<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1996
REGISTRATION NO. 33-54545
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO. 5
ON FORM S-3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOST MARRIOTT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7011 53-0085950
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN J. MCKENNA, ESQ.
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
PLEASE SEND COPIES OF COMMUNICATIONS TO:
BRUCE E. ROSENBLUM, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W. SUITE 1300
WASHINGTON, D.C. 20004-2505
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after the effective date of this
Registration Statement.
If the only securities being registered on the form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<PAGE>
HOST MARRIOTT CORPORATION
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-3
<TABLE>
<CAPTION>
FORM S-3 ITEM NUMBER AND LOCATION OR HEADING IN THE PROSPECTUS
CAPTION OR REGISTRATION STATEMENT
------------------------ -------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front and Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering
Price........................ The Offering
6. Dilution..................... *
7. Selling Security Holders..... *
8. Plan of Distribution......... Plan of Distribution
9. Description of Securities to Description of the Warrants; Description of
be Registered................ Capital Stock
10. Interests of Named Experts
and Counsel.................. Legal Matters; Experts
11. Material Changes............. *
12. Incorporation of Certain
Information by Reference..... Information Incorporated by Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. *
</TABLE>
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* Inapplicable
<PAGE>
PROSPECTUS
HOST MARRIOTT CORPORATION
7,700,000 WARRANTS TO ACQUIRE SHARES OF COMPANY COMMON STOCK
7,700,000 SHARES OF COMPANY COMMON STOCK
Host Marriott Corporation, a Delaware corporation (the "Company"), issued
7,700,000 Warrants (the "Warrants") to acquire shares of the Company's common
stock, $1.00 par value per share ("Company Common Stock") in connection with
the settlement of class action lawsuits instituted against the Company and
certain individual defendants by certain holders and purchasers of senior
notes and debentures of the Company. The Warrants were distributed pursuant to
such settlement to the "Initial Warrantholders" as described more fully
herein. See "Plan of Distribution." Additionally, 7,700,000 shares of Company
Common Stock which may be purchased upon exercise of the Warrants by holders
thereof are being offered hereby on a continuous basis. As of June 28, 1996,
approximately 670,000 Warrants have been exercised and approximately 670,000
shares of Company Common Stock have been issued thereunder.
On December 29, 1995 (the "Distribution Date"), the Company made a special
dividend consisting of the distribution (the "Distribution") to holders of
record as of the close of business on December 22, 1995 (the "Record Date") of
Company Common Stock of all outstanding shares of common stock of Host
Marriott Services Corporation ("HM Services"), no par value (the "Services
Common Stock"). Each such holder received one share of Services Common Stock
for every five shares of Company Common Stock held on the Record Date.
Pursuant to the terms of a Warrant Agreement (the "Warrant Agreement"), dated
October 19, 1994 between the Company and First Chicago Trust Company of New
York, as Warrant Agent, the Board of Directors of the Company has determined
that the holders of the Warrants shall participate in the Distribution such
that Warrant holders exercising their right to purchase shares of Company
Common Stock after the close of business on the Record Date will also receive,
on and after the Distribution Date, one share of Services Common Stock for
every five shares of Company Common Stock issuable upon such exercise.
Each Warrant shall be exercisable for one share of Company Common Stock and
one-fifth of one share of Services Common Stock, at the exercise price of (i)
$8.00, if exercised on or before 5:00 p.m. New York City time on October 8,
1996 or (ii) $10.00, if exercised after 5:00 p.m. New York City time on
October 8, 1996, but on or before 5:00 p.m. New York City time on October 8,
1998, subject to adjustment. See "Description of the Warrants." Upon notice to
the Company of the exercise of a Warrant, the Company will issue to the
exercising holder of the Warrants the appropriate number of shares of Company
Common Stock otherwise issuable in connection with such exercise. The Company
will provide notice to HM Services of the exercise of a Warrant and submit a
pro rata portion of the exercise price of each Warrant exercised on or after
October 1, 1995 (such portion to be based on the relative trading values of
Company Common Stock and Services Common Stock immediately following the
Distribution Date). The Warrants may be exercised at any time on or before
5:00 p.m. New York City time on October 8, 1998 (the "Expiration Time"). The
Warrants were issued in connection with the settlement of certain lawsuits and
the Company did not receive any proceeds from issuance of the Warrants.
Proceeds to the Company from the exercise of all Warrants, assuming an
exercise price for each Warrant of $8.00 and $10.00 would be $61,600,000 and
$77,000,000, respectively, before deducting proceeds payable to HM Services
and before deducting expenses payable by the Company. No underwriting
discounts or commissions will be paid in connection with this offering.
The Company does not intend to list the Warrants on any securities exchange
and no assurances can be given that a trading market for the Warrants will
develop or be maintained. The Company Common Stock is traded on the New York
Stock Exchange and on the Chicago Stock Exchange, the Pacific Stock Exchange
and the Philadelphia Stock Exchange under the symbol "HMT." On July 23, 1996,
the last reported sale price of the Company Common Stock, as reported on the
New York Stock Exchange Composite Tape, was $13.50 per share.
SEE "RISK FACTORS" ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS WHICH PROSPECTIVE INVESTORS SHOULD CONSIDER IN EVALUATING AN
INVESTMENT IN THE WARRANTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is July 24, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at
prescribed rates. Reports, proxy statements and other information regarding
the Company may also be inspected at the offices of the New York Stock
Exchange (the "NYSE"), 20 Broad Street, New York, New York 10005, the Pacific
Stock Exchange, 301 Pine Street, San Francisco, California 94104, the Chicago
Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605 or the
Philadelphia Stock Exchange, 1900 Market Street, Philadelphia, Pennsylvania
19103.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Warrants and the Company
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company, the Warrants and the
Company Common Stock, reference is made to the Registration Statement and
exhibits thereto. The Registration Statement, together with the exhibits
thereto, may be inspected at the Commission's public reference facilities in
Washington, D.C. and copies of all or any part thereof may be obtained from
the Commission upon payment of the prescribed fees.
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INFORMATION INCORPORATED BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference and made a part hereof.
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995;
2. The Company's Current Report on Form 8-K dated January 11, 1996 filed
with the Commission on January 17, 1996;
3. The Company's Current Report on Form 8-K dated January 17, 1996 filed
with the Commission on January 17, 1996;
4. The Company's Current Report on Form 8-K dated February 28, 1996 filed
with the Commission on March 1, 1996;
5. The Company's Current Report on Form 8-K/A dated March 7, 1996 filed
with the Commission on March 7, 1996;
6. The Company's Quarterly Report on Form 10-Q for the twelve weeks ended
March 22, 1996;
7. The Joint Proxy Statement/Prospectus of the Company on Form 14A and
Form S-4 dated March 9, 1996;
8. The Company's Current Report on Form 8-K dated May 31, 1996 filed with
the Commission on June 5, 1996; and
9. The Company's Current Report on Form 8-K dated July 11, 1996 filed
with the Commission on July 15, 1996.
Any document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Warrants made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be apart hereof from the
date of filing of such documents.
Any statement contained herein, or any document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Prospectus
2
<PAGE>
and the Registration Statement of which this Prospectus is a part of the
extent that a statement contained herein, or in any subsequent filed document
that also is or is deemed to be incorporated by reference herein, modified or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
Prospectus and Registration Statement of which this Prospectus is a part. This
Prospectus incorporates documents by reference which are not presented herein
or delivered herewith. These documents (other than exhibits thereto) are
available without charge, upon written request by any person to whom this
Prospectus has been delivered, from Investor Relations, Host Marriott
Corporation, 10400 Fernwood Road, Bethesda, Maryland, 20817, telephone number
(301) 380-9000.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless the context
otherwise requires, the term "Company" refers to Host Marriott Corporation and
its subsidiaries and their combined operations. References herein to "Smith
Travel Research" are to industry data provided by Smith Travel Research.
References herein to "Coopers & Lybrand" refer to the January 1996 Hospitality
Directions Quarterly Research Journal published by Coopers & Lybrand LLP.
THE COMPANY
The Company is one of the largest owners of hotels in the world with 67
lodging properties as of June 30, 1996, primarily located in the United States.
These properties generally are operated under Marriott brands and managed by
Marriott International, Inc. ("Marriott International"), formerly a wholly
owned subsidiary of the Company. The Marriott brand name is among the most
respected and widely recognized brand names in the lodging industry. The
Company's primary focus is on the acquisition of full-service lodging
properties. During 1994 and 1995, the Company added 27 full-service hotels with
approximately 11,300 rooms for an aggregate of approximately $915 million. In
1996, through June 30, 1996, the Company has added 11 full-service hotels with
approximately 6,564 rooms for an aggregate of approximately $825 million. Based
on data provided by Smith Travel Research, the Company believes that its full-
service hotels consistently outperform the industry's average occupancy rate by
a significant margin and averaged 75.5% occupancy for 1995 compared to 68.2%
average occupancy for the upscale full-service segment of the lodging industry
(the segment which is most representative of the Company's full-service
hotels).
The lodging industry as a whole, and the full-service hotel segment in
particular, is benefiting from an improved supply and demand relationship in
the United States. Management believes that recent demand increases have
resulted primarily from an improved economic environment and a corresponding
increase in business travel. In spite of increased demand for rooms, the room
supply growth rate in the full-service segment has greatly diminished.
Management believes that this decrease in the supply growth rate in the full-
service segment is attributable to many factors including the limited
availability of attractive building sites for full-service hotels, the lack of
available financing for new full-service hotel construction and the
availability of existing full-service properties for sale at a discount to
their replacement value. Due to the relatively high occupancy rates of the
Company's hotels, the limited supply of new rooms and the recent increase in
business travel, the managers of the Company's hotels have increased average
daily room rates by primarily replacing certain discounted group business with
higher-rated group and transient business and by selectively increasing room
rates. As a result, on a comparable basis, room revenues per available room
("REVPAR") for full-service properties increased approximately 9% for the first
quarter of 1996 over the comparable period for the prior year. The Company
expects this supply/demand imbalance, particularly in the upscale full-service
segment, to continue, which should result in improved REVPAR and operating
profits at its hotel properties in the near term.
BUSINESS STRATEGY
The Company's business strategy continues to focus on opportunistic
acquisitions of full-service urban, convention and resort hotels primarily in
the United States. The Company believes that the full-service segment of the
market offers numerous opportunities to acquire assets at attractive multiples
of cash flow and at substantial discounts to replacement value, including
underperforming hotels which can be improved by conversion to the Marriott
brand. The Company believes this segment is very promising because:
. There is virtually no new supply of upscale full-service hotel rooms
currently under construction. According to Smith Travel Research, from
1988 to 1990, upscale full-service room supply increased an average of
approximately 5% annually, which resulted in an oversupply of rooms in
the industry.
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However, this growth slowed to an average of approximately 1.7% from 1990
to 1995. Management believes that the lead time from conception to
completion of a full-service hotel is generally five years or more in the
types of markets the Company is principally pursuing, which will
contribute to the continued low growth of supply. According to Coopers &
Lybrand, hotel supply in the upscale full-service segment is expected to
grow annually at 1.8% to 1.9% through 1998. Furthermore, because of the
prolonged lead time for construction of new full-service hotels,
management believes that growth in the full-service segment will continue
to be limited at least through 2000.
. Many desirable hotel properties are held by inadvertent owners such as
banks, insurance companies and other financial institutions which are
motivated and willing sellers. The Company has acquired several
properties from these inadvertent owners at significant discounts to
replacement cost.
. Management believes that there are numerous opportunities to improve the
performance of acquired hotels by replacing the existing hotel manager
with Marriott International and converting the hotels to the Marriott
brand. Nine of the 27 full-service hotels added in 1994 and 1995 were
converted to the Marriott brand following their acquisition. These
conversion properties (excluding the Marriott World Trade Center which
was only partially open during 1995) experienced a 66.5% average
occupancy rate during 1995 compared to an average occupancy rate of 75.5%
for all of the Company's full-service hotels. The Company believes these
nine conversion properties will experience improved operations as a
result of increases in occupancy and room rates as the properties begin
to benefit from Marriott's brand recognition, reservation system and
group sales organization. The Company intends to pursue additional full-
service hotel acquisitions, some of which may be conversion
opportunities.
The Company holds minority interests in various partnerships that own, as of
June 30, 1996, an aggregate of 258 additional properties, 38 of which are full-
service properties, managed by Marriott International. Four of the properties
added by the Company in the last two years were held by a partnership in which
the Company holds a minority interest. As opportunities arise, the Company
intends to pursue the acquisition of additional full-service hotels currently
held by such partnerships and/or additional interests in such partnerships. See
"Recent Acquisitions, Divestitures and Other Transactions."
The Company believes it is well qualified to pursue its acquisition 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 evaluating
and acquiring hotel assets. In addition, the Company is well positioned to
convert acquired properties to the high-quality Marriott brand name due to its
relationship with Marriott International. For a description of the Company's
relationship with Marriott International, see "Relationship Between the Company
and Marriott International."
RECENT ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS
During 1994, the Company added 18 full-service hotels with approximately
7,400 rooms (including the Springfield Radisson Hotel, a 199-room hotel
subsequently sold in 1995) for approximately $525 million. In 1995, the Company
acquired nine full-service hotels with approximately 3,900 rooms in separate
transactions for approximately $390 million. In 1996, through the date hereof,
the Company has acquired four full-service hotels (1,238 rooms) and controlling
interests in four additional properties (2,669 rooms), one of which is
currently under construction and is scheduled to be completed during the third
quarter of 1996. The Company also acquired an 83% interest in mortgage loans
secured by a 250-room full-service property.
On June 18, 1996, the Company successfully completed the tender offer for a
majority of the limited partnership units of the Marriott Hotel Properties II
Limited Partnership ("MHP II"), an affiliated partnership of the Company in
which the Company owns a 1.67% general partner interest, by purchasing 377
units for approximately $57 million, or $150,000 per unit. MHP II owns the
1,290-room New Orleans Marriott hotel, the
5
<PAGE>
999-room San Antonio Marriott Rivercenter hotel, the 368-room San Ramon
Marriott hotel and a 50% limited partner interest in the 754-room Santa Clara
Marriott hotel. As a result of this transaction, a wholly-owned subsidiary of
the Company became the majority limited partner in MHP II and the Company will
consolidate the MHP II partnership in the third quarter of 1996.
Consistent with its strategy of focusing on the full-service segment of the
lodging industry, the Company sold 26 of its 30 Fairfield Inns and all of its
14 senior living communities in 1994. In addition, the Company sold (subject to
a leaseback) 37 Courtyard by Marriott ("Courtyard") properties to an unrelated
real estate investment trust (the "REIT") in 1995. In 1995, the Company also
sold its remaining four Fairfield Inns and the 199-room Springfield Radisson
Hotel (which was acquired as part of a portfolio of lodging properties by the
Company in 1994). In 1996, the Company completed the sale and lease back of 16
Courtyard properties and 18 Residence Inns with the REIT (two of these 34
properties remain in escrow pending resolution of certain title issues which
must be accomplished by December 31, 1996). Management believes that all of
these sales were made at valuations that were attractive to the Company.
SPECIAL DIVIDEND
The Company previously operated food, beverage and merchandise concessions at
airports, on tollroads and at stadiums and arenas and other tourist attractions
(the "Operating Group"). On December 29, 1995, the Company distributed to its
shareholders through a special dividend (the "Special Dividend") all of the
outstanding shares of common stock of Host Marriott Services Corporation ("HM
Services"), formerly a wholly owned subsidiary of the Company, which, as of the
date of the Special Dividend, owned and operated the Operating Group business.
The Special Dividend provided Company shareholders with one share of common
stock of HM Services for every five shares of Company Common Stock held by such
shareholders on the record date of December 22, 1995.
