-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RxG0/TWwMg47KTrHlhEsEKzZtyTzzmS14fr0zyQd1fAQdoGhW4KRdR+mM49K5Fwu yzME8HACNMYN/2ypETcRsg== 0000950136-03-003220.txt : 20031230 0000950136-03-003220.hdr.sgml : 20031230 20031230145835 ACCESSION NUMBER: 0000950136-03-003220 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRFIELD INN BY MARRIOTT LTD PARTNERSHIP CENTRAL INDEX KEY: 0000855103 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 521638296 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31180 FILM NUMBER: 031077534 BUSINESS ADDRESS: STREET 1: 7 BULFINCH PLACE SUITE 500 STREET 2: P.O. BOX 9507 CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6175704600 MAIL ADDRESS: STREET 1: 7 BULFINCH PLACE SUITE 500 STREET 2: P.O. BOX 9507 CITY: BOSTON STATE: MA ZIP: 02114 10-Q 1 file001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2003 Commission File No. 0-16728 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP --------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1638296 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 9507, 7 Bulfinch Place - Suite 500, Boston, MA 02114 ------------------------------------------------------------- (Address of principal executive offices) (617) 570-4600 -------------- (Registrant's telephone number, including area code) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicated by check whether registrant is an accelerated filer (as identified in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] ================================================================================ FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP ================================================================================ TABLE OF CONTENTS PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 Financial Statements (unaudited) Statement of Net Liabilities in Liquidation (Liquidation Basis) as of September 30, 2003 and Condensed Balance Sheet (Going Concern Basis) as of September 30, 2003 and December 31, 2002 3 Condensed Statements of Operations (Going Concern Basis) - Three Months and Nine Months Ended September 30, 2003 and 2002 4 Statement of Changes in Net Liabilities in Liquidation (Liquidation Basis) as of September 30, 2003 5 Condensed Statements of Cash Flows (Going Concern Basis) - Nine Months Ended September 30, 2003 and 2002 6 Notes to Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 Item 4. Controls and Procedures 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURE 19 EXHIBIT INDEX AND CERTIFICATIONS 20 2 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP STATEMENT OF NET LIABILITIES IN LIQUIDATION (LIQUIDATION BASIS) AS OF SEPTEMBER 30, 2003 AND CONDENSED BALANCE SHEET (GOING CONCERN BASIS) AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
Liquidation Basis [(Going Concern Basis)] September 30, September 30, December 31, 2003 2003 2002 ----------------- ------------- ------------ (unaudited) (unaudited) ASSETS Property and equipment, net -- $ 81,669 $ 99,626 Property held for sale $ 149,298 -- 1,122 Deferred financing costs, net of accumulated amortization -- 1,524 1,875 Accounts receivable 1,451 1,451 1,008 Prepaid insurance and other current assets 561 561 1,270 Inventory 920 920 920 Due from Marriott International, Inc. -- 387 387 Property improvement fund 2,046 2,046 2,785 Restricted cash 2,273 2,273 8 Cash and cash equivalents 4,977 4,977 5,900 --------- --------- --------- Total Assets $ 161,526 $ 95,808 $ 114,901 --------- ========= ========= LIABILITIES AND PARTNERS' DEFICIT LIABILITIES Mortgage debt in default, net $ 136,933 $ 136,933 $ 137,070 Due to Marriott International, Inc., affiliates and other in default 1,948 6,616 5,034 Land purchase obligation due to Marriott International, Inc. 50,471 -- -- Accounts payable and accrued liabilities 12,169 12,169 8,546 Reserve for estimated costs during the period of liquidation 1,500 -- -- --------- --------- --------- Total Liabilities 203,021 $ 155,718 $ 150,650 --------- --------- --------- Net Liabilities in Liquidation $ 41,495 -- ========= PARTNERS' DEFICIT General Partner (599) (307) Limited Partners (59,311) (35,442) --------- --------- Total Partners' Deficit (59,910) (35,749) --------- --------- Total Liabilities and Partners' $ 95,808 $ 114,901 ========= =========
See Notes to Condensed Financial Statements. 3 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS) (UNAUDITED, IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
Three Three Months Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 --------------- ------------- --------------- -------------- REVENUES Rooms $ 20,258 $ 21,385 $ 55,288 $ 61,370 Other inn revenues 196 247 616 844 Other revenues -- (200) -- 1,174 --------------- ------------- --------------- -------------- 20,454 21,432 55,904 63,388 --------------- ------------- --------------- -------------- OPERATING EXPENSES Rooms 6,840 6,987 18,879 19,694 Other department costs and expenses 263 360 877 1,161 Selling, administrative and other 6,667 6,995 19,126 19,853 Depreciation 3,209 2,344 8,041 7,204 Ground rent, taxes and other (Note 4) 2,258 2,416 7,310 7,167 Base management fee 620 695 1,696 1,926 Loss on impairment of long-lived assets (Note 3) 12,476 5,278 15,326 5,278 --------------- ------------- --------------- -------------- 32,333 25,075 71,255 62,283 --------------- ------------- --------------- -------------- OPERATING PROFIT (LOSS) (11,879) (3,643) (15,351) 1,105 Interest expense (2,984) (3,048) (8,856) (9,276) Interest income 17 45 46 169 Gain on disposition of properties -- 2,454 -- 2,454 --------------- ------------- --------------- -------------- NET LOSS $ (14,846) $ (4,192) $ (24,161) $ (5,548) =============== ============= =============== ============== ALLOCATION OF NET LOSS $ General Partner $ (148) $ (42) (241) $ (55) Limited Partners (14,698) (4,150) (23,920) (5,493) --------------- ------------- --------------- -------------- $ (14,846) $ (4,192) $ (24,161) $ (5,548) =============== ============= =============== ============== NET LOSS PER LIMITED PARTNER UNIT (83,337 Units) $ (176) $ (50) $ (287) $ (66) =============== ============= =============== ==============
See Notes to Condensed Financial Statements. 4 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION (LIQUIDATION BASIS) AS OF SEPTEMBER 30, 2003 (UNAUDITED, IN THOUSANDS) Net liabilities at September 30, 2003 (Going Concern Basis) $ (59,910) Adjustment to liquidation basis 18,415 --------- Net liabilities at September 30, 2003 (Liquidation Basis) 41,495 ========= See Notes to Condensed Financial Statements. 5 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS) (UNAUDITED, IN THOUSANDS)
Nine Months Nine Months Ended Ended September September 30, 2003 30, 2002 -------------- -------------- OPERATING ACTIVITIES Net loss $ (24,161) $ (5,548) Depreciation 8,041 7,204 Loss on impairment of long-lived assets 15,326 5,278 Gain on disposition of properties and equipment -- (2,454) Amortization of deferred financing costs 351 365 Amortization of mortgage debt premium (137) (263) Amortization of deferred ground rent -- (19) Changes in operating accounts 4,985 4,760 -------------- -------------- Cash provided by operating activities 4,405 9,323 -------------- -------------- INVESTING ACTIVITIES Additions to property and equipment (4,288) (1,764) Change in property improvement fund 739 (1,977) Proceeds from sale of properties and equipment -- 8,015 -------------- -------------- Cash (used in) provided by investing activities (3,549) 4,274 -------------- -------------- FINANCING ACTIVITIES Repayment of mortgage debt -- (9,599) Payment of ground lease buy-out -- (1,941) Change in restricted cash (1,779) (189) -------------- -------------- Cash used in financing activities (1,779) (11,729) -------------- -------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (923) 1,868 CASH AND CASH EQUIVALENTS at beginning of period 5,900 1,597 CASH OF THE INNS, as restated -- 3,509 -------------- -------------- CASH AND CASH EQUIVALENTS at end of period $ 4,977 $ 6,974 ============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for mortgage interest $ 4,666 $ 9,253 ============== ==============
