
We are enclosing herewith a Prospectus, dated [ ], 1999, of Host
Marriott, L.P. (the "Company") and a related Letter of Transmittal relating to
the offer (which together constitute the "Exchange Offer") by the Company to
exchange its new 8 3/8% Series E Senior Notes due 2006 (the "Series E senior
notes"), pursuant to an offering registered under the Securities Act of 1933,
as amended (the "Securities Act"), for a like principal amount of its issued
and outstanding 8 3/8% Series D Senior Notes due 2006 (the "Series D senior
notes") upon the terms and subject to the conditions set forth in the
Prospectus and the Letter of Transmittal.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON [ ] 1999, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Series D
senior notes being tendered.
We are the registered holder or DTC participant through which you hold an
interest in the Series D senior notes. A tender of such Series D senior notes
can be made only by us pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender your beneficial ownership of Series D senior notes held by us for your
account.
We request instructions as to whether you wish to tender any or all of your
Series D senior notes held by us for your account pursuant to the terms and
subject to the conditions of the Exchange Offer. We also request that you
confirm that we may on your behalf make the representations contained in the
Letter of Transmittal that are to be made with respect to you as beneficial
owner.
Pursuant to the Letter of Transmittal, each holder of Series D senior notes
must make certain representations and warranties that are set forth in the
Letter of Transmittal and in the attached form that we have provided to you for
your instructions regarding what action we should take in the Exchange Offer
with respect to your interest in the Series D senior notes.
<PAGE>
LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS
REGARDING THE OFFER TO EXCHANGE
$300,000,000 PRINCIPAL AMOUNT OF 8 3/8% SERIES E SENIOR NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING
$300,000,000 PRINCIPAL AMOUNT OF 8 3/8% SERIES D SENIOR NOTES DUE 2006
OF
HOST MARRIOTT, L.P.
To Registered Holders and The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by Host Marriott, L.P. to exchange our new 8 3/8% Series E Senior Notes due
2006, pursuant to an offering registered under the Securities Act of 1933, as
amended, for a like principal amount of our issued and outstanding 8 3/8%
Series D Senior Notes due 2006 upon the terms and subject to the conditions set
forth in our Prospectus, dated [ ] 1999, and the related Letter of
Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated [ ] 1999;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder or DTC Participant from Beneficial
Owner; and
5. Letter which may be sent to your clients for whose account you hold
definitive registered notes or book-entry interests representing Series D
senior notes in your name or in the name of your nominee, to accompany the
instruction form referred to above, for obtaining such client's instruction
with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ]
1999, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Series D
senior notes being tendered.
To participate in the Exchange Offer, a beneficial holder must either (1)
cause to be delivered to HSBC Bank USA (the "Exchange Agent") at the address
set forth in the Letter of Transmittal Definitive Registered Notes in proper
form for transfer together with a properly executed Letter of Transmittal or
(2) cause a DTC Participant to tender such holder's Series D senior notes to
the Exchange Agent's account maintained at the Depository Trust Company ("DTC")
for the benefit of the Exchange Agent through DTC's Automated Tender Offer
Program ("ATOP"), including transmission of a computer-generated message that
acknowledges and agrees to be bound by the terms of the Letter of Transmittal.
By complying with DTC's ATOP procedures with respect to the Exchange Offer, the
DTC Participant confirms on behalf of itself and the beneficial owners of
tendered Series D senior notes all provisions of the Letter of Transmittal
applicable to it and such beneficial owners as fully as if it completed,
executed and returned the Letter of Transmittal to the Exchange Agent.
Pursuant to the Letter of Transmittal, each holder of Series D senior notes
will represent that: (1) the Series E senior notes or book-entry interests
therein to be acquired by such holder and any beneficial owner(s) of such
Series D senior notes or interests therein ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by such holder and any
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (2) the holder and each Beneficial Owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the
<PAGE>
distribution of the Series E senior notes, (3) if the holder or Beneficial
Owner is a resident of the State of California, it falls under the self-
executing institutional investor exemption set forth under Section 25102(i) of
the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the
California Blue Sky Regulations, (4) if the holder or Beneficial Owner is a
resident of the Commonwealth of Pennsylvania, it falls under the self-executing
institutional investor exemption set forth under Sections 203(c), 102(d) and
(k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the
Pennsylvania Blue Sky Regulations and an interpretive opinion dated November
16, 1985, (5) the holder and each Beneficial Owner acknowledge and agree that
any person who is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended, or is participating in the Exchange Offer for the purpose
of distributing the Series E senior notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in connection
with a secondary resale transaction of the Series E senior notes or interests
therein acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters, (6) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (5) above and any resales of Series E senior notes or interests therein
obtained by such holder in exchange for Series D senior notes or interests
therein originally acquired by such holder directly from us should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (7) neither the holder nor any Beneficial Owner(s) is our
"affiliate," as defined in Rule 405 under the Securities Act of 1933. Upon our
request, a holder or beneficial owner will deliver to the Company a legal
opinion confirming its representation made in clause (7) above. If the
tendering holder of Series D senior notes is a broker-dealer (whether or not it
is also an "affiliate") or any Beneficial Owner(s) that will receive Series E
senior notes for its own or their account pursuant to the Exchange Offer, the
tendering holder will represent on behalf of itself and the Beneficial Owner(s)
that the Series D senior notes to be exchanged for the Series E senior notes
were acquired as a result of market-making activities or other trading
activities, and acknowledge on its own behalf and on the behalf of such
Beneficial Owner(s) that it or they will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
such Series E senior notes; however, by so acknowledging and by delivering a
prospectus, such tendering holder will not be deemed to admit that it or any
Beneficial Owner is an "underwriter" within the meaning of the Securities Act
of 1933.