The Special Dividend was designed to separate two types of businesses with
distinct financial, investment and operating characteristics and to allow each
business to adopt strategies and pursue objectives appropriate to its specific
needs. The Special Dividend (i) facilitates the development of employee
compensation programs custom-tailored to the operations of each business,
including stock-based and other incentive programs, which will more directly
reward employees of each business based on the success of that business, (ii)
enables the management of each company to concentrate its attention and
financial resources on the core businesses of such company, and (iii) permits
investors to make more focused investment decisions based on the specific
attributes of each of the two businesses.
THE OFFERING
Securities Offered...... 7,700,000 Warrants to acquire shares of (i) Company
Common Stock and (ii) Services Common Stock; and
7,700,000 shares of Company Common Stock issuable
upon the exercise of the Warrants.
Use of Proceeds......... The Warrants were issued as part of a settlement of
class action litigation and will not result in any
cash proceeds to the Company. Proceeds from exercises
of Warrants will be used for general corporate
purposes.
NYSE Trading Symbol..... HMT
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<PAGE>
Risk Factors............ Prospective investors should carefully consider the
matters set forth under "Risk Factors."
DESCRIPTION OF THE WARRANTS
Total Number of
Warrants................ Warrants which, when exercised, entitle the holders
thereof (each such holder, a "Warrantholder") to
acquire an aggregate of 7,700,000 shares of Company
Common Stock and 1,438,185 shares of Services Common
Stock (subject to adjustments).
Expiration Time......... No Warrant may be exercised after 5:00 p.m., New York
City time on October 8, 1998.
Exercise of Warrants.... Each Warrant entitles the Warrantholder, upon
exercise, to acquire one share of Company Common
Stock and one-fifth of one share of Services Common
Stock, at the exercise price of (i) $8.00, if
exercised on or before 5:00 p.m. New York City time
on October 8, 1996 or (ii) $10.00, if exercised after
5:00 p.m. New York City time on October 8, 1996, but
on or before 5:00 p.m. New York City time on October
8, 1998, subject to adjustment. Warrants are not
exercisable during any Suspension Period (as
described below).
No Rights as a
Stockholder............. Warrantholders will not be entitled to any assets of
the Company or rights as shareholders of the Company,
including with respect to voting.
No Fractional Shares.... The Company will not issue warrants to purchase
fractional shares of Company Common Stock. As a
result, the Warrants to which each Initial
Warrantholder is entitled will be rounded downward
where the fractional portion of such entitlement, if
any, involves less than one-half of a Warrant or
upward where the fractional portion of such
entitlement, if any, involves one-half or more of a
Warrant, subject to the overall limitation on the
issuance of Warrants. In the event of certain
transactions, described below, the number of shares
of Company Common Stock that may be purchased upon
the exercise of each Warrant is subject to
adjustment. The Company will not issue fractional
shares of Company Common Stock on the exercise of
Warrants otherwise issuable as a result of any of the
aforementioned adjustments. If any fraction of a
share of Company Common Stock would be issuable on
the exercise of any Warrants (or portion thereof),
the Company shall pay to the exercising Warrantholder
(in lieu of issuance of such fractional share of
Company Common Stock) an amount of cash equal to the
Exercise Price on the date the Warrant is presented
for exercise, multiplied by such fraction.
Adjustment Provisions... The exercise price and number of shares of Company
Common Stock issuable upon exercise of the Warrants
are subject to adjustment from time to time upon the
occurrence of certain events, including (i) a change
in the capital stock of the Company (as described
more fully herein); (ii) certain distributions by the
Company of rights, options or warrants to acquire
Company Common Stock and (iii) certain other pro rata
distributions to holders of Company Common Stock. See
"Description of Warrants--Adjustment Provisions."
7
<PAGE>
Registration of Warrant
Shares.................. The Company has agreed to use its reasonable best
efforts to maintain the effectiveness under the
Securities Act of the registration statement of which
this Prospectus is a part, until the earlier of the
Expiration Time or the date on which all Warrants
have been exercised, subject to the Company's right
to discontinue the effectiveness of such registration
statement for such periods as the Company determines
are necessary and appropriate (any such period
referred to as a "Suspension Period").
Warrants Outstanding.... Warrants to acquire 7,700,000 shares of Company
Common Stock were issued in 1994. Approximately
670,000 warrants have been exercised as of June 28,
1996.
Company Common Stock
Outstanding............ As of June 14, 1996, 194.8 million shares of Company
Common Stock are outstanding. This does not include
(i) 7.1 million shares of Company Common Stock
issuable upon exercise of the Warrants, (ii) 9.3
million shares of Company Common Stock subject to
options granted to executive officers and certain
current and former employees of the Company, with a
weighted average exercise price of $4.01 per share
(certain of which options are subject to vesting
requirements) and (iii) 2.5 million shares of Company
Common Stock issuable to executive officers and
certain current and former employees under deferred
stock incentive plans (certain of which shares are
subject to vesting requirements). See "Description of
the Warrants" and "Description of Capital Stock."
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
purchasing the securities offered hereby.
SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY
The Company has substantial indebtedness. As of March 22, 1996, on a pro
forma basis as adjusted to give effect to the public offering of 31 million
shares of Company Common Stock in April 1996, the Company had consolidated
debt of $2.4 billion, representing 69% of its total capitalization on a pro
forma basis. The Company's business is capital intensive, and the Company will
have significant capital requirements in the future. The Company's leverage
could affect its ability to obtain financing in the future or to undertake
refinancings on terms and subject to conditions deemed acceptable by the
Company.
In the event that the Company's cash flow and working capital are not
sufficient to fund the Company's expenditures or to service its indebtedness,
the Company would be required to raise additional funds through the sale of
additional equity securities, the refinancing of all or part of its
indebtedness, the incurrence of additional permitted indebtedness, or the sale
of assets. There can be no assurance that any of these sources of funds would
be available in amounts sufficient for the Company to meet its obligations.
Moreover, even if the Company were able to meet its obligations, its leveraged
capital structure could significantly limit its ability to finance its
acquisition program and other capital expenditures, to compete effectively or
to operate successfully under adverse economic conditions.
POTENTIAL ADVERSE CONSEQUENCES OF DEBT FINANCING
The indentures relating to senior notes issued by certain of the Company's
subsidiaries contain financial and operating covenants, including, but not
limited to, restrictions on the ability of such subsidiaries to incur
additional indebtedness and issue preferred stock, pay dividends or make other
distributions to the Company, create liens, sell assets, enter into certain
transactions with affiliates, and enter into certain mergers and
consolidations. In addition, the new $225 million revolving line of credit
with Marriott International (the "New Line of Credit") imposes certain
restrictions on the ability of the Company and certain other subsidiaries to
incur additional debt, create liens or mortgages on their properties (other
than various types of liens arising in the ordinary course of business),
extend new guarantees (other than replacement guarantees), pay dividends and
repurchase their common stock. The above restrictions may limit the Company's
ability to secure additional financing, and may prevent the Company from
engaging in transactions that might otherwise be beneficial to the Company and
to holders of Company Common Stock.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue a strategy of growth through the opportunistic
acquisition of full-service urban, convention and resort hotels primarily in
the United States. There can be no assurance that the Company will find
suitable properties for acquisition. The Company incurs certain costs in
connection with the acquisition of new properties and may be required to
provide significant capital expenditures for conversions and upgrades when
acquiring a property operating as other than a Marriott-brand property. There
can be no assurance that any of the properties the Company may acquire will be
profitable following such acquisition. The acquisition of a property that is
not profitable, or the acquisition of a property that results in significant
unanticipated conversion costs, could adversely affect the Company's
profitability. The Company expects to finance new acquisitions from a
combination of the proceeds of the public offering of 31 million shares of
Company Common Stock in April 1996, and, to the extent available, funds from
operations, other indebtedness and proceeds from the sale of limited-service
properties. Depending on the number, size and timing of such transactions, the
Company may in the future require additional financing in order to continue to
make acquisitions. There is no assurance that such additional financing, if
any, will be available to the Company on acceptable terms.
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COMPETITION AND RISKS OF THE LODGING INDUSTRY
The Company's hotels generally operate in areas that contain numerous other
competitors. There can be no assurance that demographic, geographic or other
changes in markets will not adversely affect the convenience or desirability
of the location of the Company's hotels. Furthermore, there can be no
assurance that, in the markets in which the Company's hotels operate,
competing hotels will not pose greater competition for guests than presently
exists, or that new hotels will not enter such markets.
During the 1980s, construction of lodging facilities in the United States
resulted in an excess supply of available rooms. This over-supply had an
adverse effect on occupancy levels and room rates in the industry. Although
the current outlook for the industry has improved, there can be no assurance
that in the future, the lodging industry, including the Company and its
hotels, will not be adversely affected by (i) national and regional economic
conditions, (ii) changes in travel patterns, (iii) seasonality of the hotel
business, (iv) taxes and government regulations which influence or determine
wages, prices, interest rates, construction procedures and costs, and (v) the
availability of credit. Hotel investments are relatively illiquid. Such
illiquidity will tend to limit the ability of the Company to respond to
changes in economic or other conditions.
POTENTIAL CONFLICTS WITH MARRIOTT INTERNATIONAL
The interests of the Company and Marriott International may potentially
conflict due to the ongoing relationships between the companies. In addition,
the Company and Marriott International share two common directors--J.W.
Marriott, Jr. serves as Chairman of the Board of Directors and President of
Marriott International and also serves as a director of the Company, and
Richard E. Marriott serves as Chairman of the Board of Directors of the
Company and also serves as a director of Marriott International. Messrs. J.W.
Marriott, Jr. and Richard E. Marriott, as well as certain other officers and
directors of Marriott International and the Company, also own shares (and/or
options or other rights to acquire shares) in both companies. With respect to
the various contractual arrangements between the two companies, the potential
exists for disagreement as to the quality of services provided by Marriott
International and as to contract compliance. Any such disagreements between
the Company and Marriott International could adversely affect the performance
of one or more of the Company's hotels. Additionally, the possible desire of
the Company, from time to time, to finance, refinance or effect a sale of any
of the properties managed by Marriott International may, depending upon the
structure of such transactions, result in a need to modify the management
agreement with Marriott International with respect to such property. Any such
modification proposed by the Company may not be acceptable to Marriott
International, and the lack of consent from Marriott International could
adversely affect the Company's ability to consummate such financing or sale.
In addition, certain situations could arise where actions taken by Marriott
International in its capacity as manager of competing lodging properties would
not necessarily be in the best interests of the Company. Any such actions by
Marriott International could adversely impact one or more of the Company's
hotels. Nevertheless, the Company believes that there is sufficient mutuality
of interest between the Company and Marriott International to result in a
mutually productive relationship. Moreover, appropriate policies and
procedures are followed by the Board of Directors of each of the companies to
limit the involvement of Messrs. J.W. Marriott, Jr. and Richard E. Marriott
(and, if appropriate, other officers and directors of such companies) in
conflict situations, including requiring them to abstain from voting as
directors of either the Company or Marriott International (or as directors of
any of their subsidiaries) on certain matters which present a conflict between
the companies. For a description of the Company's relationship with Marriott
International, see "Relationship Between the Company and Marriott
International."
RISKS INVOLVED IN INVESTMENTS THROUGH PARTNERSHIPS OR JOINT VENTURES
Historically, the Company has served as a general or limited partner in
hotel partnerships, which typically owned a number of hotel properties and
involved numerous limited partners. More recently, the Company's joint venture
arrangements have been focused on one or a small number of properties, and
have involved only a few partners, which could include the manager or former
owners of such hotels. In the future, the Company intends selectively to use
joint venture arrangements to acquire properties and may consider acquiring
full or controlling
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interests in partnerships in which it currently holds general or limited
partner interests. Joint venturers may have certain rights over the operation
of the joint venture assets. Therefore, such investments may, under certain
circumstances, involve risks such as the possibility that the co-venturer in
an investment might become bankrupt, or have economic or business interests or
goals that are inconsistent with the business interests or goals of the
Company, or be in a position to take action contrary to the instructions or
the requests of the Company or contrary to the Company's policies or
objectives. Consequently, actions by a co-venturer might result in subjecting
hotel properties owned by the joint venture to additional risk. Although the
Company will seek to maintain sufficient control of any joint venture to
permit the Company's objectives to be achieved, it may be unable to take
action without the approval of its joint venture partners or its joint venture
partners could take actions binding on the joint venture without the Company's
consent. Additionally, should a joint venture partner become bankrupt, the
Company could, in certain circumstances, become liable for such partner's
share of joint venture liabilities.
POTENTIAL ANTITAKEOVER EFFECT OF PROVISIONS IN COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
The Company's Restated Certificate of Incorporation and Bylaws each contain
provisions that will make difficult an acquisition of control of the Company
by means of a tender offer, open market purchases, proxy fight, or otherwise,
that is not approved by the Board of Directors. Provisions that may have an
antitakeover effect include (i) a staggered board of directors with three
separate classes, (ii) a super-majority vote requirement for removal or
filling of vacancies on the Board of Directors and for amendment to the
Company's Restated Certificate of Incorporation and Bylaws, (iii) a
prohibition on shareholder action by written consent and (iv) super-majority
voting requirements for approval of mergers and other business combinations
involving the Company and interested shareholders. In addition, the Company is
subject to Section 203 of the Delaware General Corporation Law requiring
super-majority approval for certain business combinations. The Company has
also adopted a shareholder rights plan which may discourage or delay a change
in control of the Company. Certain indebtedness issued by subsidiaries of the
Company also have change of control provisions that would require such
indebtedness to be repurchased in the event of a change of control which also
may have the effect of discouraging or delaying a change in control of the
Company. Finally, the Company has granted Marriott International, for a period
expiring in October 2003, the right to purchase up to 20% of each class of the
then outstanding voting stock of the Company at the fair market value thereof
upon the occurrence of certain specified events, generally involving changes
in control of the Company (the "Marriott International Purchase Right"). The
Marriott International Purchase Right may have certain antitakeover effects
with respect to the Company. Any person considering acquiring a substantial or
controlling block of Company Common Stock would face the possibility that its
ability to exercise control would be impaired by Marriott International's 20%
ownership resulting from exercise of the Marriott International Purchase
Right. It is also possible that the exercise price of the Marriott
International Purchase Right would be lower than the price at which a
potential acquirer might be willing to purchase a 20% block of shares of
Company Common Stock because the purchase price for the Marriott International
Purchase Right is based on the average trading price during a 30-day period
which may be prior to the announcement of the takeover event. This potential
price difference may have a further antitakeover effect of discouraging
potential acquirers of the Company. See "Purposes and Antitakeover Effects of
Certain Provisions of the Company Certificate and Bylaws and the Marriott
International Purchase Right" and "Description of Capital Stock--Rights and
Junior Preferred Stock."
UNCERTAINTY AS TO MARKET PRICE OF THE COMPANY COMMON STOCK
Because the market price of Company Common Stock is subject to fluctuation,
the market value of the shares of Company Common Stock may increase or
decrease prior to and following the consummation of the Offering. There can be
no assurance that at or after the consummation of the Offering the shares of
Company Common Stock will trade at the prices at which such shares have traded
in the past. The prices at which the Company Common Stock trades after the
consummation of the Offering may be influenced by many factors, including the
liquidity of the Company Common Stock, investor perceptions of the Company and
the real estate industry, the operating results of the Company and its
subsidiaries, the Company's dividend policy, and general economic and market
conditions.
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HISTORY OF LOSSES
The Company has sustained losses from continuing operations of $13 million,
$62 million and $5 million during 1994, 1995 and the twenty-four weeks ended
June 14, 1996, respectively. The Company's losses have resulted principally
from depreciation, interest expense and write downs of the carrying values of
certain assets to their estimated sales values. There can be no assurance that
the Company will not continue to experience losses from operations in the
future.