See Notes to Condensed Financial Statements. 6 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Fairfield Inn by Marriott Limited Partnership, a Delaware limited partnership (the "Partnership"), owns 46 Fairfield Inn by Marriott properties (the "Inns") located in sixteen states within the contiguous United States. The Partnership leases the land underlying 30 of the Inns from Marriott International, Inc. ("MII") and certain of its affiliates. Effective November 30, 2001, Sage Management Resources III, LLC ("Sage"), an affiliate of Sage Hospitality Resources, LLC, began providing management at the properties. Prior to such date, the Inns were managed by Fairfield FMC Corporation, a wholly-owned subsidiary of MII, as part of the Fairfield Inn by Marriott hotel system under a long-term management agreement. Under Sage, the Inns continue to be operated under the Fairfield Inn by Marriott system. On December 5, 2003 in accordance with the agreement reached between its lender and MII, the Partnership adopted the liquidation basis of accounting and accordingly adjusted the assets to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. (See Note 3) 2. GOING CONCERN UNCERTAINTY, LIQUIDITY AND FINANCING REQUIREMENTS Adequate liquidity and capital are critical to the ability of the Partnership to continue as a going concern. Annual revenues have declined each year from $94.4 million in 1998 to $78.8 million in 2002. The decline in Inn operations is primarily due to increased competition, over-supply of limited service hotels in the markets where the Partnership's Inns operate, increased pressure on room rates, lack of funds for capital improvements needed to make the Inns more competitive in their marketplaces, and a slowdown in the economy resulting in a softness in the lodging industry as a whole. Exacerbating this trend was the impact of the events of September 11, 2001 and the war with Iraq which have had a significant detrimental effect on the hospitality industry in general and the Inns in particular as travel nationwide has severely decreased. The Partnership did not have sufficient cash flow from current operations to make its required debt service payments beginning in November 2002, nor did it have sufficient cash flow to make its property improvement fund contributions beginning in September 2002. Further, on March 26, 2003, the Partnership received notice from MII that it was in default under the ground lease agreements, due to its failure to pay the full amount due of minimum rentals owed under the Ground Leases beginning in January 2003. A default under the ground lease agreements also constitutes a default under the loan agreement. On May 7, 2003, the Partnership received notice from MII that the Ground Leases would be terminated effective June 15, 2003 for nonpayment. On May 9, 2003, the lender exercised its right to cure the default and paid the non-subordinated ground rent owed under the Ground Leases through March 2003. On behalf of the Partnership, the Lender has continued to pay the non-subordinated ground rent under the Ground Leases through September 2003. The Partnership has recognized the obligation to repay the Lender for these advances. The Partnership is not projecting improved results for 2003 over 2002. Partnership cash, including $2.3 million and $8,000 held in lender reserve accounts at September 30, 2003 and December 31, 2002, respectively, totaled approximately $7.3 million and $5.9 million at September 30, 2003 and December 31, 2002, respectively. As of November 11, 2002, the Partnership is in default under the mortgage loan agreement due to its failure to pay the regularly scheduled debt service payment due on that date. The Partnership is also in default under the Franchise Agreements with MII due to its failure to make its property improvement fund contributions beginning in September 2002, also resulting in technical default under the mortgage loan agreement. For the years ended December 31, 2002, 2001 and 2000, the Partnership contributed $3.5 million, $5.8 million and $6.0 million, respectively, to the property improvement fund. For the nine months ended September 30, 2003 and 2002, the Partnership contributed $1.9 million and $3.7 million, respectively, to the property improvement fund. The Partnership had insufficient cash flow from operations beginning in September 2002 to make its fully required property improvement fund contributions. This resulted in a default under the Partnership's Franchise Agreements with MII, and thus a technical default under the mortgage loan agreement. 7 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 2. GOING CONCERN UNCERTAINTY, LIQUIDITY AND FINANCING REQUIREMENTS (CONTINUED) Effective December 5, the Partnership has reached an agreement with its lender and MII for those parties to forbear in the exercise of their remedies under the relevant documents due to certain existing defaults, including the non-payment of debt service and ground rent and the failure to complete required MII product improvement plans on a timely basis, all due to a lack of operating revenues, and to implement a liquidation of the Partnership's Inns. In exchange for the agreement to liquidate, the lender has agreed to pay the Partnership: (i) $65,217 per Inn sold, payable upon the sale of each Inn, and (ii) an additional amount equal to 10% of the aggregate net sale proceeds from the sale of all Inns in excess of a graduated incentive fee base, plus any additional amounts the lender advances in connection with the liquidation process. At present, it is not possible to determine if the Inns can generate gross sales proceeds in excess of the threshold amount. It is anticipated that the lender will advance funds to: (a) permit capital improvements to be conducted at the Inns, which is required by MII, and will also increase the marketability of the Inns for sale, and (b) fund operating expenses, including payment of real estate taxes, as a result of insufficient operating revenue. In the event all the Inns are not sold by April 1, 2005, the Partnership has agreed to allow the lender to exercise its rights under the loan documents, which may include foreclosure, without interference from the Partnership. An affiliate of MII, as ground lessor, has agreed to waive up to $1.2 million of ground rent for a period of up to one year, and any additional ground rent due in excess of $1.2 million will be deferred until the earlier of: (i) the sale of an Inn, or (ii) April 1, 2005; provided, however that in the event a default arises under the agreements reached with MII at any time, all ground rent shall become immediately due and payable. MII, as franchisor, has agreed that for those Inns that will remain in the Fairfield Inn by Marriott system, the property improvement plans are not required to be completed until April 1, 2005, however the work must be commenced by September 1, 2004, and has also agreed to waive any liquidated damages that otherwise may be due to MII arising from the early termination of a franchise agreement due to the sale of an Inn through September 1, 2004, and thereafter reduced the amount to $25,000 per property for Inns sold between September 1, 2004 and November 30, 2004. In exchange for these ground rent and franchise termination fee concessions, the Partnership has agreed to remove 12 of the Inns, as identified by MII, from the Fairfield Inn by Marriott system no later than September 1, 2004 and keep six of the Inns, as identified by MII, in the Fairfield Inn by Marriott system. The remaining Inns can be sold either as a Fairfield Inn by Marriott or without the franchise agreement. In the event product improvement plans are not completed by April 1, 2005 for any Inn not sold, it will result in a default under the MII agreements, and permit MII to terminate the franchise agreements. Further, upon the termination of any franchise agreement, the Partnership must purchase MII's interest under all ground leases. On November 20, 2003, the Partnership engaged a nationally recognized broker to begin marketing the Inns for sale. It is expected that the Partnership will, in all likelihood, be dissolved in 2005, either upon the sale of all Inns or as a result of the foreclosure by the lender of any remaining Inns not otherwise sold. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed financial statements have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted from the accompanying statements. The Partnership believes the disclosures made are adequate to make the information presented not misleading. However, the unaudited, condensed financial statements should be read in conjunction with the Partnership's audited financial statements and notes thereto for the year ended December 31, 2002 as filed on form 10-K. On December 5, 2003 in accordance with the agreement reached between its lender and MII, the Partnership adopted the liquidation basis of accounting and accordingly adjusted the assets to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The valuation of real estate held for sale is based on estimates as determined by the most recent independent appraisals (as of January 1, 2003) net of estimated selling costs (including brokerage commissions, transfer taxes, legal costs) of 8 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) approximately $5.2 million. Additionally, the Partnership suspended recording any further depreciation expense. The valuations of other assets and liabilities are based on management's estimates as of December 5, 2003. In the opinion of the Partnership, the accompanying unaudited, condensed financial statements reflect all normal and recurring adjustments necessary to present fairly the financial position of the Partnership as of September 30, 2003 and 2002, the results of its operations for the three months and nine months ended September 30, 2003 and 2002, and its cash flows for the nine months ended September 30, 2003 and 2002. Interim results are not necessarily indicative