The enclosed "Instruction to Registered Holder or DTC Participant from
Beneficial Owner" form contains an authorization by the beneficial owners of
Series D senior notes for you to make the foregoing representations.
We will not pay any fee or commission to any broker or dealer or to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Series D senior notes pursuant to the Exchange
Offer. We will pay or cause to be paid any transfer taxes payable on the
transfer of Series D senior notes to it, except as otherwise provided in
Instruction 7 of the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from HSBC Bank
USA, New York.
Very truly yours,
HOST MARRIOTT, L.P.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF HOST MARRIOTT, L.P. OR HSBC BANK USA, NEW YORK OR AUTHORIZE YOU TO
USE ANY DOCUMENT OR MAKE ANY STATEMENT ON OUR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
2
<PAGE>
INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
FOR
8 3/8% SERIES D SENIOR NOTES DUE 2006
OF
HOST MARRIOTT, L.P.
The undersigned hereby acknowledges receipt of the Prospectus, dated [ ]
1999 (the "Prospectus"), of Host Marriott, L.P., a Delaware limited partnership
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal") that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
assigned to them in the Prospectus and the Letter of Transmittal.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the 8 3/8% Series D Senior Notes due 2008 (the
"Series D senior notes") held by you for the account of the undersigned.
The principal amount of the Series D senior notes held by you for the
account of the undersigned is (fill in amount):
$ principal amount of Series D senior notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_]To TENDER the following principal amount of Series D senior notes held
by you for the account of the undersigned (insert amount of Series D
senior notes to be tendered, if any):
$ principal amount of Series D senior notes.
[_]NOT to TENDER any Series D senior notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Series D senior notes held by
you for the account of the undersigned, it is understood that you are
authorized:
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to
the undersigned as a beneficial owner, including but not limited to the
representations that (1) the 8 3/8% Series E Senior Notes due 2008 ("Series
E senior notes") or book-entry interests therein to be acquired by the
undersigned (the "Beneficial Owner(s)") in connection with the Exchange
Offer are being acquired by the undersigned in the ordinary course of
business of the undersigned, (2) the undersigned is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Series E senior notes,
(3) if the undersigned is a resident of the State of California, it falls
under the self-executing institutional investor exemption set forth under
Section 25102(i) of the Corporate Securities Law of 1968 and Rules
260.102.10 and 260.105.14 of the California Blue Sky Regulations, (4) if
the undersigned is a resident of the Commonwealth of Pennsylvania, it falls
under the self-executing institutional investor exemption set forth under
Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972,
Section 102.111 of the Pennsylvania Blue Sky Regulations and an
interpretive opinion dated November 16, 1985, (5) the undersigned
acknowledges and agrees that any person who is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, or is participating
in the Exchange Offer for the purpose of distributing the Series E senior
notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
<PAGE>
secondary resale transaction of the Series E senior notes or interests
therein acquired by such person and cannot rely on the position of the
staff of the Securities and Exchange Commission set forth in certain no-
action letters, (6) the undersigned understands that a secondary resale
transaction described in clause (5) above and any resales of Series E
senior notes or interests therein obtained by such holder in exchange for
Series D senior notes or interests therein originally acquired by such
holder directly from the Company should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (7) the undersigned is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company. Upon a request by the
Company, a holder or beneficial owner will deliver to the Company a legal
opinion confirming its representation made in clause (7) above. If the
undersigned is a broker-dealer (whether or not it is also an "affiliate")
that will receive Series E senior notes for its own account pursuant to the
Exchange Offer, the undersigned represents that the Series D senior notes
to be exchanged for the Series E senior notes were acquired by it as a
result of market-making activities or other trading activities, and
acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Series E senior
notes; however, by so acknowledging and by delivering a prospectus, the
undersigned does not and will not be deemed to admit that is and
"underwriter" within the meaning of the Securities Act of 1933;
(b) to agree, on behalf of the undersigned, as set forth in the Letter
of Transmittal; and
(c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Series D senior
notes.