LACK OF PUBLIC MARKET FOR THE WARRANTS
The Warrants have no established trading market and no assurance can be
given that any such market will develop or, if one develops, that it will be
sustained. The Company does not intend to apply to list the Warrants on any
stock exchange. If a market for the Warrants does not develop, Warrantholders
may be unable to sell the Warrants for an extended period of time, if at all.
THE COMPANY
The Company is one of the largest owners of lodging properties in the world.
The Company's 67 full-service lodging properties as of June 30, 1996, are
generally operated under Marriott brand names and managed by Marriott
International, formerly a wholly-owned subsidiary of the Company. The Company
is the largest owner of hotels operated under Marriott brands. The Company
also holds minority interests in various partnerships that own in the
aggregate as of June 30, 1996, 258 additional properties operated by Marriott
International. The Marriott brand is among the most respected and widely
recognized in the lodging industry.
The principal executive offices of the Company are located at 10400 Fernwood
Road, Bethesda, Maryland, 20817, and its telephone number is (301) 380-9000.
The Company was incorporated under the laws of the State of Delaware in 1929.
USE OF PROCEEDS
The Warrants were issued as part of the Class Action Settlement, and the
Company did not receive any proceeds from such issuance. The net proceeds to
be received by the Company from the sale of 7,700,000 shares of Company Common
Stock upon the exercise of the Warrants would be approximately $61.6 million,
assuming the exercise of all Warrants at an exercise price of $8.00 per share
and approximately $77 million, assuming the exercise of all Warrants at an
exercise price of $10.00 per share, before deducting proceeds payable to HM
Services and before deducting expenses payable by the Company. Any net
proceeds are expected to be used to fund future acquisitions of primarily
full-service lodging properties or related assets and for general corporate
purposes.
DIVIDEND POLICY
The Company intends to retain future earnings, if any, for use in its
business and does not currently anticipate paying any regular cash dividends
on the Company Common Stock. In addition, The New Line of Credit contains
restrictions on the payment of dividends on Company Common Stock and the
Company's subsidiaries are subject to certain agreements that limit their
ability to pay dividends to the Company.
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THE DISTRIBUTION AND THE SPECIAL DIVIDEND
Prior to October 8, 1993, the Company was named "Marriott Corporation." In
addition to conducting its existing Ownership Business and the Host/Travel
Plazas Business, Marriott Corporation engaged in lodging and senior living
services management, timeshare resort development and operation, food service
and facilities management and other contract services businesses (the
"Management Business"). On October 8, 1993, Marriott Corporation made a
special dividend consisting of the distribution (the "Distribution") to
holders of outstanding shares of Common Stock, on a share-for-share basis, of
all outstanding shares of its wholly-owned subsidiary, Marriott International,
which at the time of the Distribution held all of the assets relating to the
Management Business. Marriott International now conducts the Management
Business as a separate publicly-traded company. The Company and Marriott
International are parties to several important ongoing arrangements, including
agreements pursuant to which Marriott International manages or leases certain
of the Company's lodging properties. See "Relationship Between the Company and
Marriott International."
The Company previously operated food, beverage and merchandise concessions
at airports, on tollroads and at stadiums and arenas and other tourist
attractions. On December 29, 1995, the Company distributed to its shareholders
through a special dividend all of the outstanding shares of common stock of HM
Services, formerly a direct wholly owned subsidiary of the Company, which, as
of the date of the Special Dividend, owned and operated the Operating Group
business. The Special Dividend provided Company shareholders with one share of
common stock of HM Services for every five shares of Company Common Stock held
by such shareholders on the record date of December 22, 1995.
The Special Dividend was designed to separate two types of businesses with
distinct financial, investment and operating characteristics and to allow each
business to adopt strategies and pursue objectives appropriate to its specific
needs. The Special Dividend (i) facilitates the development of employee
compensation programs custom-tailored to the operations of each business,
including stock-based and other incentive programs, which will more directly
reward employees of each business based on the success of that business, (ii)
enables the management of each company to concentrate its attention and
financial resources on the core businesses of such company, and (iii) permits
investors to make more focused investment decisions based on the specific
attributes of each of the two businesses.
RELATIONSHIP BETWEEN THE COMPANY AND HM SERVICES AFTER THE SPECIAL DIVIDEND
For the purpose of governing certain of the ongoing relationships between
the Company and HM Services after the Special Dividend and to provide
mechanisms for an orderly transition, the Company and HM Services have entered
into various agreements, and have adopted policies, as described in this
section. The Company believes that the agreements are fair to both parties and
contain terms which generally are comparable to those which would have been
reached in arms-length negotiations with unaffiliated parties. In most cases
(such as the Distribution Agreement, the Tax Sharing Agreement and the
Employee Benefits Allocation Agreement) the agreements are comparable to those
used by others in similar situations. In each case, the terms of these
agreements have been reviewed by individuals who were then and are now at a
senior management level at the Company and by individuals who were then and
are now at a senior management level of HM Services.
DISTRIBUTION AGREEMENT
Subject to certain exceptions, the HM Services Distribution Agreement (the
"HM Services Distribution Agreement") provides for, among other things,
assumptions of liabilities and cross-indemnities designed to allocate,
effective as of December 29, 1995, financial responsibility for the
liabilities arising out of or in
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connection with the business of the Operating Group ("Operating Group
Business") to HM Services and its subsidiaries, and financial responsibility
for the liabilities arising out of or in connection with the business of the
Real Estate Group ("Real Estate Group Business") to the Company and its
subsidiaries. Other agreements executed in connection with the HM Services
Distribution Agreement set forth certain specific allocations of liabilities
between the Company and HM Services. See "--Employee Benefits and other
Employment Matters," and "--Tax Sharing Agreement," below. Under the HM
Services Distribution Agreement, the Company retains all cash and cash
equivalent balances of HM Services and its subsidiaries, as of the close of
business on December 29, 1995, except for an amount equaling $25 million (the
"Initial Cash Amount"), which is subject to adjustments to reflect certain
restructuring costs, certain budgeted capital expenditures to be incurred by
the HM Services and cash maintained by HM Services at Schiphol Airport in
Amsterdam, Netherlands. The HM Services Distribution Agreement also provides
that HM Services will assume its proportionate share of the Company's current
obligation for certain employee benefit awards denominated in Company Common
Stock currently held by employees of Marriott International. The Company and
HM Services agreed to share the cost to Host Marriott of such awards. HM
Services may issue up to 1.7 million shares of Services Common Stock upon the
exercise or distribution of such awards. At the Company's option, HM Services
may satisfy this obligation by paying to the Company cash equal to the value
of such shares of HM Services common stock. Additionally, the Company and HM
Services have agreed to share the exercise price for options comprising such
awards.
To avoid adversely affecting the intended tax consequences of the Special
Dividend and related transactions, the HM Services Distribution Agreement
provides that, until December 29, 1997, HM Services must obtain an opinion of
counsel reasonably satisfactory to the Company or a supplemental tax ruling
before HM Services may make certain material dispositions of its assets,
engage in certain repurchases of HM Services capital stock or cease the active
conduct of its business independently, with its own employees and without
material changes. The Company must also obtain an opinion of counsel
reasonably satisfactory to HM Services or a supplemental tax ruling before the
Company may engage in similar transactions during such period. The Company
does not expect these limitations to inhibit significantly its operations,
growth opportunities or its ability to respond to unanticipated developments.
On December 20, 1995, the Company had outstanding warrants to purchase an
aggregate of 7.5 million shares of Company Common Stock (the "Warrants")
issued (or reserved for issuance) in connection with the settlement of
litigation brought by certain holders and purchasers of senior notes and
debentures of the Company. In connection with the HM Services Distribution,
the Warrants were adjusted such that, after December 29, 1995, each Warrant is
exercisable for one share of Company Common Stock and one-fifth of a share of
Services Common Stock. The HM Services Distribution Agreement provides that,
upon notice to HM Services of the exercise of Warrants, HM Services will issue
to the exercising holder of the Warrants the appropriate number of whole
shares of Services Common Stock and, if applicable, a check for the value of
any fractional shares of HM Services otherwise issuable in connection with
such exercise; and HM Services will be entitled to receive a pro rata portion
of the exercise price (such pro rata portion to be established by allocating
the exercise price of the Services Common Stock and the Company Common Stock
issuable upon exercise of the Warrants in accordance with their relative
values immediately following the Special Dividend.)
EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS
The Company and HM Services entered into an Employee Benefits Allocation and
Other Employment Matters Agreement (the "Employee Benefits Allocation
Agreement") providing for the allocation of certain responsibilities with
respect to employee compensation, benefit and labor matters. The Employee
Benefits Allocation Agreement provides that, effective as of December 29,
1995, HM Services will assume or retain, as the case may be, all liabilities
of the Company, under employee benefit plans, policies, arrangements,
contracts and agreements, including under collective bargaining agreements,
with respect to employees who, on or after December 29, 1995, will be
employees of HM Services or its subsidiaries, including those former employees
employed by HM Services and its subsidiaries for whom the Company retained
such liabilities in connection
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with the Marriott International Distribution, as defined below ("HM Services
Employees"). The Employee Benefits Allocation Agreement also provides that,
effective as of December 29, 1995, the Company will assume or retain, as the
case may be, all liabilities of the Company, under employee benefit plans,
policies, arrangements, contracts and agreements, including under collective
bargaining agreements, with respect to employees who on or after December 29,
1995 will be employees of the Company or its other subsidiaries, including
certain former employees employed by the Company or one of its other
subsidiaries for whom the Company retained such liabilities in connection with
Marriott International Distribution ("Company Employees"). Pursuant to the
Employee Benefits Allocation Agreement, and in connection with the Special
Dividend, the Company also adjusted outstanding awards under Company employee
benefit plans.
TAX SHARING AGREEMENT
The Company and HM Services entered into a tax sharing agreement (the "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 the Company's business for tax years prior to the
Special Dividend and with respect to certain tax attributes of the Company
after the Special Dividend. In general, with respect to periods ending on or
before December 29, 1995, the Company is responsible for (i) filing both
consolidated federal tax returns for the Company affiliated group and combined
or consolidated state tax returns for any group that includes a member of the
Company affiliated group, including in each case HM Services and its
subsidiaries for the relevant periods of time that such companies were members
of the applicable group, and (ii) paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of
such tax liabilities by the applicable taxing authorities). HM Services will
reimburse the Company for a defined portion of such taxes relating to the
Operating Group. HM Services is responsible for filing returns and paying
taxes related to the Operating Group for subsequent periods. The Company and
HM Services have agreed to cooperate with each other and to share information
in preparing such tax returns and in dealing with other tax matters.
TRANSITIONAL SERVICES AGREEMENT
The Company and HM Services entered into an agreement pursuant to which the
Company or HM Services may provide certain services to the other for a
transitional period on an as-needed basis. The fee for such services will be
based on hourly rates designed to reflect the cost for providing such services
plus reimbursement of certain direct out of pocket expenses. Subject to the
termination provisions of the agreement, HM Services will be free to procure
such services from outside vendors or may develop an in-house capability in
order to provide such services internally. In general, the transitional
services agreement will terminate prior to the end of 1996. The transitional
services to be provided to HM Services pursuant to such agreements may include
corporate secretary services, cash management services, accounting services,
internal audit services, tax administration, litigation management or any
other similar services that HM Services may require.
ASSIGNMENT OF TRADEMARKS
In conjunction with the Special Dividend, all of the Company's right, title
and interest in certain trademarks, including the Company logo, were conveyed
to HM Services. Under the HM Services Distribution Agreement, the Company and
its subsidiaries retain the right to use the name "Host" without limitation or
expiration. The Company does not currently contemplate any change to its name.
The Company has adopted a new logo (presented on the cover of this
Prospectus); although, the Company has retained the right to use its former
logo for a period of 18 months following the Special Dividend, which period
may be extended for up to an additional 12 months with HM Services' consent.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The on-going relationship between the Company and HM Services may present
certain conflicts for J.W. Marriott, Jr. who serves as a director of the
Company and HM Services and for Richard E. Marriott who serves
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as a director of HM Services and as the Chairman of the Board of Directors of
the Company. Mr. Richard E. Marriott, as well as other executive officers and
directors of the Company and HM Services also own (or have options or other
rights to acquire) a significant number of shares of Company Common Stock in
the Company and HM Services. The Company and HM Services have adopted
appropriate policies and procedures to be followed by the Board of Directors
of each company to limit the involvement of Richard E. Marriott and J.W.
Marriott, Jr. (or such executive officers and other directors having a
significant ownership interest in the companies) in conflict situations,
including matters relating to contractual relationships or litigation between
the Company and HM Services. Such procedures include requiring Richard E.
Marriott and J.W. Marriott, Jr. (or such executive officers or other directors
having a significant ownership interest in the companies) to abstain from
voting as directors of each company with respect to matters that present a
significant conflict of interest between the companies. Whether or not a
significant conflict of interest exists will be determined on a case-by-case
basis depending on such factors as the dollar value of the matter, the degree
of personal interest of Richard E. Marriott and J.W. Marriott, Jr. (or such
executive officers and other directors having a significant ownership interest
in the companies) in the matter and the likelihood that resolution of the
matter has significant strategic, operational or financial implications for
the business of the Company. It is a principal responsibility of the General
Counsel of each of the Company and HM Services to monitor this issue in
consultation with the Company's or HM Services' (as applicable) board of
directors and to determine when a significant conflict of interest exists. The
Company and HM Services believe that such conflicts will be minimal.
RELATIONSHIP BETWEEN THE COMPANY AND
MARRIOTT INTERNATIONAL
For the purpose of governing certain of the ongoing relationships between
the Company and Marriott International after the Marriott International
Distribution and to provide mechanisms for an orderly transition, the Company
and Marriott International entered into various agreements and adopted
policies, as described in this section. Subsequent to the Marriott
International Distribution, the Company and Marriott International have
entered into additional agreements and arrangements which are also described
below. The Company believes that the agreements are fair to both parties and
contain terms which generally are comparable to those which would have been
reached in arms-length negotiations with unaffiliated parties (although
comparisons are difficult with respect to certain agreements, such as the
Assignment and License Agreement, which relate to the specific circumstances
of certain transactions). In many cases (such as with the Lodging Management
Agreements, the Consolidation Agreement and the Transitional Services
Agreements) the forms of agreements are based on agreements that the Company
has in fact negotiated with third parties. In other cases (such as the
Marriott International Distribution Agreement, the Marriott International Tax
Sharing Agreement and the New Line of Credit) the agreements are comparable to
those used by others in similar situations. In each case, the terms of such
agreements have been reviewed by individuals at a senior management level in
the Company and by individuals at a senior management level in Marriott
International.
DISTRIBUTION AGREEMENT
The Marriott International Distribution Agreement provides for, among other
things, assumptions of liabilities and cross-indemnities designed to allocate,
effective as of the Marriott International Distribution, financial
responsibility for the liabilities arising out of or in connection with the
Management Business to Marriott International and its subsidiaries, and
financial responsibility for the liabilities arising out of or in connection
with the Real Estate Group Business and the Operating Group Business, along
with the Company's liabilities under a substantial portion of its pre-existing
financing and long-term debt obligations, to the Company and its retained
subsidiaries. The agreements executed in connection with the Marriott
International Distribution Agreement also set forth certain specific
allocations of liabilities between the Company and Marriott International.
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Under the Marriott International Distribution Agreement, Marriott
International has the Marriott International Purchase Right to purchase up to
20% of each class of the Company's voting stock (determined after assuming
full exercise of the right) at its then fair market value (based on an average
of trading prices during a specified period), upon the occurrence of certain
specified events generally involving a change in control of the Company. The
Marriott International Purchase Right terminates on October 8, 2003. The
Marriott International Purchase Right may have certain antitakeover effects as
described in "Purposes and Antitakeover Effects of Certain Provisions of the
Company Certificate and Bylaws and the Marriott International Purchase Right."
LODGING MANAGEMENT AGREEMENTS
Nearly all of the Company's hotels are managed by Marriott International.