of full year performance because of seasonal and short-term variations. The Partnership's hotels have historically experienced seasonal differences typical of the U.S. Hotel Industry with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters. This seasonality can cause material fluctuations in Partnership income. In addition, the Partnership sold four of its hotels during 2002. Real Estate Held for Sale and Adjustment to Liquidation Basis of Accounting - --------------------------------------------------------------------------- On December 5, 2003 in accordance with the agreement reached between its lender and MII, the Partnership adopted the liquidation basis of accounting and accordingly adjusted the assets to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The valuation of real estate held for sale is based on estimates as determined by the most recent independent appraisals (as of January 1, 2003) net of estimated selling costs (including brokerage commissions, transfer taxes, legal costs) of approximately $5.2 million. Since the date of the appraisals, operations have continued to decline and MII has required that certain inns be removed from the Fairfield Inn by Marriott system. Both of these items will have a negative impact on sales price. Management is currently marketing the Inns and upon receipt of offers, the expected realizable values will be revisited. Additionally, the Partnership suspended recording any further depreciation expense. The valuations of other assets and liabilities are based on management's estimates as of December 5, 2003. The actual values realized for assets and settlement of liabilities may differ materially from amounts estimated. Real estate held for sale is based upon appraisal and not sales contracts. Significant differences may occur based upon local economic market conditions which have resulted in weaker 2003 operating results at some of the hotels. Additionally, Marriott may revoke its franchise agreement at certain hotels. The net adjustment at December 5, 2003, required to convert from the going concern (historical cost) basis to the liquidation basis of accounting, totaled approximately $18.4 million, which is included in the statement of changes in net liabilities in liquidation (liquidation basis) for the period ended September 30, 2003. Significant increases (decreases) in the carrying value of net assets are summarized as follows: (IN THOUSANDS) Increase to reflect estimated net realizable values of certain real estate properties $ 17,158 Reserve for additional costs associated with liquidation (1) (1,500) Write-off of unamortized deferred financing costs (1,524) Write-off of due from Marriott International, Inc. (387) Write-off of subordinated unpaid ground rent for 2002 and 2003 4,668 ---------- Adjustment to reflect the change of liquidation basis of accounting $ 18,415 ========== (1) Such costs do not include costs incurred in connection with ordinary operations. Adjusting assets to estimated net realizable value resulted in the adjustment in value of certain real estate properties. 9 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reserve for Estimated Costs during the Period of Liquidation - ------------------------------------------------------------ Under the liquidation basis of accounting, the Partnership is required to estimate and accrue the non-operating costs associated with executing the plan of liquidation. These amounts can vary significantly due to, among other things, the timing and realized proceeds from property sales, the costs of retaining agents and trustees to oversee the liquidation, including the costs of insurance, the timing and amounts associated with discharging known and contingent liabilities and the non-operating costs associated with cessation of the Partnership's operations. These non-operating costs are estimates and are expected to be paid out over the liquidation period. Such costs do not include costs incurred in connection with ordinary operations. Prior to adopting liquidation accountings, the Partnership assesses impairment of its real estate properties based on whether estimated future undiscounted cash flows from such properties will be less than their net book value upon the evidence of impairment indicators. If a property is impaired, its basis is adjusted to its estimated fair value. In 2002, certain Inns experienced declining cash flows, primarily due to additional competition in their local markets and therefore were impaired. As a result, during 2002, the Partnership concluded that these Inns were impaired and adjusted their basis to their estimated fair market value. An impairment charge was also taken on one of the Inns held for sale, located in Orlando, Florida, based on the most recent sales offer. The Partnership recorded an impairment charge of $5.3 million in the third quarter of 2002. During the nine months ended September 30, 2003, various Inns experienced declining cash flows, primarily due to additional competition in their local markets and therefore were impaired. As a result, the Partnership recorded an impairment charge of $15.3 million during the nine months ended September 30, 2003. As of December 31, 2002, the Partnership had four of its Inns remaining as held for sale. These Inns were located in Orlando, Florida; Columbus, Ohio; Charlotte, North Carolina; and Raleigh, North Carolina. Effective January 1, 2003, after the Partnership determined to no longer market these Inns for sale, the Partnership reclassified these Inns as held and used. Accordingly, upon reclassification an impairment charge was taken to record these Inns at the lower of carrying value when classified as held and used, less depreciation not taken during the period they were held for sale, or fair value. In 2002, the Partnership concluded that the components of the working capital managed by Sage should be consolidated with the working capital of the Partnership. Previously reported financial statements have been revised to reflect this accounting presentation. This revision did not impact the statement of operations, partners' deficit or the net operating, investing and financing cash flows, but did affect the comparability of the components of the operating cash flows for 2003 to 2002. For financial reporting purposes, the net income of the Partnership is allocated 99% to the limited partners and 1% to the general partner of the Partnership. Significant differences exist between the net income for financial reporting purposes and the net income for Federal income tax purposes. These differences are due primarily to the use, for Federal income tax purposes, of accelerated depreciation methods and shorter depreciable lives for certain assets and differences in the timing of the recognition of certain fees and straight-line rent adjustments. 10 FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 4. AMOUNTS PAYABLE TO MARRIOTT INTERNATIONAL, INC. The following table provides the significant expenses incurred by the Partnership and payable to MII and its affiliates for the periods ended September 30, 2003 and 2002 (in thousands): Nine Months Ended September 30, 2003 2002 ---------- ---------- Royalty fee $ 3,552 $ 3,989 Ground rent 2,549 1,973 Reservation costs 549 610 ---------- ---------- Total $ 6,650 $ 6,572 ========== ========== On March 26, 2003, the Partnership received notice from MII that it was in default under the ground lease agreements due to its failure to pay the full amount due of minimum rentals owed under the Ground Leases beginning in January 2003. On May 7, 2003, the Partnership received notice from MII that the Ground Leases would be terminated effective June 15, 2003 for nonpayment. On May 9, 2003, the lender exercised its right to cure the default and paid the non-subordinated ground rent owed under the Ground Leases through March 2003. On behalf of the Partnership, the Lender has continued to pay the non-subordinated ground rent under the Ground Leases through September 2003. The Partnership has recognized the obligation to repay the Lender for these advances. During the fourth quarter of 2002, the Partnership recorded an adjustment to recognize its ground rent expense on a straight-line basis for fiscal year 2002. An adjustment has been made for the three and nine months ended September 30, 2003 to present ground rent expense under the straight-line method. This revision increased ground rent expense and increased net loss by approximately $633,000 and $1.9 million for the three months and nine months ended September 30, 2002, respectively. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters discussed herein are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," "estimates," or "anticipates," or the negative thereof or other variations thereof or comparable terminology. All forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that any deviations will not be material. We disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this quarterly report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. LIQUIDITY AND CAPITAL RESOURCES On December 5, 2003 in accordance with the agreement reached between its lender and MII, the Partnership adopted the liquidation basis of accounting and accordingly adjusted the assets to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The valuation of real estate held for sale is based on estimates as determined by the most recent independent appraisals (as of January 1, 2003) net of estimated selling costs (including brokerage commissions, transfer taxes, legal costs) of approximately $5.2 million. Since the date of the appraisals, operations have continued to decline and MII has required that certain inns be removed from the Fairfield Inn by Marriott system. Both of these items will have a negative impact on sales price. Management is currently marketing the Inns and upon receipt of offers, the expected realizable values will be revisited. Additionally, the Partnership suspended recording any further depreciation expense. The valuations of other assets and liabilities are based on management's estimates as of December 5, 2003. Going Concern and Other Important Risk Factors: Adequate liquidity and capital are critical to the ability of the Partnership to continue as a going concern. Annual revenues have declined each year from $94.4 million in 1998 to $78.8 million in 2002. The decline in Inn operations is primarily due to increased competition, over-supply of limited service hotels in the markets where the Partnership's Inns operate, increased pressure on room rates, lack of funds for capital improvements needed to make the Inns more competitive in their marketplaces, and a slowdown in the economy resulting in a softness in the lodging industry as a whole. Exacerbating this trend was the impact of the events of September 11, 2001 and the war with Iraq which have had a significant detrimental effect on the hospitality industry in general and the Inns in particular as travel nationwide has severely decreased. The Partnership did not have sufficient cash flow from current operations to make its required debt service payments beginning in November 2002, nor did it have sufficient cash flow to make its property improvement fund contributions beginning in September 2002. Further, on March 26, 2003, the Partnership received notice from MII that it was in default under the ground lease agreements, due to its failure to pay the full amount due of minimum rentals owed under the Ground Leases beginning in January 2003. On May 7, 2003, the Partnership received notice from MII that the Ground Leases would be terminated effective June 15, 2003 for nonpayment. On May 9, 2003, the lender exercised its right to cure the default and paid the non-subordinated ground rent owed under the Ground Leases through March 2003. On behalf of the Partnership, the Lender has continued to pay the non-subordinated ground rent under the Ground Leases through September 2003. The Partnership has recognized the obligation to repay the Lender for these advances. The Partnership is not projecting improved results for 2003 over 2002. Partnership cash, including $2.3 million and $8,000 held in lender reserve accounts at September 30, 2003 and December 31, 2002, respectively, totaled $7.3 million and $5.9 million at September 30, 2003 and December 31, 2002, respectively. As of November 11, 2002, the Partnership is in default under the mortgage loan agreement due to its failure to pay the regularly scheduled debt service payment due on that date. The Partnership is also in default under the Franchise Agreements with MII due to its failure to make its property improvement fund contributions beginning in September 2002, also resulting in technical default under the mortgage loan agreement. 12 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) For the years ended December 31, 2002 and 2001, the Partnership contributed $3.5 million and $5.8 million, respectively, to the property improvement fund. For the nine months ended September 30, 2003 and 2002, the Partnership contributed $1.9 million and $3.7 million, respectively, to the property improvement fund. The Partnership had insufficient cash flow from operations beginning in September 2002 to make its property improvement fund contributions. This resulted in a default under the Partnership's Franchise Agreements with MII, and thus a technical default under the mortgage loan agreement. The Partnership has reached an agreement, effective December 5, with its lender and MII for those parties to forbear in the exercise of their remedies under the relevant documents due to certain existing defaults, including the non-payment of debt service and ground rent and the failure to complete required MII product improvement plans on a timely basis, all due to a lack of operating revenues, and to implement a liquidation of the Partnership's Inns. In exchange for the agreement to liquidate, the lender has agreed to pay the Partnership: (i) $65,217 per Inn sold, payable upon the sale of each Inn, and (ii) an additional amount equal to 10% of the aggregate net sale proceeds from the sale of all Inns in excess of a graduated incentive fee base, plus any additional amounts the lender advances in connection with the liquidation process. At present, it is not possible to determine if the Inns can generate gross sales proceeds in excess of the threshold amount. It is anticipated that the lender will advance funds to: (a) permit capital improvements to be conducted at the Inns, which is required by MII, and will also increase the marketability of the Inns for sale, and (b) fund operating expenses, including payment of real estate taxes, as a result of insufficient operating revenue. In the event all the Inns are not sold by April 1, 2005, the Partnership has agreed to allow the lender to exercise its rights under the loan documents, which may include foreclosure, without interference from the Partnership. An affiliate of MII, as ground lessor, has agreed to waive up to $1.2 million of ground rent for a period of up to one year, and any additional ground rent due in excess of $1.2 million will be deferred until the earlier of: (i) the sale of an Inn, or (ii) April 1, 2005; provided, however that in the event a default arises under the agreements reached with MII at any time, all ground rent shall become immediately due and payable. MII, as franchisor, has agreed that for those Inns that will remain in the Fairfield Inn by Marriott system, the property improvement plans are not required to be completed until April 1, 2005, however the work must be commenced by September 1, 2004, and has also agreed to waive any liquidated damages that otherwise may be due to MII arising from the early termination of a franchise agreement due to the sale of an Inn through September 1, 2004, and thereafter reduced the amount to $25,000 per property for Inns sold between September 1, 2004 and November 30, 2004. In exchange for these ground rent and franchise termination fee concessions, the Partnership has agreed to remove 12 of the Inns, as identified by MII, from the Fairfield Inn by Marriott system no later than September 1, 2004 and keep six of the Inns, as identified by MII, in the Fairfield Inn by Marriott system. The remaining Inns can be sold either as a Fairfield Inn by Marriott or without the franchise agreement. In the event product improvement plans are not completed by April 1, 2005 for any Inn not sold, it will result in a default under the MII agreements, and permit MII to terminate the franchise agreements. Further, upon the termination of any franchise agreement, the Partnership must purchase MII's interest under all ground leases. On November 20, 2003, the Partnership engaged a nationally recognized broker to begin marketing the Inns for sale. It is expected that the Partnership will, in all likelihood, be dissolved in 2005, either upon the sale of all Inns or as a result of the foreclosure by the lender of any remaining Inns not otherwise sold. Partnership cash, including $2.3 million held in lender reserve accounts, totaled $7.3 million at September 30, 2003. Principal Sources and Uses of Cash: The Partnership's principal source of cash has been from operations. The Partnership's principal uses of cash are to make debt service payments, fund the property improvement fund and maintain reserves required pursuant to the terms of the mortgage debt. 13 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Partnership's cash and cash equivalents, excluding funds held in lender reserves, declined to $5.0 million compared to $5.9 million at December 31, 2002. The decline from year end is due to $3.5 million of cash used in investing activities and $1.8 million of cash used in financing activities, which were partially offset by $4.4 million of cash provided by operating activities. Cash used in investing activities consisted of changes in the property improvement fund and capital expenditures. Cash used in financing activities consisted of changes to the restricted cash reserves as required under the terms of the mortgage debt. Shortfall in Funds Available for