SIGN HERE
Name of Beneficial Owner(s): ________________________________________________
Signature(s): _______________________________________________________________
Name(s) (please print): _____________________________________________________
Address: ____________________________________________________________________
____________________________________________________________________
Telephone Number: ___________________________________________________________
Taxpayer Identification or Social Security Number: __________________________
Date: _______________________________________________________________________
2
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
To Tender
Unregistered 8 3/8% Series D Senior Notes due 2006
(including those in book-entry form)
of
HOST MARRIOTT, L.P.
Pursuant to the Exchange Offer and Prospectus dated [ ], 1999
As set forth in the Prospectus, dated [ ], 1999, of Host Marriott, L.P.,
this form or one substantially equivalent hereto must be used to accept the
Exchange Offer (1) if certificates for unregistered 8 3/8% Series D Senior
Notes due 2006 (the "Series D senior notes") of Host Marriott, L.P., a Delaware
limited partnership (the "Company"), are not immediately available, (2) time
will not permit a holder's Series D senior notes or other required documents to
reach the Exchange Agent on or prior to the expiration date or (3) the
procedure for book-entry transfer cannot be completed on a timely basis. This
form may be delivered by facsimile transmission, registered or certified mail,
by hand or by overnight delivery service to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering" in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [ ] 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED) BY THE COMPANY.
The Exchange Agent for the Exchange Offer is:
HSBC Bank USA
Deliver to:
HSBC Bank USA, New York, Exchange Agent
By Registered or Certified Mail: By Hand or Overnight Delivery:
140 Broadway 140 Broadway
A Level A Level
New York, New York 10005-1180 New York, New York 10005-1180
Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile:
(Eligible Institutions Only)
(212) 658-2292
Attn: Anthony Bufinsky
For Information or
Confirmation by Telephone:
(212) 658-5931
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
Delivery of this Notice of Guaranteed Delivery to an address or transmission
of this Notice of Guaranteed Delivery via facsimile other than as set forth
above will not constitute a valid delivery.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus, dated [ ] 1999, it may be
amended or supplemented from time to time, and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Series D senior notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures."
Name(s) of Registered Holder(s): ____________________________________________
Aggregate Principal
Amount Tendered: $ __________________________________________________________
Certificate No.(s)
(if available): _____________________________________________________________
(Total Principal Amount Represented by
Series D senior notes Certificate(s)): ______________________________________
$ ___________________________________________________________________________
If Series D senior notes will be tendered by book-entry transfer, provide
the following information:
DTC Account Number: _________________________________________________________
Date: _______________________________________________________________________
__________
* Must be in denominations of $1,000 and any integral multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
<PAGE>
PLEASE SIGN HERE
X __________________________________ ____________________________________
X __________________________________ ____________________________________
Signature(s) or Owner(s) (Date
or Authorized Signatory
Area Code and Telephone Number: _____________________________________________
Must be signed by the holder(s) of the Series D senior notes as their
name(s) appear(s) on certificates for Series D senior notes or on a security
position listing, or by person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
Please print name(s) and address(es)
Name(s): ____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Capacity: ___________________________________________________________________
Address (es): _______________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Signature Program or a
firm or other entity identified in Rule l7Ad-15 under the Securities Exchange
Act of 1 934, as amended, as an "eligible guarantor institution," including (as
such terms are defined therein): (1) a bank; (2) a broker, dealer, municipal
securities broker, municipal securities dealer, government securities broker,
government securities dealer; (3) a credit union; (4) a national securities
exchange, registered securities association or learning agency; or (5) a
savings association that is a participant in a Securities Transfer Association
recognized program (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees to deliver to the Exchange Agent, at one of
its addresses set forth above, either the Series D senior notes tendered hereby
in proper form for transfer, or confirmation of the book-entry transfer of such
Series D senior notes to the Exchange Agent's account at The Depositary Trust
Company, pursuant to the procedures for book-entry transfer set forth in the
Prospectus, within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Series D senior notes
tendered hereby to the Exchange Agent within the time period set forth above
and that failure to do so could result in a financial loss to the undersigned.
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Name of Firm Authorized Signature
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Address Title
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Zip Code (Please Type or Print)
Area Code and Telephone No.: _______ Dated: _____________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.