The Marriott International Lodging Management Agreements provide for Marriott
International to manage most of the Marriott full-service hotels and all
Courtyard hotels and Residence Inns owned or leased by the Company. Each
Marriott International Lodging Management Agreement reflects market terms and
conditions and is substantially similar to the terms of management agreements
with other third-party owners regarding lodging facilities of a similar type.
The Company paid to Marriott International fees of $17 million in first
quarter 1996, and $67 million, $41 million and $5 million for the fiscal years
1995, 1994 and 1993, respectively, from the managed and franchised lodging
properties owned or leased by the Company. Additionally, the Company is a
general partner in several unconsolidated partnerships that own over 260
lodging properties operated by Marriott International under long-term
agreements.
A separate Lodging Management Agreement is typically entered into for each
hotel owned or leased by the Company and operated by Marriott International.
Each Lodging Management Agreement has an initial term of 15 to 20 years and,
at the option of Marriott International, may be renewed for up to two or three
additional terms of eight to ten years each, aggregating 16 to 30 years, for a
total term of up to 50 years. Each Lodging Management Agreement for the
Courtyard hotels and Residence Inns (but not full-service hotels) is also
subject to the terms of a Consolidation Agreement (the "Consolidation
Agreement"), pursuant to which (i) certain fees payable under the Lodging
Management Agreement with respect to a particular lodging facility will be
determined on a consolidated basis with certain fees payable under the Lodging
Management Agreements for all lodging facilities of the same type, and (ii)
certain base fees payable under Lodging Management Agreements with respect to
a particular lodging facility will be waived in return for payment of an
incentive fee upon the sale of such facility. No Lodging Management Agreement
with respect to a single lodging facility is cross-collateralized or cross-
defaulted to any other Lodging Management Agreement and a single Lodging
Management Agreement may be cancelled under certain conditions, although such
cancellation will not trigger the cancellation of any other Lodging Management
Agreement. Marriott International does not have the right to set off amounts
owed to the Company under any Lodging Management Agreement against any other
indebtedness or amounts due from the Company and Marriott International may
not apply cash flows from one lodging facility against cash deficits of other
lodging facilities. Under the Consolidation Agreement (which is discussed
below), all revenues collected, expenses incurred under Lodging Management
Agreements for the Company's limited service hotels are aggregated on the
basis of hotel product line for purposes of calculating certain management
fees payable to Marriott International thereunder. The Lodging Management
Agreements with respect to the Company's full service hotels are not subject
to the Consolidation Agreement and the management fees payable to Marriott
International under a single Lodging Management Agreement are calculated
solely with respect to the lodging facility managed thereunder. In general,
properties remain subject to the Lodging Management Agreement upon the sale of
such property to third parties.
Under each Lodging Management Agreement for full-service hotels, Marriott
International collects all revenue generated at a particular lodging property.
Marriott International holds such amounts on behalf of the Company in
segregated accounts and forwards to the Company every two weeks all amounts in
excess of certain expenses and management fees (as described more fully
below). Under the Lodging Management Agreements for the Company's limited
service hotels and the Consolidation Agreement, all revenues generated at the
Company's limited service hotels are collected and aggregated in a single
segregated account for each limited
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service product line (i.e., Courtyard and Residence Inns). Marriott
International forwards to the Company amounts in excess of aggregated expenses
and management fees in a manner similar to that for the full-service hotels.
Because amounts collected by Marriott International are held on the Company's
behalf, the Company does not depend upon the creditworthiness of Marriott
International for receipt of such payments.
Marriott Hotels, Resorts and Suites. The form of Lodging Management
Agreement for full-service hotels in the Marriott Hotels, Resorts and Suites
line provides for a base management fee equal to three percent of annual gross
revenues plus an incentive management fee generally equal to 40% to 50% of
"Available Cash Flow" for each fiscal year (provided that the cumulative
incentive management fee may not on any date exceed 20% of the cumulative
operating profit of the hotel from the Marriott International Distribution
through such date). The Company and Marriott International have agreed that,
subject to certain exceptions, the incentive management fee for full-service
hotels acquired after September 8, 1995 will equal 20% of Available Cash Flow.
Available Cash Flow is defined to be the excess of "Operating Profit" over the
"Owner's Priority." Operating Profit is defined generally in all forms of
Lodging Management Agreements as gross revenues, less all ordinary and
necessary operating expenses, including all base and system fees and
reimbursement for certain system-wide operating costs ("Chain Services"), as
well as a deduction to fund a required reserve for furniture, fixtures and
equipment for certain hotels, before any depreciation or amortization or
similar fixed charges. Owner's Priority in all forms of Lodging Management
Agreements is derived from an agreed-upon base amount assigned to each lodging
facility. Marriott International is also entitled to reimbursement for certain
costs attributable to Chain Services of Marriott International. The Company
has the option to terminate the agreement if specified performance thresholds
regarding Operating Profit are not satisfied and if specified revenue market
share tests are not met (provided that Marriott International can elect to
avoid such termination by making cure payments to the extent necessary to
allow the specified Operating Profit thresholds to be satisfied).
The Company intends to aggressively pursue further hotel acquisitions and it
is anticipated that the Company will engage Marriott International to manage
many of the hotels that are acquired.
Limited Service Hotels. The forms of Lodging Management Agreements for
Courtyard hotels and Residence Inns provide for a system fee equal to three
percent (in the case of Courtyard hotels) or four percent (in the case of
Residence Inns) of annual gross revenue, and a base fee equal to two percent
of annual gross revenues. The base fee is deferred in favor of the Owner's
Priority, and in any fiscal year in which the base fee is greater than
Operating Profit (prior to deduction of the base fee) less Owner's Priority,
the excess base fee is deferred, to be paid in a subsequent fiscal year out of
excess Operating Profit. Owner's Priority and Operating Profit are determined
in substantially the same manner as described above for Marriott Hotels,
Resorts and Suites. In addition, the agreements provide for an incentive
management fee equal to 50% of "Available Cash Flow" for each fiscal year
(provided that the cumulative incentive management fee may not on any date
exceed 20% of the cumulative Operating Profit of the hotel through such date).
Available Cash Flow is defined to be the excess of Operating Profit (after
deduction of the base fee, including any portion of the base fee that is
deferred or waived) over the Owner's Priority. Under such forms of agreement,
Marriott International is also entitled to reimbursement for certain costs
attributable to Chain Services of Marriott International. The Company or its
subsidiaries have the option to terminate the agreement if specified
performance thresholds regarding Operating Profit are not satisfied and if
specified revenue market share tests are not met (provided that Marriott
International can elect to avoid such termination by making cure payments to
the extent necessary to allow the specified Operating Profit thresholds to be
satisfied).
Consolidation Agreement. Each Lodging Management Agreement for the Courtyard
hotels and Residence Inns (but not full-service hotels) is subject to the
terms of the Consolidation Agreement. Pursuant to the Consolidation Agreement,
certain revenues, expenses and fees payable under the Lodging Management
Agreements for Courtyard hotels and Residence Inns are consolidated by product
line as discussed herein. With respect to any Courtyard hotels and Residence
Inns managed by Marriott International under a Lodging Management Agreement,
for so long as the Company has not sold or financed any such lodging facility,
then the calculations, distributions and dispositions of gross revenues,
reserves, base fees, Owner's Priority, incentive
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management fees and system fees under the Lodging Management Agreement with
respect to such lodging facility will be determined and reported on an
aggregate basis, together with all such facilities governed by a Lodging
Management Agreement in the same product line. After any such lodging facility
is sold or financed, the Consolidation Agreement will no longer be applicable
to such facility, and the gross revenues, reserves, base fee, Owner's
Priority, incentive management fee and system fee for such facility will be
determined solely in accordance with the Lodging Management Agreement
applicable to such facility.
In addition, pursuant to the terms of the Consolidation Agreement, the base
fee payable under the Lodging Management Agreements (other than Lodging
Management Agreements for full-service hotels) is modified as set forth below.
Until December 31, 2000, in lieu of the base fees payable to Marriott
International with respect to the Courtyard hotels and Residence Inns managed
by Marriott International under a Lodging Management Agreement, Marriott
International will receive a "Bonus Incentive Fee" upon the sale of any of
such facilities by the Company. The "Bonus Incentive Fee" is defined to be 50%
of the "Net Excess Sale Proceeds" resulting from the sale of such facility
(provided that the Bonus Incentive Fee shall not exceed two percent of the
cumulative gross revenues of such facility, from the date of inception of the
Lodging Management Agreement for such facility through the earlier of December
31, 2000 or the date of sale). Net Excess Sale Proceeds is defined to be the
gross property sales price for the facility less (i) the reasonable costs
incurred by the Company in connection with the sale and (ii) a base amount
assigned to each lodging facility. Any future owners of such facility, and the
Company to the extent that it retains ownership of such facility after
December 31, 2000, will not be subject to the foregoing terms and will be
required to pay to Marriott International the base fee as set forth in the
Lodging Management Agreement applicable to such facility.
FRANCHISE AGREEMENTS
At the time that the Company acquired the San Francisco Marriott--
Fisherman's Wharf, the Charlotte Marriott Executive Park and the Plaza San
Antonio, the Company entered into franchise agreements with Marriott
International to allow the Company to use the Marriott brand, associated
trademarks, research, standards, quality control, reservation systems, food
and beverage services and other related items in connection with its
operations of these properties. Pursuant to these franchise agreements, the
Company pays a franchise royalty fee of six percent of gross room sales plus
three percent of gross food and beverage sales, except for the Plaza San
Antonio for which the Company pays a royalty fee of four percent of gross room
sales in years one and two increasing to five percent in years three and four
and six percent in years five through ten, plus two percent of gross food and
beverage sales in years one and two increasing to three percent in years three
through ten. Additionally, the Company pays an advertising fee of one percent
of gross room sales and a reservations charge on usage of the Marriott
International reservations system, subject to certain agreed upon adjustments.
The term of the franchise agreement for the San Francisco Marriott--
Fisherman's Wharf is 30 years, the term of the franchise agreement for the
Charlotte Marriott Executive Park is 15 years and the term of the franchise
agreement for the Plaza San Antonio is ten years.
NEW LINE OF CREDIT
Marriott International and the Company have entered into the New Line of
Credit under which the Company has the right to borrow from Marriott
International up to $225 million to fund (i) obligations under certain
guarantees made by the Company, (ii) payments of principal on specified
recourse debt of the Company and its subsidiaries, (iii) payment of interest
on amounts borrowed under the New Line of Credit and on specified recourse
debt of the Company and its subsidiaries, (iv) working capital, and (v) other
items approved in advance by Marriott International. Borrowings under the New
Line of Credit bear interest at LIBOR plus 3% (4% when the outstanding balance
exceeds $112.5 million) and mature in June 1998. Any such borrowings are
guaranteed by, or secured by the pledge of the stock of, certain subsidiaries
of the Company. An annual commitment fee of 5/8% is charged on the unused
portion of the New Line of Credit. The New Line of Credit imposes certain
restrictions on the ability of the Company and certain of its subsidiaries to
incur additional debt, create liens or mortgages on their properties (other
than various types of liens arising in the ordinary course of business),
extend new guarantees (other than replacement guarantees), pay dividends, and
repurchase their common stock. When
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no advances are outstanding under the New Line of Credit and the Company and
certain of its subsidiaries have adequately reserved for debt maturities over
a 6-month term, such restricted payments as would otherwise be prohibited are
permitted in the amount by which aggregate EBITDA of the Company and certain
of its subsidiaries (as defined in the New Line of Credit) and the proceeds of
specified stock issuances exceed 170% of the aggregate of certain specified
charges.
PHILADELPHIA MORTGAGE
Marriott International provided first mortgage financing for a portion of
the development and construction costs for the Philadelphia Marriott hotel
constructed by the Company, pursuant to a mortgage financing agreement (the
"Philadelphia Mortgage") entered into between the Company and Marriott
International. The Philadelphia Mortgage (approximately $109 million at March
22, 1996) provided for the funding of a portion (approximately 60%) of the
construction and development costs of such hotel, as and when such costs were
incurred, up to a maximum of $125 million of funding. The Philadelphia
Mortgage (i) is a two-year "mini-perm" facility, carrying a floating interest
rate of LIBOR plus 300 basis points, and (ii) will, upon maturity of the two-
year mini-perm, fund into a ten-year term loan, bearing cash-pay interest at
the rate of 10% per annum, plus deferred interest of 2% per annum. The
Philadelphia Mortgage is due on sale of the property (or any majority interest
therein) and is subject to other terms and conditions customary for first
mortgage financings of this type.
TAX SHARING AGREEMENT
The Company and Marriott International have entered into a tax sharing
agreement (the "Marriott International 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 the
Company's businesses for tax years prior to the Marriott International
Distribution and with respect to certain tax attributes of the Company after
the Marriott International Distribution. In general, with respect to periods
ending on or before the last day of 1993, the Company is responsible for (i)
filing both consolidated federal tax returns for the Company affiliated group
and combined or consolidated state tax returns for any group that includes a
member of the Company affiliated group, including in each case Marriott
International and its subsidiaries for the relevant periods of time that such
companies were members of the applicable group, and (ii) paying the taxes
relating to such returns (including any subsequent adjustments resulting from
the redetermination of such tax liabilities by the applicable taxing
authorities). Marriott International will reimburse the Company for the
portion of such taxes relating to the Management Business. Marriott
International is responsible for filing returns and paying taxes related to
the Management Business for subsequent periods. The Company and Marriott
International have agreed to cooperate with each other and to share
information in preparing such tax returns and in dealing with other tax
matters.
ASSIGNMENT AND LICENSE AGREEMENT
Pursuant to the terms of an Assignment and License Agreement, all of the
Company's right, title and interest in certain trademarks, including the
trademarks "Marriott," "Courtyard," "Residence Inns by Marriott" and
"Fairfield Inns by Marriott," were conveyed to Marriott International. The
Company and its subsidiaries have been granted a license to use such
trademarks in their corporate names, subject to specified terms and
conditions.
NONCOMPETITION AGREEMENT
The Company and Marriott International entered into a Noncompetition
Agreement dated October 8, 1993 which agreement was amended in connection with
the Special Dividend (the "Noncompetition Agreement"). Under the
Noncompetition Agreement, the Company and its subsidiaries are prohibited from
entering into, or acquiring an ownership interest in any entity that operates,
any business that competes with the hotel management business as conducted by
Marriott International, subject to certain exceptions. The Noncompetition
Agreement has a term expiring on October 8, 2000.
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TRANSITIONAL SERVICES AGREEMENTS
Marriott International and the Company entered into a number of agreements
pursuant to which Marriott International has agreed to provide certain
continuing services to the Company and its subsidiaries for a transitional
period. Such services are provided on market terms and conditions. Subject to
the termination provisions of the specific agreements, the Company and its
subsidiaries are free to procure such services from outside vendors or may
develop an in-house capability in order to provide such services internally.
The Company believes that these agreements are based on commercially
reasonable terms including pricing and payment terms. In general, the
transitional services agreements can be kept in place at least through 1997.
The Company has the right to terminate such agreements upon giving 180 days
(or less) notice.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The on-going relationship between Marriott International and the Company may
present certain conflicts for Messrs. J.W. Marriott, Jr. and Richard E.
Marriott, because J.W. Marriott, Jr. serves as Chairman of the Board of
Directors and President of Marriott International and also serves as a
director of the Company, and Richard E. Marriott serves as Chairman of the
Board of Directors of the Company and as a director of Marriott International.