Capital Expenditures: In light of the age of the Partnership's Inns, which range from 13 to 16 years, major capital expenditures are required over the next several years in an effort to be competitive in the markets where the Partnership operates and to satisfy brand standards required by the franchise agreement. RESULTS OF OPERATIONS (GOING CONCERN BASIS) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002 Net loss. The Partnership incurred a net loss of $24.1 million for the nine months ended September 30, 2003 compared to a net loss of $5.5 million for the nine months ended September 30, 2002, an increase of $18.6 million. This increase in the net loss is due primarily to the decrease in revenues of $7.5 million, no gains on the sale of property, and an increase in operating expenses of $9.0 million discussed below. Operating Profit (Loss). Operating loss for the nine months ended September 30, 2003 was a $15.4 million operating loss compared to an operating profit of $1.1 million for the nine months ended September 30, 2002, an increase in loss of $16.5 million. The increase in operating loss from the comparable nine month periods is due to the decrease in revenues and an increase in operating expenses. Total Revenues. Total revenues decreased $7.5 million, or approximately 11.8%, to $55.9 million for the nine months ended September 30, 2003 from $63.4 million for the nine months ended September 30, 2002. The decrease is primarily due to a decline in rooms revenues. Additionally, the decrease is due to the final settlement of outstanding accruals maintained by the Partnership's former manager, MII. The Partnership received approximately $700,000 from MII in April 2002. As a result of the settlement, the Partnership recognized non-recurring revenues of approximately $1.1 million during 2002. Rooms Revenues. Rooms revenues decreased $6.1 million, or approximately 9.9% to $55.3 million for the nine months ended September 30, 2003 from $61.4 million for the nine months ended September 30, 2002, reflecting a 1.2% increase in occupancy to 62.1%, and a $2.70 decrease in average room rate to $52.77. These changes in occupancy and room rates caused a decrease in revenue per available room ("REVPAR") of 3.1% to $32.74. The decrease in average occupancy was primarily the result of increased competition in the economy segment and the deferral of capital improvements needed to make our Inns more competitive in their marketplaces because of the lack of funds. The decrease in rooms revenues is not proportional to the decreases in occupancy and average room rate due to the sale of four of the Partnership's hotels during 2002. Excluding the effect on revenues of the sale of these four hotels, rooms revenues for the remaining 46 Inns decreased $2.3 million, or approximately 4.1% to $55.3 million for the nine months ended September 30, 2003 from $57.6 million for the nine months ended September 30, 2002. Operating Expenses. For the nine months ended September 30, 2003, operating expenses increased $9.0 million or 14.4% to $71.3 million when compared to the nine months ended September 30, 2002. The decrease for the comparable nine month periods is primarily due to the increase in loss on impairment of $10.0 million recorded during the nine months ended September 30, 2003. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (GOING CONCERN BASIS) (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (CONTINUED) Interest Expense. Interest expense decreased $420,000 to $8.9 million for the nine months ended September 30, 2003 when compared to the nine months ended September 30, 2002. This decrease is due to the payment of $11.4 million of principal on the mortgage debt during 2002 as a result of proceeds applied from Inn sales. COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2003 TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002 Net loss. The Partnership incurred a net loss of $14.8 million in the third quarter of 2003 as compared to net loss of $4.2 million generated in the third quarter of 2002. This increase in the net loss is due primarily to the increase in operating expenses, decrease in revenues and gains from the disposition of properties in 2002. Operating Profit (Loss). Operating loss for the third quarter of 2003 increased by $8.2 million to $11.9 when compared to operating loss of $3.6 million for the third quarter of 2002. The increase in operating profit from the comparable three month period is due to the increase in operating expenses and a decrease in revenues. Total Revenues. Total revenues decreased $978,000 or 4.6%, to $20.5 million for the third quarter of 2003 from $21.4 million in the third quarter of 2002. The decrease is primarily due to the decline in rooms revenues. Rooms Revenues. Rooms revenues decreased $1.1 million, or approximately 5.3% to $20.3 million for the three months ended September 30, 2003 from $21.4 million for the three months ended September 30, 2002, reflecting a 6.8% increase in occupancy to 66.61%, and a $4.16 decrease in average room rate to $53.27. These changes in occupancy and room rates caused a decrease in revenue per available room ("REVPAR") of 1% to $35.55. The decrease in average occupancy was primarily the result of increased competition in the economy segment and the deferral of capital improvements needed to make our Inns more competitive in their marketplaces because of the lack of funds. The decrease in rooms revenues is not proportional to the decreases in occupancy and average room rate due to the sale of four of the Partnership's hotels during 2002. Excluding the effect on revenues of the sale of these four hotels, rooms revenues for the remaining 46 Inns decreased $2.4 million, or approximately 4.1 % to $55.2 million for the nine months ended September 30, 2003 from $57.6 million for the nine months ended September 30, 2002. Operating Expenses. Operating expenses increased during the third quarter of 2003 by $7.3 million or 28.9% to $32.3 million when compared to the third quarter of 2002. The increase from the comparable three month periods is primarily due to the increase in loss on impairment of $7.2 million recorded during the three months ended September 30, 2003. Interest Expense. Interest expense decreased $64,000 to $3.0 million in third quarter 2003 when compared to the third quarter of 2002. This decrease is due to the payment of $11.4 million of principal on the mortgage debt during 2002 as a result of proceeds applied from Inn sales. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Partnership does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CRITICAL ACCOUNTING POLICIES (CONTINUED) the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. On December 5, 2003 in accordance with the agreement reached between its lender and MII, the Partnership adopted the liquidation basis of accounting and accordingly adjusted the assets to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The valuation of real estate held for sale is based on estimates as determined by the most recent independent appraisals (as of January 1, 2003) net of estimated selling costs (including brokerage commissions, transfer taxes, legal costs) of approximately $5.2 million. Since the date of the appraisals, operations have continued to decline and MII has required that certain inns be removed from the Fairfield Inn by Marriott system. Both of these items will have a negative impact on sales price. Management is currently marketing the Inns and upon receipt of offers, the expected realizable values will be revisited. Additionally, the Partnership suspended recording any further depreciation expense. The valuations of other assets and liabilities are based on management's estimates as of December 5, 2003. Impairment of long-lived assets: At September 30, 2003 and December 31, 2002, the Partnership had $94.1 million and $99.6 million going concern basis, respectively, of property and equipment (net), and $0 million and $1.1 million, respectively, of properties held for sale, which collectively accounted for approximately 87% and 88%, respectively, of the Partnership's total assets. Property and equipment is carried at cost but is adjusted to fair value if there is an impairment loss. During the years ended December 31, 2002, 2001, and 2000, the Partnership recognized $5.2 million, $3.8 million, and $8.1 million, respectively, of impairment losses related to its property and equipment. For the nine months ended September 30, 2003, the Partnership recognized an additional $15.3 million impairment loss related to property and equipment at its Inns. An impairment loss may be recorded for an Inn if estimated undiscounted future cash flows are less than the net book value of the Inn. The Partnership calculates estimated future cash flows over the remaining useful lives of each Inn, which are between 14-17 years. As of September 30, 2003, due to the impending approval of the liquidation of the Partnership the holding periods were adjusted to the expected remaining life of the Partnership. Impairment losses are measured