Messrs. J.W. Marriott, Jr. and Richard E. Marriott, as well as other executive
officers and directors of the Company and Marriott International, also own (or
have options or other rights to acquire) a significant number of shares of
common stock in both the Company and Marriott International. The Company and
Marriott International have adopted appropriate policies and procedures to be
followed by the Board of Directors of each company to limit the involvement of
Messrs. J.W. Marriott, Jr. and Richard E. Marriott (or such other executive
officers and directors having a significant ownership interest in both
companies) in conflict situations, including matters relating to contractual
relationships or litigation between the companies. Such procedures include
requiring Messrs. J.W. Marriott, Jr. and Richard E. Marriott (or such other
executive officers or directors having a significant ownership interest in
both companies) to abstain from making management decisions in their
capacities as officers of Marriott International and the Company,
respectively, and to abstain from voting as directors of either company, with
respect to matters that present a significant conflict of interest between the
companies. Whether or not a significant conflict of interest exists is
determined on a case-by-case basis depending on such factors as the dollar
value of the matter, the degree of personal interest of Messrs. J.W. Marriott,
Jr. or Richard E. Marriott (or such other executive officers and directors
having a significant ownership interest in both companies) in the matter, the
interests of the shareholders of the Company and the likelihood that
resolution of the matter has significant strategic, operational or financial
implications for the business of the Company. It is a principal responsibility
of the general counsel of the Company to monitor this issue in consultation
with the Audit Committee of the Board of Directors and to determine when a
significant conflict of interest exists. See "Risk Factors--Potential
Conflicts with Marriott International."
OTHER TRANSACTIONS AND RELATIONSHIPS
The Company has also entered into certain other transactions and
relationships with Marriott International. Marriott International has
provided, and expects in the future to provide, financing to the Company for a
portion of the cost of acquiring properties to be operated or franchised by
Marriott International. In 1995, Marriott International invested an aggregate
of $80 million, principally in the form of mortgage loans. The Company also
acquired a full-service property from a partnership in which Marriott
International owned a 50% interest. In January 1996, Marriott International
provided $57 million in connection with the Company's acquisition of a
controlling interest in two full-service hotels in Mexico City comprising 914
hotel rooms.
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DESCRIPTION OF THE WARRANTS
GENERAL
As part of the Class Action Settlement and pursuant to that certain
Stipulation and Agreement of Compromise and Settlement dated as of June 16,
1993 (the "Settlement Agreement"), the Company agreed to issue the Warrants to
the Initial Warrantholders as described in "Plan of Distribution." The Company
issued the Warrants pursuant to a Warrant Agreement (the "Original Warrant
Agreement") between the Company and First Chicago Trust Company of New York,
as Warrant Agent, in the manner described more fully in "Plan of
Distribution." The Original Warrant Agreement has been supplemented (the
"Supplemental Warrant Agreement") to provide that, subsequent to the Record
Date and upon consummation of the Distribution, the holder of a Warrant
("Warrantholder") is entitled to receive on exercise thereof one share of
Company Common Stock and one-fifth of one share of Services Common Stock. The
following summary of certain provisions of the Original Warrant Agreement and
the Supplemental Warrant Agreement (collectively referred to herein as the
"Warrant Agreement"), does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Warrant Agreement, including the definition of certain terms therein. A copy
of the Warrant Agreement has been filed as an exhibit to the registration
statement of which this Prospectus is a part. Wherever particular sections or
defined terms of the Warrant Agreement not otherwise defined herein are
referred to, such section or defined terms shall be incorporated herein by
reference.
The Warrants are evidenced by warrant certificates (the "Warrant
Certificates"), a form of which is attached as an exhibit to the Warrant
Agreement. Each Warrant entitles the Warrantholder, at any time prior to 5:00
p.m. on October 8, 1998 (the "Expiration Time"), to purchase one share of
Company Common Stock and one-fifth of one share of Services Common Stock at a
price (the "Exercise Price") of (i) $8.00, if exercised on or before 5:00 p.m.
New York City time on October 8, 1996, or (ii) $10.00, if exercised after 5:00
p.m. New York City time on October 8, 1996, but on or before 5:00 p.m. New
York City time on October 8, 1998. Both the Exercise Price and the number of
shares subject to the Warrants are subject to certain adjustments, as
described below. Warrants that are not exercised prior to the Expiration Time
expire and become void.
Warrantholders will not be entitled to vote or to consent or to receive
notice as shareholders in respect of the meeting of shareholders or the
election of Directors of the Company or of HM Services or any other matter, or
possess any rights whatsoever as shareholders of the Company or HM Services.
The Company has agreed to use its reasonable best efforts to maintain the
effectiveness under the Securities Act of the registration statement of which
this Prospectus is a part until the earlier of the Expiration Time or the date
on which all Warrants have been exercised, subject to the Company's right to
discontinue the effectiveness of such registration statement for such periods
as the Company determines are necessary and appropriate (any such period
referred to as a "Suspension Period"). The Company expects to exercise its
right to discontinue the effectiveness of the registration statement only (i)
if it determines that, based on circumstances arising after the date hereof,
the registration statement contains an untrue statement of material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein not misleading or (ii) as may otherwise be required
under the Securities Act of 1933, as amended. During the pendency of any
Suspension Period, no Warrants may be exercised and no shares of Company
Common Stock may be issued upon the exercise of any Warrant.
The Company has also agreed to use its reasonable best efforts to obtain any
required approvals or registration under state securities laws for the
issuance of the Company Common Stock upon exercise of the Warrants. Under the
Warrant Agreement, however, Warrants may not be exercised by, or shares of
Company Common Stock or Services Common Stock issued to, any Warrantholder in
any state where such exercise or issuance would be unlawful.
The Warrants have no established trading market and no assurance can be
given that any such markets will develop. The Company does not intend to apply
to list the Warrants on any stock exchange. See "Risk Factors--Lack of Public
Market for the Warrants."
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EXERCISE OF THE WARRANTS
The Warrants are exercisable at the election of the holder, in full or from
time to time in part, at any time prior to the Expiration Time, except that
Warrants may not be exercised during a Suspension Period. In the event of
partial exercise of Warrants evidenced by a Warrant Certificate, a new
certificate evidencing the remaining Warrant or Warrants will be issued.
To exercise all or any of the Warrants represented by a Warrant Certificate,
the Warrantholder is required to surrender to the Warrant Agent the Warrant
Certificate, a duly executed copy of the Form of Election to Purchase (which
is set forth in the Warrant Certificate) and payment in full of the Exercise
Price for each share of Common Stock as to which a Warrant is exercised, which
payment may be made in cash or by certified or official bank check to the
order of the Company.
Upon the exercise of any Warrants in accordance with the Warrant Agreement,
the Company will issue and cause to be delivered to, or upon the written order
of, the Warrantholder, in such name or names as the Warrantholder may
designate, a certificate or certificates for the number of full shares of
Company Common Stock issuable upon the exercise of Warrants. The Company will
provide notice to HM Services of the exercise of a Warrant and submit a pro
rata portion of the exercise price of each Warrant exercised on or after
October 1, 1995 (such portion to be based on the relative trading value of
Company Common Stock and Services Common Stock immediately following the
Distribution Date). Any shares of Company Common Stock issuable by the Company
upon the exercise of the Warrants must be validly issued, fully paid and non-
assessable.
PAYMENT OF TAXES AND OTHER COSTS
Warrantholders are required to pay any and all taxes, costs and expenses
payable (a) in respect of the issuance of the Company Common Stock upon the
exercise of Warrants and (b) in respect of any certificate for shares of
Company Common Stock issuable upon exercise of Warrants in a name other than
that of the registered holder of the Warrant Certificates surrendered upon the
exercise of the Warrant.
Any Warrantholder requesting transfer or exchange of any Warrant
Certificates pursuant to the Warrant Agreement is also required to pay any and
all costs and expenses of such transfer or exchange (including without
limitation the fees and expenses of the Warrant Agent in connection
therewith).
The Company is not required to issue or deliver shares of Company Common
Stock upon exercise of the Warrants unless and until the person requesting
such issuance or delivery shall have paid to the Company the amount of such
taxes, costs and expenses or established to the Company's satisfaction that
such taxes, costs and expenses have been paid.
NO FRACTIONAL SHARES
The Company will not issue fractional shares of Company Common Stock on the
exercise of the Warrants. If any fraction of a share of Company Common Stock
would be issuable on the exercise of any Warrants (or portion thereof), the
Company will pay to the exercising Warrantholders (in lieu of issuance of such
fractional share of Company Common Stock) an amount of cash equal to the
Exercise Price on the date the Warrant is presented for exercise, multiplied
by such fraction.
ADJUSTMENT PROVISIONS
The number of shares of Company Common Stock that may be purchased upon the
exercise of each Warrant are subject to adjustment in the event of certain
transactions involving the Company, including (a)(i) issuing shares of Company
Common Stock as a stock dividend to the holders of Company Common Stock;
(ii) subdividing or combining the outstanding shares of Company Common Stock
into a greater or lesser number of shares; (iii) issuing shares of its capital
stock other than Company Common Stock as a distribution to the holders of
Company Common Stock; (iv) issuing by reclassification of the Company Common
Stock any shares of its capital stock, (b) distributing any rights, options or
warrants to all holders of Company Common Stock entitling such holders to
purchase shares of Company Common Stock at a price per share less than the
current
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market price per share on the record date for such distribution, and (c)
distributing to all holders of Company Common Stock any of the assets or any
rights or warrants to purchase assets or other securities of the Company.
In case of any consolidation, merger or sale of all or substantially all of
the assets of the Company, upon the consummation of the transaction, the
Warrants automatically become exercisable for the kind and amount of
securities, cash or other assets which the holder of a Warrant would have
owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrant immediately before the effective date of the
transaction.
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is a summary and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Restated Certificate of Incorporation and shareholder's rights
plan listed as exhibits to the Registration Statement of which this Prospectus
is a part.
GENERAL
The Company's Restated Certificate of Incorporation (the "Company
Certificate") authorizes the issuance of a total of 301 million shares of all
classes of stock, of which one million may be shares of preferred stock,
without par value, and 300 million may be shares of Company Common Stock. At
June 14, 1996, approximately 194.8 million shares of Company Common Stock were
outstanding. The Company Certificate provides that the Board is authorized to
provide for the issuance of shares of preferred stock, from time to time, in
one or more series, and to fix any voting powers, full or limited or none, and
the designations, preferences and relative, participating, optional or other
special rights, applicable to the shares to be included in any such series and
any qualifications, limitations or restrictions thereon.
COMPANY COMMON STOCK
Voting Rights. Each holder of Company Common Stock is entitled to one vote
for each share registered in his name on the books of the Company on all
matters submitted to a vote of shareholders. Except as otherwise provided by
law, the holders of Company Common Stock vote as one class. The shares of
Company Common Stock do not have cumulative voting rights. As a result,
subject to the voting rights, if any, of the holders of any shares of the
Company's preferred stock which may at the time be outstanding, the holders of
Company Common Stock entitled to exercise more than 50% of the voting rights
in an election of directors will be able to elect 100% of the directors to be
elected if they choose to do so. In such event, the holders of the remaining
Company Common Stock voting for the election of directors will not be able to
elect any persons to the Board. The Company Certificate provides that the
Board is classified into three classes, each serving a three-year term, with
one class to be elected in each of three consecutive years.
Dividend Rights. Subject to the rights of the holders of any shares of the
Company's preferred stock which may at the time be outstanding, holders of
Company Common Stock are entitled to such dividends as the Board of Directors
may declare out of funds legally available therefor. The Company intends to
retain future earnings for use in its business and does not currently intend
to pay regular cash dividends. In addition, the New Line of Credit contains
restrictions on the payment of dividends on the Company Common Stock. See
"Dividend Policy."
Liquidation Rights and Other Provisions. Subject to the prior rights of
creditors and the holders of any of the Company's preferred stock which may be
outstanding from time to time, the holders of Company Common Stock are
entitled in the event of liquidation, dissolution or winding up to share pro
rata in the distribution of all remaining assets. The Company Common Stock is
not liable for any calls or assessments and is not convertible into any other
securities. The Company Certificate provides that the private property of the
shareholders shall not be subject to the payment of corporate debts. There are
no redemption or sinking fund provisions applicable to the Company Common
Stock, and the Company Certificate provides that there shall be no preemptive
rights.
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The transfer agent and registrar for the Common Stock is First Chicago Trust
of New York.
RIGHTS AND JUNIOR PREFERRED STOCK
The Company has adopted a shareholder rights plan as set forth in a Rights
Agreement dated February 3, 1989, as amended, between the Company and the Bank
of New York, as rights agent (the "Rights Agreement"). The following is a
summary of the terms of the Rights Agreement.
Rights. Following the occurrence of certain events (the "Occurrence Date")
and except as described below, each right (a "Right," and, collectively, the
"Rights") will entitle the registered holder thereof to
purchase from the Company one one-thousandth of a share (a "Unit") of the
Company's Series A Junior Participating Preferred Stock ("Junior Preferred
Stock") at a price (the "Purchase Price") of $150 per Unit, subject to
adjustment. The Rights are not exercisable until the Occurrence Date. The
Rights expire on the tenth anniversary of the adoption of the Rights
Agreement, unless exercised in connection with a transaction of the type
described below or unless earlier redeemed by the Company.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
Initially, ownership of the Rights will be attached to all Company Common
Stock certificates representing shares then outstanding, and no separate
certificates representing the Rights (the "Rights Certificates") will be
distributed. Until the Occurrence Date (or earlier redemption or expiration of
the Rights), the Rights will be transferable only with the Company Common
Stock, and the surrender or transfer of any certificate of Common Stock will
also constitute the transfer of the Rights associated with the Company Common
Stock represented by such certificate. The Rights will separate from the
Company Common Stock and an Occurrence Date will occur upon the earlier of (i)
10 days following the date (a "Stock Acquisition Date") of a public
announcement that a person or group of affiliates or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding Company Common Stock or (ii) 10
business days following the commencement of or announcement of an intention to
make a tender offer or exchange offer, the consummation of which would result
in the Acquiring Person becoming the beneficial owner of 30% or more of such
outstanding Company Common Stock (such date being called the Occurrence Date).
For purposes of the Rights Agreement, a person shall not be deemed to
beneficially own "Exempt Shares" which include (i) shares of Company Common
Stock acquired by such person by gift, bequest and certain other transfers,
which shares were Exempt Shares immediately prior to such transfer and were
held by such person continuously thereafter and (ii) shares acquired by such
person in connection with certain distributions of Company Common Stock with
respect to Exempt Shares which were held by such person continuously
thereafter. In connection with the Marriott International Distribution, the
Board amended the Rights Agreement to provide that the shares of Company
Common Stock acquired by Marriott International upon exercise of the Marriott
International Purchase Right will be deemed "Exempt Shares" under the Rights
Agreement, such that the exercise of such right by Marriott International will
not cause Marriott International to be deemed an "Acquiring Person" under the
Rights Agreement and thus trigger a distribution of the Rights. See
"Relationship Between the Company and Marriott International--Marriott
International Purchase Right."
As soon as practicable following an Occurrence Date, Rights Certificates
will be mailed to holders of record of Company Common Stock as of the close of
business on the Occurrence Date. After such time, such separate Rights
Certificates alone will evidence the Rights and could trade independently from
the Company Common Stock.
In the event (i) the Company is the surviving corporation in a merger with
an Acquiring Person and the Company Common Stock is not changed or exchanged,
or (ii) an Acquiring Person becomes the beneficial owner of 30% or more of the
then outstanding shares of Company Common Stock (except pursuant to an offer
for all outstanding shares of Company Common Stock which the Board determines
to be fair to and otherwise in the
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best interests of the Company and its shareholders), each holder of a Right
will, in lieu of the right to receive one one-thousandth of a share of Junior
Preferred Stock, thereafter have the right to receive, upon exercise, Company
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right. Notwithstanding any of the foregoing, following the occurrence of any
of the events set forth in this paragraph, all Rights that are (or, under
certain circumstances specified in the Rights Agreement, were) beneficially
owned by any Acquiring Person will be null and void. However, the Rights are
not exercisable following the occurrence of either of the events set forth
above until such time as the Rights are no longer redeemable by the Company as
set forth below.
For example, at an exercise price of $150 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase
$300 worth of Company Common Stock (or other consideration, as noted above)
for $150. Assuming that the Company Common Stock had a per share value of $30
at such time, the holder of each valid Right would be entitled to purchase 10
shares of Company Common Stock for $150.
In the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger
described in the second preceding paragraph or a merger which follows an offer
described in the second preceding paragraph), or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a
Right (except Rights which previously have been voided as set forth above)
shall thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
In general, the Board may redeem the Rights in whole, but not in part, at
any time until 10 days following the Stock Acquisition Date, at a price of
$.01 per Right. After the redemption period has expired, the Company's right
of redemption may be reinstated if an Acquiring Person reduces its beneficial
ownership to 10% or less of the outstanding shares of Company Common Stock in
a transaction or series of transactions not involving the Company. Immediately
upon the action of the Board ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to receive
the $.01 per Right redemption price.
The purchase price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment upon the occurrence of certain events with respect to
the Company, including stock dividends, subdivisions, combinations,
reclassifications, rights or warrants offerings of Junior Preferred Stock at
less than the then current market price and certain distributions of property
or evidences of indebtedness of the Company to holders of Junior Preferred
Stock, all as set forth in the Rights Agreement.
The Rights have certain antitakeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board, except pursuant to an offer conditioned on
a substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board since the
Rights may be redeemed by the Company as set forth above. See "Purposes and
Antitakeover Effects of Certain Provisions of the Company Certificate and
Bylaws and the Marriott International Purchase Right."
Junior Preferred Stock. In connection with the Rights Agreement, 300,000
shares of Junior Preferred Stock are authorized and reserved for issuance by
the Board. No shares of Junior Preferred Stock are currently outstanding. The
material terms of the Junior Preferred Stock are summarized herein; however,
such summary is subject to the terms of the Company Certificate and the
certificate of designation relating to the Junior Preferred Stock (the "Junior
Preferred Stock Certificate of Designation").
Subject to the prior payment of cumulative dividends on any class of
preferred stock ranking senior to the Junior Preferred Stock, a holder of
Junior Preferred Stock will be entitled to cumulative dividends out of funds
legally available therefor, when, as and if declared by the Board, at a
quarterly rate per share of Junior Preferred
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Stock equal to the greater of (a) $10.00 or (b) 1000 times (subject to
adjustment upon certain dilutive events) the aggregate per share amount of all
cash dividends and 1000 times (subject to adjustment upon certain dilutive
events) the aggregate per share amount (payable in kind) of all noncash
dividends or other distributions (other than dividends payable in Company
Common Stock or a sub-division of the outstanding shares of Company Common
Stock) declared on Company Common Stock, since the immediately preceding
quarterly dividend payment date for the Junior Preferred Stock (or since the
date of issuance of the Junior Preferred Stock if no such dividend payment
date has occurred).
A holder of Junior Preferred Stock will be entitled to 1000 votes (subject
to adjustment upon certain dilutive events) per share of Junior Preferred
Stock on all matters submitted to a vote of shareholders of the Company. Such
holders will vote together with the holders of the Company Common Stock as a
single class on all matters submitted to a vote of shareholders of the
Company.
In the event of a merger or consolidation of the Company which results in
Company Common Stock being exchanged or changed for other stock, securities,
cash and/or other property, the shares of Junior Preferred Stock shall
similarly be exchanged or changed in an amount per share equal to 1000 times
(subject to adjustment upon certain dilutive events) the aggregate amount of
stock, securities, cash and/or other property, as the case may be, into which
each share of Company Common Stock has been exchanged or changed.
In the event of liquidation, dissolution or winding up of the Company, a
holder of Junior Preferred Stock will be entitled to receive $1000 per share,
plus accrued and unpaid dividends and distributions thereon, before any
distribution may be made to holders of shares of stock of the Company ranking
junior to the Junior Preferred Stock, and the holders of Junior Preferred
Stock are entitled to receive an aggregate amount per share equal to 1000
times (subject to adjustment upon certain dilutive events) the aggregate
amount to be distributed per share to holders of Company Common Stock.
In the event that dividends on the Junior Preferred Stock are in arrears in
an amount equal to six quarterly dividends thereon, all holders of Junior
Preferred Stock, voting separately as a class with the holders of any other
series of preferred stock of the Company with dividends in arrears, will be
entitled to elect two directors pursuant to provisions of the Company
Certificate. Such right to elect two additional directors shall continue at
each annual meeting until all dividends in arrears (including the then-current
quarterly dividend payment) have been paid or declared and set apart for
payment. Upon payment or declaration and reservation of funds for payment of
all such dividends, the term of office of each director elected shall
immediately terminate and the number of directors shall be such number as may
be provided for in the Company Certificate or Bylaws.
The Junior Preferred Stock is not subject to redemption. The terms of the
Junior Preferred Stock provide that the Company is subject to certain
restrictions with respect to dividends and distributions on and redemptions
and purchases of shares of stock of the Company ranking junior to or on a
parity with the Junior Preferred Stock in the event that payments of dividends
or other distributions payable on the Junior Preferred Stock are in arrears.
WARRANTS
The Company agreed to issue warrants (the "Warrants") to acquire 7,700,000
shares of the Company Common Stock in connection with the settlement of class
action lawsuits instituted against the Company and certain individual
defendants by certain holders and purchasers of senior notes and debentures of
the Company. As adjusted to reflect the Special Dividend, each Warrant
entitles the holder, at any time prior to 5:00 p.m. on October 8, 1998 (the
"Expiration Time"), to purchase one share of Company Common Stock from the
Company and one-fifth of one share of Services Common Stock at a price (the
"Exercise Price") of (i) $8.00, if exercised on or before 5:00 p.m. New York
City time on October 8, 1996, or (ii) $10.00, if exercised after 5:00 p.m. New
York City time on October 8, 1996, but on or before 5:00 p.m. New York City
time on October 8, 1998. The portion of the Exercise Price attributable to the
Services Common Stock is payable to HM Services. See "Relationship Between the
Company and HM Services After the Special Dividend." Both the Exercise Price
and the number of shares subject to the Warrants are subject to certain
adjustments. Warrants that are not
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exercised prior to the Expiration Time expire and become void. The Company did
not receive any proceeds from the issuance of the Warrants.
Warrantholders will not be entitled to vote or to consent or to receive
notice as shareholders in respect of the meeting of shareholders or the
election of directors of the Company or any other matter, or possess any
rights whatsoever as shareholders of the Company.
The Company has also agreed to use its reasonable best efforts to obtain any
required approvals or registration under state securities laws for the
issuance of the Company Common Stock upon exercise of the Warrants. Under the
Warrant Agreement, however, Warrants may not be exercised by or, shares of
Company Common Stock issued to, any Warrant holder in any state where such
exercise or issuance would be unlawful. The Warrants have no established
trading market and no assurance can be given that any such markets will
develop.
As of June 28, 1996, approximately 7,030,000 Warrants were outstanding or
reserved for issuance.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences expected to result from the ownership and disposition of the
Warrants. This summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations
promulgated and proposed thereunder, judicial authority and current
administrative rulings and practice, any of which may be altered with
retroactive effect, thereby changing the federal income tax consequences
discussed below. There can be no assurance that the Internal Revenue Service
("the Service") will not take a contrary view, and no ruling from the Service
has been or will be sought.
The tax treatment of a Warrantholder may vary depending upon such holder's
particular situation. Certain Warrantholders, including certain financial
institutions, insurance companies, broker-dealers, tax-exempt organizations,
foreign corporations, nonresident alien individuals and persons holding the
Warrants as part of a "straddle," "hedge" or "conversion transaction," may be
subject to special rules not discussed below. This discussion is limited to
holders who will hold the Warrants (and any Company Common Stock acquired
pursuant to the exercise of a Warrant) as "capital assets" (within the meaning
of Section 1221 of the Code). Moreover, this discussion does not address the
federal income tax treatment of the receipt of the Warrants by the Initial
Warrantholders, and such treatment will vary depending on the facts and
circumstances of each such holder. Initial Warrantholders should consult their
own tax advisors regarding the proper federal income tax treatment of the
receipt of the Warrants.
SALE OR EXCHANGE OF THE WARRANTS
Generally, a Warrantholder will recognize gain or loss upon the sale or
exchange of a Warrant in an amount equal to the difference between (i) the
amount of cash and the fair market value of other property received therefor
and (ii) the Warrantholder's adjusted tax basis in the Warrant. Such gain or
loss generally will be capital gain or loss if the Company Common Stock to
which the Warrant relates would be a capital asset in the hands of the
Warrantholder, and will be long-term if the Warrant was held for more than a
year. A repurchase of the Warrant by the Company may not qualify for capital
gain or loss treatment, however, and a Warrantholder instead may be required
to treat such gain or loss as ordinary income or loss.
EXERCISE OF THE WARRANTS
The exercise of a Warrant with cash will not result in a taxable event to
the Warrantholder (except to the extent of cash, if any, received in lieu of
fractional shares of Company Common Stock). Upon such exercise, the
Warrantholder's basis in the shares of Company Common Stock issued thereunder
will be the sum of (i) the
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Warrantholder's basis in the Warrant and (ii) the exercise price of the
Warrant. The holding period for the shares of Company Common Stock acquired
upon exercise of a Warrant will not include the period during which the
Warrant was held. If any cash is received in lieu of fractional shares, the
Warrantholder will recognize gain or loss, and the character and amount of
gain or loss will be determined as if the Warrantholder had received such
fractional shares and then such shares were immediately redeemed for cash.
Accordingly, a Warrantholder will recognize gain or loss in an amount equal to
the difference between the amount of cash received for the fractional shares
and the Warrantholder's tax basis in the fractional shares.
EXPIRATION OF THE WARRANTS
Upon the expiration of an unexercised Warrant, the Warrantholder will
recognize a loss equal to the Warrantholder's adjusted tax basis in the
Warrant. Such loss generally will be a capital loss if the Company Common
Stock to which the Warrant relates would be a capital asset in the hands of
the Warrantholder, and will be long-term if the Warrant was held for more than
one year.
ADJUSTMENTS UNDER THE WARRANTS
Adjustments to the Exercise Price of a Warrant, or the failure to make such
adjustments, may in certain circumstances result in the receipt of
constructive distributions by the Warrantholder which could be taxable as a
dividend, in which event the Warrantholder's tax basis in the Warrant would be
increased by an amount equal to such constructive dividend. The rules with
respect to adjustments are complex and Warrantholders should consult their own
tax advisors in the event of an adjustment.
BACKUP WITHHOLDING
The backup withholding rules require the Company to deduct and withhold
federal income tax at the rate of 31% with respect to payments made to
noncorporate payees who are not otherwise exempt if (a) the payee fails to
furnish a taxpayer identification number ("TIN") to the Company, (b) the
Service notifies the Company that the TIN furnished by the payee is incorrect,
(c) there has been notified payee underpaying, or (d) there has been payee
certification failure. Any amounts withheld from a payment to a payee under
the backup withholding rules will be allowed as a refund or credit against
such payee's federal income tax, provided that the required information is
furnished to the Service.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE
WARRANTHOLDER'S SITUATION OR STATUS. THE SUMMARY IS BASED ON THE PROVISIONS OF
THE CODE, REGULATIONS, PROPOSED REGULATIONS, RULINGS AND JUDICIAL DECISIONS
NOW IN EFFECT, ANY OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE
BASIS. EACH WARRANTHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO SUCH WARRANTHOLDER, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAW, ARISING OUT OF THE
OWNERSHIP AND DISPOSITION OF THE WARRANTS.
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PLAN OF DISTRIBUTION
The Warrants offered hereby were distributed to the Initial Warrantholders
as part of the Class Action Settlement pursuant to the Settlement Agreement,
which was approved by the United States District Court for the District of
Maryland (the "Court") on September 10, 1993.
As part of the Class Action Settlement, 5,775,000 Warrants were distributed
to purchasers of the Company's senior notes between July 11, 1991 and October
5, 1992 who sold such senior notes on or after October 5, 1992 and prior to
September 10, 1993 and who suffered a loss on such purchase and sale. Under
the terms of the Class Action Settlement, in order to receive Warrants,
members of the plaintiff class satisfying the above criteria were required to
file a proof of claim with the settlement fund administrator retained by the
Class Action Plaintiffs to determine the total recognized loss from eligible
claims. Pursuant to the Court's order dated June 10, 1994, the total
recognized loss approved by the Court was $14,329,027, which means that each
approved claimant received .403 Warrants for each dollar of recognized loss,
except that no fractional warrants were issued. See "Description of Warrants--
No Fractional Shares." Also, as part of the Class Action Settlement, counsel
to the plaintiffs in the Class Action Lawsuits received 1,925,000 Warrants in
payment of such counsel's fees and expenses. The plaintiffs who received
Warrants as part of the Class Action Settlement and counsel to plaintiffs in
the Class Action Lawsuit are sometimes referred to in this Prospectus as the
"Initial Warrantholders."
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PURPOSES AND ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY
CERTIFICATE AND BYLAWS AND THE MARRIOTT INTERNATIONAL PURCHASE RIGHT
COMPANY CERTIFICATE AND BYLAWS
The Company Certificate contains several provisions that will make difficult
an acquisition of control of the Company by means of a tender offer, open
market purchases, a proxy fight or otherwise, that is not approved by the
Board. The Company's Bylaws (the "Bylaws") also contain provisions that could
have an antitakeover effect.
The purposes of the relevant provisions of the Company Certificate and
Bylaws are to discourage certain types of transactions, described below, which
may involve an actual or threatened change of control of the Company and to
encourage persons seeking to acquire control of the Company to consult first
with the Board to negotiate the terms of any proposed business combination or
offer. The provisions are designed to reduce the vulnerability of the Company
to an unsolicited proposal for a takeover that does not contemplate the
acquisition of all outstanding shares or is otherwise unfair to shareholders
of the Company or an unsolicited proposal for the restructuring or sale of all
or part of the Company. The Company believes that, as a general rule, such
proposals would not be in the best interests of the Company and its
shareholders.
There has been a history of the accumulation of substantial stock positions
in public companies by third parties as a prelude to proposing a takeover or a
restructuring or sale of all or part of the company or another similar
extraordinary corporate action. Such actions are often undertaken by the
third-party without advance notice to, or consultation with, the management or
board of directors of the target company. In many cases, the purchaser seeks
representation on the company's board of directors in order to increase the
likelihood that its proposal will be implemented by the company. If the
company resists the efforts of the purchaser to obtain representation on the
company's board, the purchaser may commence a proxy contest to have its
nominees elected to the board in place of certain directors or the entire
board. In some cases, the purchaser may not truly be interested in taking over
the company, but may use the threat of a proxy fight and/or a bid to take over
the company as a means of forcing the company to repurchase its equity
position at a substantial premium over market price.
The Company believes that the imminent threat of removal of the Company's
management or Board in such situations would severely curtail the ability of
management or the Board to negotiate effectively with such purchasers. The
management or the Board would be deprived of the time and information
necessary to evaluate the takeover proposal, to study alternative proposals
and to help ensure that the best price is obtained in any transaction
involving the Company which may ultimately be undertaken. If the real purpose
of a takeover bid were to force the Company to repurchase an accumulated stock
interest at a premium price, management or the Board would face the risk that,
if it did not repurchase the purchaser's stock interest, the Company's
business and management would be disrupted, perhaps irreparably.
Certain provisions of the Company Certificate and Bylaws, the Company
believes, will help ensure that the Board, if confronted by a surprise
proposal from a third party which has acquired a block of stock, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of the
shareholders. In addition, certain other provisions of the Company Certificate
are designed to prevent a purchaser from utilizing two-tier pricing and
similar inequitable tactics in the event of an attempt to take over the
Company.