based on the estimated fair value of the Inn compared to the net book value of the Inn. The Partnership based its estimates of fair value primarily upon appraisal. Useful lives of long-lived assets: Property and equipment, and certain other long-lived assets, are amortized over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue. Deferred ground rent: Deferred ground rent payable to MII and its affiliates at September 30, 2003 and December 31, 2002 was $6.2 million and $4.7 million, respectively, and is included in Due to Marriott International, Inc., affiliates and other on the accompanying balance sheet. The Partnership's deferred ground rent of $2.2 million that remained payable at November 30, 2001 was waived in accordance with the amended lease agreement that was entered between the Partnership and MII and its affiliates. The amount of deferred ground rent waived as a result of the ground lease amendment will be recognized as a reduction in ground rent expense over the remaining life of the new lease term, which has been extended to November 30, 2098, since it represents a new operating lease as of November 30, 2001, for accounting purposes. Upon adoption of the liquidation basis of accounting subordinated deferred amounts were recognized. SEASONALITY Our hotels have historically experienced seasonal differences typical of the U.S. Hotel Industry with higher revenues in the second and third quarters of the calendar years compared with the first and fourth quarters. This seasonality can cause material fluctuations in our income. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not have market risk with respect to interest rates, foreign currency exchanges or other market rate or price risk, and we do not hold any financial instruments for trading purposes. As of September 30, 2003, all of our debt has a fixed interest rate. ITEM 4. CONTROLS AND PROCEDURES The general partner's principal executive officer and principal financial officer have, within 90 days of the filing date of this quarterly report, evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14(c) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect such internal controls since the date of evaluation. Accordingly, no corrective actions have been taken with regard to significant deficiencies or material weaknesses. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Partnership is involved in routine litigation and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and which collectively are not expected to have a material adverse effect on the business, financial condition or results of operations of the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index. (b) Reports on Form 8-K No Current Reports on Form 8-K were filed by the Partnership during the three month period ended September 30, 2003. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized this 19th day of December, 2003. FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP By: AP-Fairfield GP, LLC General Partner By: AP-Fairfield Manager Corp. Manager By: /s/ Carolyn Tiffany ----------------------- Carolyn Tiffany Vice President 19 EXHIBIT INDEX No. Exhibit Page --- ---- 2.1 Amended and Restated Agreement of Limited Partnership of (1) Fairfield Inn by Marriott Limited Partnership by and among Marriott FIBM One Corporation (General Partner), Christopher, G. Townsend (Organizational Limited Partner), and those persons who become Limited Partners (Limited Partners) dated July 31, 1990. 2.2 First Amendment to Amended and Restated Agreement of Limited (2) Partnership dated as of December 28, 1998. 10.1 Loan Agreement between Fairfield Inn by Marriott Limited (1) Partnership and Nomura Asset Capital Corporation dated January 13, 1997. 10.2 Secured Promissory Note made by Fairfield Inn by Marriott (1) Limited Partnership (the "Maker") to Nomura Asset Capital Corporation (the "Payee") dated January 13, 1997. 10.3 Form of Ground Lease (1) 10.4 2003 Omnibus Agreement, dated December 5, 2003, among Marriott International, Inc., Big Boy Properties, Inc., Fairfield Inn By Marriott Limited Partnership, Lasalle Bank, N.A., Sage Management Resources III, LLC, and Winthrop Financial Associates, A Limited Partnership 10.5 Third Amendment to Loan Agreement, dated December 5, 2003 between Fairfield Inn by Marriott Limited Partnership, and Clarion Partners, LLC, as Special Servicer on behalf of LaSalle Bank National Association, a national banking association, as trustee, in respect of the Asset Securitization Corporation Commercial Mortgage Pass-Through Certificates Series 1997-MD VII Securitization. 10.6 Unconditional Limited Guaranty of Payment from Fairfield Inn (5) by Marriott Limited Partnership in favor of Asset Securitization Corporation Commercial Mortgage Pass-Through Certificates Series 1997-MD VII Securitization, dated December 5, 2003 10.7 Amendment to Ground Leases, dated December 5, 2003, between (6) Fairfield Inn by Marriott Limited Partnership and Big Boy Properties, Inc. 10.8 Amendment to Franchise Agreement, dated December 5, 2003, (7) between Marriott International Inc. and Fairfield Inn by Marriott Limited Partnership 16 Letter from Arthur Andersen LLP to the Securities and (4) Exchange Commission dated May 20, 2002. 31 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley 19 Act of 2002 (1) Incorporated by reference to the Registrant's Form 10 filed on January 29, 1998. (2) Incorporated by reference to the Registrant's Form 10/A filed on April 11, 2001 (3) Incorporated by reference to the Registrant's Annual Report on Form 10K filed for the year ended December 31, 2001. (4) Incorporated by reference to the Registrant's Current Report on Form 8K filed May 20, 2002. (5) Attached as Exhibit E to Exhibit 10.4 (6) Attached as Exhibit I to Exhibit 10.4 (7) Attached as Exhibit J to Exhibit 10.4 20 EX-10.4 3 file002.txt 2003 OMNIBUS AGREEMENT 2003 OMNIBUS AGREEMENT ---------------------- THIS 2003 OMNIBUS AGREEMENT (this "Agreement"), is entered into as of this ______ day of October, 2003 by and among MARRIOTT INTERNATIONAL, INC., a Delaware corporation with a mailing address at 10400 Fernwood Road, Bethesda, MD 20817 ("Franchisor"); BIG BOY PROPERTIES, INC., a Delaware corporation having its principal address at 10400 Fernwood Road, Bethesda, Maryland 20817 ("Landlord"); FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership with a mailing address at 100 Jericho Quadrangle - Ste. 214, Jericho NY 11753 ("Owner"); LASALLE BANK, N.A., a national banking association, not in its individual capacity but solely as Trustee with respect to the Asset Securitization Corporation Commercial Mortgage Pass Through Certificates Series 1997-MDVII Securitization ("Lender"); SAGE MANAGEMENT RESOURCES III, LLC, a Colorado limited liability company ("Sage"); and WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP, a Maryland limited partnership with a mailing address at 100 Jericho Quadrangle - Ste. 214, Jericho NY 11753 ("Guarantor"). RECITALS: --------- 1. Franchisor and Owner are parties to those certain Franchise Agreements dated as of November 30, 2001 (as amended from time to time, the "Franchise Agreements") regarding forty-six (46) Fairfield Inn by Marriott hotels owned by Owner listed on Exhibit A hereto (each an "Inn" and collectively, the "Inns"). 2. The Inns are operated and managed by Sage pursuant to a management agreement between Owner and Sage (the "Sage Management Agreement"). 3. Thirty (30) of the Inns are subject to an existing ground lease by and between Landlord and Owner for each such Inn, as amended by that certain Amendment of Ground Leases dated as of November 30, 2001 (collectively, the "Ground Leases"). 4. Lender is the successor in interest to Nomura Asset Capital Corporation with respect to a $165,400,000 loan from Lender to Owner. 5. Among other parties, Owner, Franchisor, Landlord, Sage, and Lender were parties to a November 30, 2001 restructuring involving the Inns (the "2001 Restructuring"); in connection therewith, various documents were executed by and among various of the parties (all such documents, collectively the "2001 Restructuring Documents"), including, without limitation: the Franchise Agreements; that certain comfort letter from Franchisor to Lender dated as of November 30, 2001 regarding the Franchise Agreements (the "2001 Comfort Letter"); that certain Amendment of Ground Leases dated as of November 30, 2001; that certain Omnibus Agreement dated as of November 30, 2001; that certain Waterfall Agreement dated as of November 30, 2001 (the "2001 Omnibus Agreement"); and that certain Agreement Regarding Right to Terminate Certain Franchise Agreement ("Franchise Termination Agreement"). 