These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interests of the shareholders, and may
delay or frustrate the assumption of control by a holder of a large block of
stock of the Company and the removal of incumbent management, even if such
removal might be beneficial to the shareholders. Furthermore, these provisions
may deter or could be utilized to frustrate a future takeover attempt which is
not approved by the incumbent Board, but which the holders of a majority of
the shares may deem to be in their best
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interests or in which shareholders may receive a substantial premium for their
stock over prevailing market prices of such stock. By discouraging takeover
attempts, these provisions might have the incidental effect of inhibiting
certain changes in management (some or all of the members of which might be
replaced in the course of a change of control) and also the temporary
fluctuations in the market price of the stock which often result from actual
or rumored takeover attempts.
Set forth below is a description of such provisions in the Company
Certificate and Bylaws. Such description is intended as a summary only and is
qualified in its entirety by reference to the Company Certificate and Bylaws
which are exhibits to the Registration Statement on Form S-3 of which this
Prospectus is a part.
Classified Board of Directors. The Company Certificate provides for the
Board to be divided into three classes serving staggered terms so that
directors' current terms will expire at the 1996, 1997 or 1998 annual meeting
of shareholders.
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the Board in a
relatively short period of time. At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board. Such a delay may help ensure that the Board, if confronted by a
holder attempting to force a stock repurchase at a premium above market
prices, a proxy contest or an extraordinary corporate transaction, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes are the best interests of the
shareholders.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even though such an attempt might be beneficial to the Company
and its shareholders. The classified board provision could thus increase the
likelihood that incumbent directors will retain their positions. In addition,
since the classified board provision is designed to discourage accumulations
of large blocks of the Company's stock by purchasers whose objective is to
have such stock repurchased by the Company at a premium, the classified board
provision could tend to reduce the temporary fluctuations in the market price
of the Company's stock that could be caused by accumulations of large blocks
of such stock. Accordingly, shareholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
The Company believes that a classified board of directors helps to assure
the continuity and stability of the Board and business strategies and policies
as determined by the Board, because generally a majority of the directors at
any given time will have had prior experience as directors of the Company. The
classified board provision also helps assure that the Board, if confronted
with an unsolicited proposal from a third party that has acquired a block of
the voting stock of the Company, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result
for all shareholders.
Removal; Filling Vacancies. The Company Certificate provides that, subject
to any rights of the holders of preferred stock, only a majority of the Board
then in office shall have the authority to fill any vacancies on the Board,
including vacancies created by an increase in the number of directors. In
addition, the Company Certificate provides that a new director elected to fill
a vacancy on the Board will serve for the remainder of the full term of his or
her class and that no decrease in the number of directors shall shorten the
term of an incumbent. Moreover, the Company Certificate provides that
directors may be removed with or without cause only by the affirmative vote of
holders of at least 66 2/3% of the voting power of the shares entitled to vote
at the election of directors, voting together as a single class. These
provisions relating to removal and filling of vacancies on the Board will
preclude shareholders from enlarging the Board or removing incumbent directors
and filling the vacancies with their own nominees.
Limitations on Shareholder Action By Written Consent; Special Meetings. The
Company Certificate and Bylaws provide that shareholder action can be taken
only at an annual or special meeting of shareholders and prohibit shareholder
action by written consent in lieu of a meeting. The Company Certificate and
Bylaws provide
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that, subject to the rights of holders of any series of preferred stock,
special meetings of shareholders can be called only by a majority of the
entire Board. Shareholders are not permitted to call a special meeting or to
require that the Board call a special meeting of shareholders. Moreover, the
business permitted to be conducted at any special meeting of shareholders is
limited to the business brought before the meeting by or at the direction of
the Board.
The provisions of the Company Certificate and Bylaws restricting shareholder
action by written consent may have the effect of delaying consideration of a
shareholder proposal until the next annual meeting unless a special meeting is
called by a majority of the entire Board. These provisions would also prevent
the holders of a majority of the voting power of the voting stock from using
the written consent procedure to take shareholder action and from taking
action by consent without giving all the shareholders of the Company entitled
to vote on a proposed action the opportunity to participate in determining
such proposed action. Moreover, a shareholder could not force shareholder
consideration of a proposal over the opposition of the Board by calling a
special meeting of shareholders prior to the time the Board believed such
consideration to be appropriate.
The Company believes that such limitations on shareholder action will help
to assure the continuity and stability of the Board and the Company's business
strategies and policies as determined by the Board, to the benefit of all of
the Company's shareholders. If confronted with an unsolicited proposal from
Company shareholders, the Board will have sufficient time to review such
proposal and to seek the best available result for all shareholders, before
such proposal is approved by such shareholders by written consent in lieu of a
meeting or through a special meeting of shareholders.
Nominations of Directors and Shareholder Proposals. The Bylaws establish an
advance notice procedure with regard to the nomination, other than by or at
the direction of the Board, of candidates for election as directors (the
"Nomination Procedure") and with regard to shareholder proposals to be brought
before an annual or special meeting of shareholders (the "Business
Procedure").
The Nomination Procedure provides that only persons who are nominated by or
at the direction of the Board, or by a shareholder who has given timely prior
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors. The
Business Procedure provides that shareholder proposals must be submitted in
writing in a timely manner in order to be considered at any annual or special
meeting. To be timely, notice must be received by the Company (i) in the case
of an annual meeting, not less than 90 days prior to the annual meeting for a
director nomination, and not less than 120 days prior to the annual meeting
for a shareholder proposal or (ii) in the case of a special meeting not later
than the seventh day following the day on which notice of such meeting is
first given to shareholders for both a director nomination and a shareholder
proposal.
Under the Nomination Procedure, notice to the Company from a shareholder who
proposes to nominate a person at a meeting for election as a director must
contain certain information about that person, including age, business and
residence addresses, principal occupation, the class and number of shares of
Company Common Stock beneficially owned, the consent to be nominated and such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and certain
information about the shareholder proposing to nominate that person. Under the
Business Procedure, notice relating to a shareholder proposal must contain
certain information about such proposal and about the shareholder who proposes
to bring the proposal before the meeting, including the class and number of
shares of Company Common Stock beneficially owned by such shareholder. If the
Chairman or other officer presiding at a meeting determines that a person was
not nominated in accordance with the Nomination Procedure, such person will
not be eligible for election as a director, or if he determines that the
shareholder proposal was not properly brought before such meeting, such
proposal will not be introduced at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any
shareholder of any nomination or proposal properly made or brought before an
annual or special meeting in accordance with the above-mentioned procedures.
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The purpose of the Nomination Procedure is, by requiring advance notice of
nomination by shareholders, to afford the Board a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform shareholders about such
qualifications. The purpose of the Business Procedure is, by requiring advance
notice of shareholder proposals, to provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Board, to provide the Board with a meaningful opportunity
to inform shareholders, prior to such meetings, of any proposal to be
introduced at such meetings, together with any recommendation as to the
Board's position or belief as to action to be taken with respect to such
proposal, so as to enable shareholders better to determine whether they desire
to attend such meeting or grant a proxy to the Board as to the disposition of
any such proposal. Although the Bylaws do not give the Board any power to
approve or disapprove shareholder nominations for the election of directors or
of any other proposal submitted by shareholders, the Bylaws may have the
effect of precluding a nomination for the election of directors or precluding
the conducting of business at a particular shareholder meeting if the proper
procedures are not followed, and may discourage or deter a third-party from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company and its
shareholders.
Fair Price Provision. Article Fifteen of the Company Certificate (the "Fair
Price Provision") requires approval by the holders of 66 2/3% of the voting
power of the outstanding capital stock of the Company entitled to vote
generally in the election of directors (the "Voting Stock") as a condition for
mergers and certain other business combinations ("Business Combinations")
involving the Company and any holder of more than 25% of such voting power (an
"Interested Shareholder") unless the transaction is either (i) approved by a
majority of the members of the Board who are not affiliated with the
Interested Shareholder and who were directors before the Interested
Shareholder became an Interested Shareholder (the "Disinterested Directors")
or (ii) certain minimum price and procedural requirements are met.
The Fair Price Provision is designed to prevent a third party from utilizing
two-tier pricing and similar inequitable tactics in a takeover attempt. The
Fair Price Provision is not designed to prevent or discourage tender offers
for the Company. It does not impede an offer for at least 66 2/3% of the
Voting Stock in which each shareholder receives substantially the same price
for his or her shares as each other shareholder or which the Board has
approved in the manner described herein. Nor does the Fair Price Provision
preclude a third party from making a tender offer for some of the shares of
Voting Stock without proposing a Business Combination in which the remaining
shares of Voting Stock are purchased. Except for the restrictions on Business
Combinations, the Fair Price Provision will not prevent an Interested
Shareholder having a controlling interest of the Voting Stock from exercising
control over the Company or increasing its interest in the Company. Moreover,
an Interested Shareholder could increase its ownership to 66 2/3% and avoid
application of the Fair Price Provision. However, the separate provisions
contained in the Company Certificate and the Bylaws relating to "Classified
Boards of Directors" discussed above will, as therein indicated, curtail an
Interested Shareholder's ability to exercise control in several respects,
including such shareholder's ability to change incumbent directors who may
oppose a Business Combination or to implement a Business Combination by
written consent without a shareholder meeting. The Fair Price Provision would,
however, discourage some takeover attempts by persons intending to acquire the
Company in two steps and to eliminate remaining shareholder interests by means
of a business combination involving less consideration per share than the
acquiring person would propose to pay for its initial interest in the Company.
In addition, acquisitions of stock by persons attempting to acquire control
through market purchases may cause the market price of the stock to reach
levels which are higher than would otherwise be the case. The Fair Price
Provision may thereby deprive some holders of the Common Stock of an
opportunity to sell their shares at a temporarily higher market price.
Although the Fair Price Provision is designed to help assure fair treatment
of all shareholders vis-a-vis other shareholders in the event of a takeover,
it is not the purpose of the Fair Price Provision to assure that shareholders
will receive a premium price for their shares in a takeover. Accordingly, the
Board is of the view that the adoption of the Fair Price Provision does not
preclude the Board's opposition to any future takeover proposal
34
<PAGE>
which it believes would not be in the best interests of the Company and its
shareholders, whether or not such a proposal satisfies the minimum price
criteria and procedural requirements of the Fair Price Provision.
In addition, under Section 203 of the Delaware General Corporation Law as
applicable to the Company, certain "business combinations" (defined generally
to include (i) mergers or consolidations between a Delaware corporation and an
interested shareholder (as defined below) and (ii) transactions between a
Delaware corporation and an interested shareholder involving the assets or
stock of such corporation or its majority-owned subsidiaries, including
transactions which increase the interested shareholder's percentage ownership
of stock) between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 shareholders, and an interested
shareholder (defined generally as those shareholders, who, on or after
December 23, 1987, become beneficial owners of 15% or more of a Delaware
corporation's voting stock) are prohibited for a three-year period following
the date that such shareholder became an interested shareholder, unless (i)
prior to the date such shareholder became an interested shareholder, the board
of directors of the corporation approved either the business combination or
the transaction which resulted in the shareholder becoming an interested
shareholder, (ii) upon consummation of the transaction that made such
shareholder an interested shareholder, the interested shareholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding voting stock owned by officers who also are
directors and voting stock held in employee benefit plans in which the
employees do not have a confidential right to tender or vote stock held by the
plan), or (iii) the business combination was approved by the board of
directors of the corporation and ratified by two-thirds of the voting stock
which the interested shareholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
shareholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had been
an interested shareholder during the previous three years or who became an
interested shareholder with the approval of a majority of the corporation's
directors.
Shareholder Rights Plan. The Company has adopted a shareholder rights plan
which may have anti-takeover effects. See "Description of Capital Stock-Rights
and Junior Preferred Stock."
Amendment of the Company Certificate and Bylaws. The Company Certificate
contains provisions requiring the affirmative vote of the holders of at least
66 2/3% the voting power of the stock entitled to vote generally in the
election of directors to amend certain provisions of the Company Certificate
and Bylaws (including the provisions discussed above). These provisions make
it more difficult for shareholders to make changes in the Company Certificate
or Bylaws, including changes designed to facilitate the exercise of control
over the Company. In addition, the requirement for approval by at least a 66
2/3% shareholder vote will enable the holders of a minority of the Company's
capital stock to prevent holders of a less-than-66 2/3% majority from amending
such provisions of the Company's Certificate or Bylaws.
MARRIOTT INTERNATIONAL PURCHASE RIGHT
The Company granted to Marriott International, for a period of ten years
following the Marriott International Distribution (i.e., until October 2003),
the right to purchase a number of shares equal in amount of up to 20% of each
class of the Company's outstanding voting stock at the then fair market value
upon the occurrence of certain change of control events involving the Company.
The Marriott International Purchase Right may be exercised for a 30-day period
following the date a person or group of affiliated persons has (i) become the
beneficial owner of 20% or more of the total voting power of the then
outstanding shares of the Company's voting stock or (ii) announced a tender
offer for 30% or more of the total voting power of the then outstanding shares
of the Company's voting stock. These change of control events upon which the
Marriott International Purchase Right becomes exercisable are substantially
identical to those events that cause a distribution of the Rights under the
Rights Agreement (see "Description of Capital Stock--Rights and Junior
Preferred Stock"). Accordingly, certain share ownership of the Company's
voting stock by specified persons is exempt under the Rights Agreement, and
consequently will not result in a distribution of Rights, and will not cause
the Marriott International Purchase Right to become exercisable.
35
<PAGE>
In connection with the Marriott International Distribution, the Board
amended the terms of the Rights Agreement to provide that the exercise of the
Marriott International Purchase Right will not result in a distribution of the
Rights. Accordingly, upon exercise of the Marriott International Purchase
Right, Marriott International will be entitled to receive the Rights
associated with the Company Common Stock and will not be deemed an "Acquiring
Person" under the Rights Agreement.
The purchase price for the Company Common Stock to be purchased upon the
exercise of the Marriott International Purchase Right is determined by taking
the average of the closing sale price of the Company Common Stock during the
30 consecutive trading days preceding the date the Marriott International
Purchase Right becomes exercisable. The specific terms of the Marriott
International Purchase Right are set forth in the Marriott International
Distribution Agreement.
The Marriott International Purchase Right will have an antitakeover effect.
Any person considering acquiring a substantial or controlling block of Company
Common Stock would face the possibility that its ability to exercise control
would be impaired by Marriott International's 20% ownership resulting from
exercise of the Marriott International Purchase Right. Moreover, so long as
the Marriott family's current percentage of ownership of Company Common Stock
continues, the combined Marriott family (including various trusts established
by members of the Marriott family) and Marriott International ownership
following exercise of the Marriott International Purchase Right may
effectively block control by others (see "Description of Capital Stock"). It
is also possible that the exercise price of the Marriott International
Purchase Right would be lower than the price at which a potential acquiror
might be willing to purchase a 20% block of shares of Company Common Stock
because the purchase price for the Marriott International Purchase Right is
based on the average trading price during a 30-day period which may be prior
to the announcement of the takeover event. This potential price differential
may have a further antitakeover effect by discouraging potential acquirers of
the Company. The antitakeover effect of the Marriott International Purchase
Right will be in addition to the antitakeover effects of the provisions
contained in the Company Certificate and Bylaws.
LEGAL MATTERS
The validity of the Company Common Stock offered hereby has been passed upon
for the Company by Christopher G. Townsend, Esq., Senior Vice President and
Deputy General Counsel of the Company, and certain legal matters with respect
to the Company Common Stock offered hereby has been passed upon for the
Company by Potter, Anderson & Corroon, Wilmington, Delaware.
Mr. Townsend owns Company Common Stock, and holds stock options, deferred
stock and restricted stock awards under the Comprehensive Stock Plan and may
receive additional awards under the plan in the future.
EXPERTS
The audited consolidated financial statements and schedules of the Company
and the financial statements of the Dallas/Fort Worth Airport Marriott,
Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd., San Antonio Marriott
Riverwalk, and TEC Entities incorporated by reference into this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in giving said reports.
The combined financial statements of Pacific Landmark Hotel, Ltd. and
Pacific Gateway, Ltd. as of December 31, 1994 and 1993, and for each of the
years in the two-year period ended December 31, 1994, are incorporated by
reference in this registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The audited financial statements of the New York Vista (now the Marriott
World Trade Center) incorporated by reference in this registration statement
have been audited by Ernst & Young LLP, independent public accountants, as
indicated in their report with respect thereto and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES COVERED BY THIS PROSPECTUS TO ANY PERSON OR BY ANY PERSON IN ANY JU-
RISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Information Incorporated by Reference..................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 9
The Company............................................................... 12
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
The Distribution and the Special Dividend................................. 13
Relationship Between the Company and
HM Services.............................................................. 13
Relationship Between the Company and Marriott International............... 16
Description of the Warrants............................................... 22
Description of Capital Stock.............................................. 24
Certain Federal Income Tax Consequences................................... 28
Plan of Distribution...................................................... 30
Purposes and Antitakeover Effects of Certain Provisions of the Company
Certificate and Bylaws and the Marriott International Purchase Right..... 31
Legal Matters............................................................. 36
Experts................................................................... 36
Material Changes.......................................................... 36
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,700,000 WARRANTS
TO PURCHASE COMMON STOCK
7,700,000 SHARES
OF COMMON STOCK
HOST MARRIOTT
CORPORATION
-----------------
PROSPECTUS
JULY 24, 1996
-----------------
JULY 24, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities registered hereby. Except for
the SEC registration fee, all amounts provided are estimated.
<TABLE>
<S> <C>
Registration Fee................................................ $ --
Blue Sky Fees and Expenses...................................... --
Stock Exchange Fees............................................. --
Legal Fees...................................................... 100,000
Accounting Fees................................................. 50,000
Printing........................................................ 15,000
--------
$165,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article Eleven and Article Sixteen of the Company's Certificate and Section
7.7 of the Bylaws limit the personal liability of directors to the Company or
its shareholders for monetary damages for breach of fiduciary duty. The
provisions of the Company Certificate and Bylaws are collectively referred to
herein as the "Director Liability and Indemnification Provisions." The Company
Certificate and the Bylaws are included as exhibits to this Registration
Statement on Form S-3 of which this Prospectus is a part.
Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Company Certificate and the
Bylaws.
Elimination of Liability in Certain Circumstances. Article Sixteen of the
Company Certificate protects directors against monetary damages for breaches
of their fiduciary duty of care, except as set forth below. Under the Delaware
General Corporation Law, absent such limitation of liability provisions as are
provided in Article Sixteen, directors could generally be held liable for
gross negligence for decisions made in the performance of their duty of care
but not for simple negligence. Article Sixteen eliminates liability of
directors for negligence in the performance of their duties, including gross
negligence. In a context not involving a decision by the directors (i.e., a
suit alleging loss to the Company due to the directors' inattention to a
particular matter) a simple negligence standard might apply. Directors remain
liable for breaches of their duty of loyalty to the Company and its
shareholders, as well as acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law and transactions from
which a director derives improper personal benefit. Article Sixteen does not
eliminate director liability under Section 174 of the Delaware General
Corporation Law, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions and expressly sets
forth a negligence standard with respect to such liability.
While the Director Liability and Indemnification Provisions provide
directors with protection from awards of monetary damages for breaches of the
duty of care, they do not eliminate the directors' duty of care. Accordingly,
these provisions will have no effect on the availability of equitable remedies
such as an injunction or rescission based upon a director's breach of the duty
of care. The provisions of Article Sixteen, which eliminates liability as
described above, will apply to officers of the Company only if they are
directors of the Company and are acting in their capacity as directors, and
will not apply to officers of the Company who are not directors. The
elimination of liability of directors for monetary damages in the
circumstances described above may deter persons from bringing third-party or
derivative actions against directors to the extent such actions seek monetary
damages.
II-1
<PAGE>
Indemnification and Insurance. Under Section 145 of the Delaware General
Corporation Law, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation--a
"derivative action") if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard of
care is applicable in the case of the derivative actions, except that
indication only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the Delaware
General Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
Section 7.7 of the Bylaws provides that the Company shall indemnify any
person to whom, and to the extent, indemnification may be granted pursuant to
Section 145 of the Delaware General Corporation law.
Article Eleven of the Company Certificate provides that a person who was or
is made a party to, or is involved in, any action, suit or proceeding by
reason of the fact that he is or was a director, officer or employee of the
Company will be indemnified by the Company against all expenses and
liabilities, including counsel fees, reasonably incurred by or imposed upon
him, except in such cases where the director, officer or employee is adjudged
guilty of willful misconduct or malfeasance in the performance of his duties.
Article Eleven also provides that the right of indemnification shall be in
addition to and not exclusive of all other rights to which such director,
officer or employee may be entitled.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**2.(i) Memorandum of Understanding between Marriott Corporation and
Certain Bondholders dated as of March 10, 1993 (incorporated by
reference from Current Report on Form 8-K dated March 17, 1993).
**2.(ii) Stipulation and Agreement of Compromise and Settlement
(incorporated by reference from Registration Statement No. 33-
62444).
**3.1(i) Restated Certificate of Incorporation of Marriott Corporation
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
**3.1(ii) Certificate of Correction filed to correct a certain error in the
Restated Certificate of Incorporation of Host Marriott Corporation
filed in the Office of the Secretary of State of Delaware on
August 11, 1992, filed in the Office of the Secretary of State of
Delaware on October 11, 1994 (incorporated by reference to
Registration Statement No. 33-54545).
**3.2 Amended Marriott Corporation Bylaws (incorporated by reference to
Current Report on Form 8-K dated October 23, 1993).
**4.1(i) Third Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of December 1, 1986
(incorporated by reference from Current Report on Form 8-K dated
December 10, 1986).
**4.1(ii) Fourth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of May 1, 1987
(incorporated by reference from Current Report on Form 8-K dated
May 7, 1987).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**4.1(iii) Fifth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of June 12, 1987
(incorporated by reference from Current Report on Form 8-K dated
June 18, 1987).
**4.1(iv) Sixth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of October 23, 1987
(incorporated by reference from Current Report on Form 8-K dated
October 30, 1987).
**4.1(v) Twelfth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of July 11, 1991
(incorporated by reference from Current Report on Form 8-K dated
July 19, 1991).
**4.1(vi) Thirteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 22, 1992
(incorporated by reference from Current Report on Form 8-K dated
April 29, 1992).
**4.1(vii) Fourteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 28, 1992
(incorporated by reference from Current Report on Form 8-K dated
May 5, 1992).
**4.1(viii) Fifteenth Supplemental Indenture between Marriott Corporation and
Bank One, Columbus, NA. dated as of October 8, 1993
((incorporated by reference from Current Report on Form 8-K dated
October 23, 1993).
**4.2(i) Rights Agreement between Marriott Corporation and the Bank of New
York as Rights Agent dated February 3, 1989 (incorporated by
reference to Registration Statement No. 33-62444).
**4.2(ii) First Amendment to Rights Agreement between Marriott Corporation
and Bank of New York as Rights Agent dated as of October 8, 1993
(incorporated by reference to Registration Statement No. 33-
51707).
**4.3 Indenture by and among HMC Acquisition Properties, Inc., as
Issuer, HMC SFO, Inc., as Subsidiary Guarantors, and Marine
Midland Bank, as Trustee (incorporated by reference to
Registration Statement No. 333-00768).
**4.4 Indenture by and among HMH Properties Inc., as Issuer, HMH
Courtyard Properties, Inc., HMC Retirement Properties, Inc.,
Marriott Financial Services, Inc., Marriott SBM Two Corporation,
HMH Pentagon Corporation and Host Airport Hotels, Inc., as
Subsidiary Guarantors, and Marine Midland Bank, as Trustee
(incorporated by reference to Registration Statement No. 33-
95058).
**4.5(i) Warrant Agreement dated as of October 14, 1994 by and between
Host Marriott Corporation and First Chicago Trust Company of New
York as Warrant Agent (incorporated by reference to Registration
Statement No. 33-80801).
**4.5(ii) First Supplemental Warrant Agreement dated December 22, 1995 by
and among Host Marriott Corporation, Host Marriott Services
Corporation and First Chicago Trust Company as Warrant Agent
(incorporated by reference to Registration Statement No. 33-
80801).
**5 Opinion of Christopher G. Townsend, Esq. as to legality of
securities being registered.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Ernst & Young LLP.
**23.4 Consent of Christopher G. Townsend, Esq. (included in his opinion
filed as Exhibit 5).
</TABLE>
- --------
* Filed herewith.
** Previously filed.
II-3
<PAGE>
ITEM 17: UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of registrant pursuant to the provisions described under Item 14
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 expenses incurred or paid by a director, officer
or controlling person of such registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim information.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BETHESDA,
STATE OF MARYLAND, ON JULY 24, 1996.
Host Marriott Corporation
By *
------------------------------------
Robert E. Parsons, Jr.
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Christopher G. Townsend
as his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the foregoing, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Chief
* Executive Officer July 24, 1996
- ------------------------------------- (Principal
TERENCE C. GOLDEN Executive Officer)
and Director
Executive Vice
* President and Chief July 24, 1996
- ------------------------------------- Financial Officer
ROBERT E. PARSONS, JR. (Principal
Financial Officer)
Vice President and
* Corporate July 24, 1996
- ------------------------------------- Controller
DONALD D. OLINGER (Principal
Accounting Officer)
Chairman of the
- ------------------------------------- Board of Directors July , 1996
RICHARD E. MARRIOTT
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director
* July 24, 1996
- -------------------------------------
R. THEODORE AMMON
Director
* July 24, 1996
- -------------------------------------
J.W. MARRIOTT, JR.
Director
- ------------------------------------- July , 1996
ANN DORE MCLAUGHLIN
Director
* July 24, 1996
- -------------------------------------
HARRY L. VINCENT
*By /s/ Christopher G. Townsend Attorney-in-Fact
-----------------------------
CHRISTOPHER G. TOWNSEND
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**2.(i) Memorandum of Understanding between Marriott Corporation and
Certain Bondholders dated as of March 10, 1993 (incorporated by
reference from Current Report on Form 8-K dated March 17, 1993).
**2.(ii) Stipulation and Agreement of Compromise and Settlement
(incorporated by reference from Registration Statement No. 33-
62444).
**3.1(i) Restated Certificate of Incorporation of Marriott Corporation
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
**3.1(ii) Certificate of Correction filed to correct a certain error in the
Restated Certificate of Incorporation of Host Marriott
Corporation filed in the Office of the Secretary of State of
Delaware on August 11, 1992, filed in the Office of the Secretary
of State of Delaware on October 11, 1994 (incorporated by
reference to Registration Statement No. 33-54545).
**3.2 Amended Marriott Corporation Bylaws (incorporated by reference to
Current Report on Form 8-K dated October 23, 1993).
**4.1(i) Third Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of December 1, 1986
(incorporated by reference from Current Report on Form 8-K dated
December 10, 1986).
**4.1(ii) Fourth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of May 1, 1987
(incorporated by reference from Current Report on Form 8-K dated
May 7, 1987).
**4.1(iii) Fifth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of June 12, 1987
(incorporated by reference from Current Report on Form 8-K dated
June 18, 1987).
**4.1(iv) Sixth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of October 23, 1987
(incorporated by reference from Current Report on Form 8-K dated
October 30, 1987).
**4.1(v) Twelfth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of July 11, 1991
(incorporated by reference from Current Report on Form 8-K dated
July 19, 1991).
**4.1(vi) Thirteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 22, 1992
(incorporated by reference from Current Report on Form 8-K dated
April 29, 1992).
**4.1(vii) Fourteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 28, 1992
(incorporated by reference from Current Report on Form 8-K dated
May 5, 1992).
**4.1(viii) Fifteenth Supplemental Indenture between Marriott Corporation and
Bank One, Columbus, NA. dated as of October 8, 1993
((incorporated by reference from Current Report on Form 8-K dated
October 23, 1993).
**4.2(i) Rights Agreement between Marriott Corporation and the Bank of New
York as Rights Agent dated February 3, 1989 (incorporated by
reference to Registration Statement No. 33-62444).
</TABLE>
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<TABLE>
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EXHIBIT NO. DESCRIPTION
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<C> <S>
**4.2(ii) First Amendment to Rights Agreement between Marriott Corporation
and Bank of New York as Rights Agent dated as of October 8, 1993
(incorporated by reference to Registration Statement No. 33-
51707).
**4.3 Indenture by and among HMC Acquisition Properties, Inc., as
Issuer, HMC SFO, Inc., as Subsidiary Guarantors, and Marine
Midland Bank, as Trustee (incorporated by reference to
Registration Statement No. 333-00768).
**4.4 Indenture by and among HMH Properties Inc., as Issuer, HMH
Courtyard Properties, Inc., HMC Retirement Properties, Inc.,
Marriott Financial Services, Inc., Marriott SBM Two Corporation,
HMH Pentagon Corporation and Host Airport Hotels, Inc., as
Subsidiary Guarantors, and Marine Midland Bank, as Trustee
(incorporated by reference to Registration Statement No. 33-
95058).
**4.5(i) Warrant Agreement dated as of October 14, 1994 by and between Host
Marriott Corporation and First Chicago Trust Company of New York
as Warrant Agent (incorporated by reference to Registration
Statement No. 33-80801).
**4.5(ii) First Supplemental Warrant Agreement dated December 22, 1995 by
and among Host Marriott Corporation, Host Marriott Services
Corporation and First Chicago Trust Company as Warrant Agent
(incorporated by reference to Registration Statement No. 33-
80801).
**5 Opinion of Christopher G. Townsend, Esq. as to legality of
securities being registered.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Ernst & Young LLP.
**23.4 Consent of Christopher G. Townsend, Esq. (included in his opinion
filed as Exhibit 5).
</TABLE>
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* Filed herewith.
** Previously filed.
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 26, 1996
included in the Company's Form 10-K for the year ended December 29, 1995 and
to the incorporation by reference in this registration statement of our
reports dated November 3, 1995 of the Dallas/Fort Worth Airport Marriott,
February 22, 1996 of the Pacific Landmark Hotel, Ltd. and Pacific Gateway,
Ltd., August 18, 1995 of the San Antonio Marriott Riverwalk and December 15,
1995 of TEC Entities included in the Company's Form 8-K dated February 28,
1996 and to all references to our Firm included in this registration
statement.
Arthur Andersen LLP
Washington, DC
July 19, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The General Partners
Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd.
We consent to incorporation by reference in this registration statement of
Host Marriott Corporation of our report dated March 10, 1995, except as to
note 6 to the combined financial statements, which is as of January 5, 1996,
included in Host Marriott Corporation's Form 8-K dated January 17, 1996,
relating to the combined financial statements of Pacific Landmark Hotel, Ltd.
and Pacific Gateway Ltd., as of December 31, 1994 and 1993, and for each of
the years in the two-year period ended December 31, 1994, and to the reference
of our firm under the heading "Experts" in this prospectus.
KPMG Peat Marwick LLP
San Diego, California
July 19, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference of our firm under the caption "Experts" in the
registration statement (Post-Effective Amendment No. 5 on Form S-3 to Form S-1
No. 33-54545) and related prospectus of Host Marriott Corporation and to the
incorporation by reference therein of our report dated January 20, 1995
(except for the matter discussed in Notes 6, 7 and 8, as to which the date is
February 22, 1996), with respect to the financial statements of the New York
Vista for the years ended December 31, 1994, 1993 and 1992 included in the
Registration Statement (Form S-1 No. 333-00147) filed with the Securities and
Exchange Commission.
Ernst & Young LLP
New York, New York
July 19, 1996