6. To allow Owner to engage in an orderly liquidation of its assets, Owner has requested from Franchisor and Landlord (collectively, "Marriott") the following: (a) waiver of the ground rent otherwise due and payable to Landlord under the Ground Leases with respect to each Inn for one calendar year from the date of this Agreement (the "Waiver Year") in an aggregate amount not to exceed $1.2 million (the "Waiver Cap"), with payment of any ground rent due and payable to Landlord with respect to the Waiver Year in excess of the Waiver Cap deferred for each Inn until the earlier of (i) a sale of the Inn; or (ii) April 1, 2005; (b) deferral of the ground rent for each Inn otherwise due and payable to Landlord under the Ground Leases with respect to the period of time beginning upon termination of the Waiver Year and ending the earlier of (i) a sale of the Inn; or (ii) April 1, 2005 (each, a "Deferral Termination Event"), with such deferred rental to be paid in full by Tenant to Landlord immediately upon the occurrence of any Deferral Termination Event; and (c) liquidated damages otherwise due and payable to Franchisor pursuant to the Franchise Agreements to be waived with respect to each Inn sold by Owner on or before September 1, 2004 or de-flagged on or before September 1, 2004. 7. Marriott is willing to agree to the modifications requested by Owner as set forth herein and the accompanying agreements among the parties of even date herewith (collectively, the "2003 Restructuring Documents") in consideration for the terms and conditions set forth herein and provided that Owner has satisfied each of the 2003 Restructuring Preconditions (as such term is defined in Section III below). NOW, THEREFORE, for the mutual covenants and considerations herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: I. Recitals. The parties hereby incorporate by reference each of the Recitals 1 through 7 above as a substantive component of this Agreement. Future Participation of the Inns in the Fairfield Inn by Marriott System. - ------------------------------------------------------------------------- (a) Inns that Must Remain in FIBM System. The parties agree that, notwithstanding anything to the contrary in the Franchise Agreements, the 2001 Restructuring Documents, or any other agreements by or among the parties hereto, each Inn set forth on Exhibit C hereto may not be sold by Owner, Lender, or any other party unless, in connection with a sale, the purchaser of the Inn executes a franchise agreement with Franchisor in the form attached to Franchisor's then-current Uniform Franchise Offering Circular such that each such Inn remains part of the Fairfield Inn by Marriott System ("FIBM System"). Any sale of an Inn in violation of this subparagraph (a) shall constitute an Event of Default under Section V(a)(vi) of this Agreement. (b) Inns That Must Exit FIBM System. It is the intention of the parties to cause, notwithstanding anything to the contrary in the Franchise Agreements, the 2001 Restructuring Documents, or any other agreements by or among the parties, all Inns listed on Exhibit B hereto to leave the FIBM System on or before September 1, 2004 without further action by any party, with at least two (2) Inns listed on Exhibit B leaving the FIBM System on or before April 1, 2004, and at least four (4) additional Inns (for a total of six (6) Inns) listed on Exhibit B leaving the FIBM System no later than July 1, 2004. Franchisee shall give Franchisor written notice no later than (i) March 1, 2004 identifying the two (2) Franchise Agreements that are to terminate no later than April 1, 2004 and (ii) June 1, 2004 identifying the four (4) Franchise Agreements that are to terminate no later than July 1, 2004. Accordingly, the parties agree that if Franchisee has not provided such notice identifying the two (2) Franchise Agreements governing the Inns listed on Exhibit B that are to terminate no later than April 1, 2004 by March 1, 2004 and/or the four (4) additional Franchise Agreements governing the Inns listed on -2- Exhibit B that are to terminate on or before July 1, 2004 no later than June 1, 2004, then in such event Franchisor may designate the two (2) Franchise Agreements governing the Inns listed on Exhibit B that will terminate on April 1, 2004 and/or the four (4) additional Franchise Agreements governing the Inns listed on Exhibit B that will terminate on July 1, 2004 and such Franchise Agreements will terminate without further action by any party and such Inns will leave the System as of that date. The parties further agree that no liquidated damages otherwise payable under the Franchise Agreements shall be payable with respect to the Inns listed on Exhibit B hereto. (c) Remaining Hotels. The parties agree that each Inn on Exhibit D hereto may be sold by Owner regardless of whether the purchaser of each such Inn executes a Franchise Agreement for such Inn with Franchisor ("Exhibit D Inns"); provided, however, that in order for each Exhibit D Inn to be eligible upon its sale to remain in the FIBM System, the Inn must be sold by Owner (or Lender, as the case may be) subject to a Property Improvement Plan approved by Franchisor in its sole discretion and a Franchise Agreement in the form attached to Franchisor's then-current Uniform Franchise Offering Circular for the Fairfield Inn by Marriott brand. (d) Priority Use of FF&E Reserve Funds. The parties agree that, as set forth in Paragraph 2 of that certain Amendment to Certain Franchise Agreements of even date hereof (the "Franchise Agreement Amendment"), funds placed into the Master Reserve (as defined in the Franchise Agreement Amendment) will be used to fund improvements to the Inns' furnishings, fixtures, and equipment in the order of priority set forth in the Franchise Agreement Amendment. (e) Termination of Franchise Agreement for Failure to Complete PIP. The parties agree that, as set forth in Paragraphs 5 and 6 of the Franchise Agreement Amendment, with respect to each Inn listed on Exhibits C and D hereto, Franchisee shall be in material default under the Franchise Agreement if Owner fails to complete the PIP for such Inn on or before April 1, 2005. III. 2003 Restructuring Preconditions. Marriott shall execute the 2003 Restructuring Documents upon full and complete satisfaction of each of the following (collectively, the "2003 Restructuring Preconditions"): (a) To provide financial protection to Marriott against Owner filing for bankruptcy protection after the date of this Agreement, Owner must deliver to Marriott a guarantee in the form attached hereto as Exhibit E fully executed by Guarantor; (b) Owner executing a Release of All Claims in the form attached hereto as Exhibit F; (c) Lender executing a Release of All Claims in the form attached hereto as Exhibit G; (d) Lender consenting to an amendment of the 2001 Comfort Letter in the form attached as Exhibit H hereto; (e) Owner executing a Second Amendment of Ground Leases in the form attached hereto as Exhibit I; and (f) Owner executing an Amendment to Certain Franchise Agreements in the form attached hereto as Exhibit J; -3- IV. Liquidated Damages to Marriott. (a) Liquidated Damages. Owner acknowledges that Marriott has agreed to the 2003 Restructuring (subject to the terms and conditions set forth herein) in order to avoid a Bankruptcy Case (defined below) or a Common Law Civil Action (defined below) by Owner. If a Bankruptcy Case or Common Law Civil Action occurs on or after the date of this Agreement, Owner acknowledges that Marriott would be damaged in several ways, including but not limited to: injury to the good will in Marriott's proprietary marks and brands, injury to Marriott's good will in the lodging industry, and injury to Marriott's good will among actual and prospective lenders to Marriott and the owners of Marriott-flagged properties. Owner acknowledges and agrees that the aforementioned damages to Marriott in the event of a Bankruptcy Case or Common Law Civil Action on or after the date hereof are inherently difficult to calculate although such damages are real and meaningful to Marriott. Owner and Marriott agree that Marriott's damages in the event of a Bankruptcy Case or Common Law Civil Action on or after the date hereof would not be easily ascertained, would be difficult to estimate accurately, and the proofs thereof would be burdensome and costly, and Owner and Marriott agree that liquidated damages (as set forth herein) are not a penalty and represent a reasonable estimate of just and fair compensation to Marriott of the damages it would suffer. In the event of a Bankruptcy Case or Common Law Civil Action on or after the date of this Agreement, Marriott shall be entitled to recover from Guarantor, and Guarantor shall be obligated to pay in accordance with the terms of the Guaranty, liquidated damages in the amount of Five Million Dollars ($5,000,000.00). In addition to such liquidated damages, Marriott shall have the right to recover reasonable attorneys' fees and court costs incurred in collecting such sums plus reasonable interest thereon. The legal remedies hereunder shall not preclude Marriott from any equitable remedies to which it may be entitled under applicable law. Guarantor's obligation to pay Marriott liquidated damages, if applicable, and other sums pursuant to this Section IV shall survive termination of this Agreement. (b) Definitions. As used in this Agreement, the term "Bankruptcy Case" shall mean a reorganization, liquidation or other similar bankruptcy proceeding under Title 11 of the United States Code or under any other federal or state debtor relief laws or the re-opening of any bankruptcy proceeding instituted by Owner or on behalf of Owner by Guarantor or its affiliates or instituted against Owner at the instance, encouragement, or suggestion of Owner or Guarantor or their affiliates, excluding, however, any proceeding instituted by the limited partners of Owner not instituted at the instance, encouragement, or suggestion of Guarantor or its affiliates. As used in this Agreement, the term "Common Law Civil Action" means any suit or other proceeding (whether by making any motion, bringing any counterclaim, claiming any defense, seeking any injunction or other restraint, commencing any action, or otherwise) instituted or filed by Owner or on behalf of Owner by Guarantor or their affiliates or instituted by any third party at the instance, encouragement, or suggestion of Owner or Guarantor which wrongly contests in bad faith or in any way wrongly interferes with, in bad faith, directly or indirectly, the exercise by Lender against Owner or any of them or the Premises of any rights or remedies available to Lender at law, in equity, by agreement or otherwise, excluding, however, any proceeding instituted by the limited partners of Owner not instituted at the instance, encouragement, or suggestion of Guarantor or its affiliates. V. Default. (a) Events of Default. Each of the following shall, to the extent permitted by applicable law, constitute a "Default" under this Agreement: (i). The filing of a voluntary petition in bankruptcy or insolvency or a petition for reorganization under any bankruptcy law by Owner. Upon the occurrence of any Default as -4- described under this Section V(a)(i) said Default shall be deemed an "Event of Default" under this Agreement. (ii). The consent to an involuntary petition in bankruptcy or the failure to vacate, within ninety (90) days from the date of entry thereof, any order for relief by Owner. Upon the occurrence of any Default as described under this Section V(a)(ii), said Default shall be deemed an "Event of Default" under this Agreement. (iii). The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Owner as bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all or a substantial part of Owner's assets, and such order, judgment or decree's continuing unstayed and in effect for an aggregate of one-hundred twenty (120) days (whether or not consecutive). Upon the occurrence of any Default as described under this Section V(a)(iii) said Default shall be deemed an "Event of Default" under this Agreement. (iv). The failure of Owner to make any payment required to be made in accordance with the terms of this Agreement, as of the due date as specified in this Agreement. Upon the occurrence of any Default as described under this Section V(a)(iv), said Default shall be deemed an "Event of Default" under this Agreement if the Owner fails to cure such Default within ten (10) days after receipt of written notice from the non-defaulting party demanding such cure. (v). Owner or any of Owner's Affiliates is or becomes (A) a person or entity designated by the U.S. Department of Treasury's Office of Foreign Assets Control from time to time as a "specially designated national or blocked person" or similar status, (B) a person or entity described in Section 1 of U.S. Executive Order 13224, issued on September 23, 2001, or (C) a person or entity otherwise identified by government or legal authority as a person with whom Franchisor, or any of the other Marriott Companies or any of their affiliates, are prohibited from transacting business. As of the Effective Date, a list of such designations and the text of the Executive Order are published under the internet website address www.ustreas.gov/offices/enforcement/ofac. (vi). The failure of Owner to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of such default for a period of thirty (30) days after the Owner's receipt of written notice from the non-defaulting party of said failure. Upon the occurrence of any Default as described under this Section V(a)(vi), said Default shall be deemed an "Event of Default" under this Agreement if the Owner fails to cure the Default within thirty (30) days after receipt of written notice from the non-defaulting party demanding such cure, or, if the Default is such that it cannot reasonably be cured within said thirty (30) day period of time, if the Owner fails to commence the cure of such Default within said thirty (30) day period of time or thereafter fails to diligently pursue such efforts to completion. (vii). The breach of any one or more Franchise Agreements or any one or more Ground Leases that remains uncured for the applicable cure period under the applicable agreement. (b) Remedies. Upon the occurrence of an Event of Default, the non-defaulting party shall have the right to pursue any one or more of the following courses of action: (i) to terminate this Agreement (which shall extinguish the benefits conferred to the defaulting party hereunder) by written notice to the defaulting party, which termination shall be effective as of the effective date which is set forth in said -5- notice; and (ii) to institute forthwith any and all proceedings permitted by law or equity including, without limitation, actions for specific performance and/or damages. VI. Amendment of 2001 Omnibus Agreement. It being the intention of the parties to eliminate any possibility of a Contingent Restructuring (as such term is defined in the 2001 Omnibus Agreement), Section V of the 2001 Omnibus Agreement is hereby deleted in its entirety. VII. Waiver of Automatic Stay. The parties agree that, in the event of the filing of any voluntary or involuntary petition under the U.S. Bankruptcy Code by or against Owner, Owner shall not assert, or request any other party to assert, that the automatic stay under ss. 362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Marriott to enforce any rights it has by virtue of this Agreement, any Franchise Agreement, any Ground Lease, or any other rights that Marriott has, whether now or hereafter acquired, against Owner or Guarantor. Further, Owner shall not seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to ss. 105 of the Bankruptcy Code or any other provision therein to stay, interdict, condition, reduce or inhibit the ability of Marriott to enforce any rights it has by virtue of this Agreement, any Franchise Agreement, or any Ground Lease against Owner or Guarantor. The waivers contained in this paragraph are a material inducement to Marriott's willingness to enter into this Amendment and Owner acknowledges and agrees that no ground exists for equitable relief which would bar, delay or impede the exercise by Marriott of Marriott's rights and remedies against Owner or Guarantor. VIII. Lender Notice of Default under Certain Franchise Agreements For any Hotel listed on Exhibit B until such time as such Hotel leaves the System, Franchisor will copy Lender on any notice of default or termination issued to Franchisee under a Franchise Agreement and Lender shall have the right, but not the obligation, upon notice to Franchisor to cure such default on behalf of Franchisee during the time period for cure established in the default notice. Such notice shall be in writing, sent by certified mail, return receipt requested, or by Federal Express or other national express delivery service and addressed, if to Lender, to: Administrator for ASC Nomura 1997-MDVII; LaSalle Bank N.A.; 135 South LaSalle Street; Suite 1625; Chicago, IL 60603-4159; Attn: Susan Abbott. A copy of such notice shall be sent to: Pacific Life Insurance Company; 700 Newport Center Drive; Newport Beach, CA 92660-6397 Attn: Ms. Wendy Balden and Clarion Partners, LLC, 230 Park Avenue, 12th Floor, New York, New York 10169 Attn: Mr. Michael O'Brien. Franchisor specifically acknowledges and agrees that Lender shall not be liable for payment of any liquidated damages not paid by the Franchisee. IX. Miscellaneous. (a) This Agreement may be executed in identical counterparts, each of which shall be deemed an original for all purposes and all of which shall constitute, collectively, one Agreement. This Agreement may be executed by facsimile signature provided that an original of this Agreement is delivered immediately thereafter. (b) The parties hereto represent and warrant that they are duly authorized to execute and deliver this Agreement on behalf of the party in accordance with the party's organizational and governing documents, including, as applicable, corporate charter, corporate bylaws and/or partnership agreements and that this Agreement is binding upon the party in accordance with its terms. -6- (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. No assignment or other transfer of the rights or obligations of the parties shall relieve the assignor or transferor of any obligations under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. [SIGNATURES FOLLOW ON NEXT TWO PAGES] -7- FRANCHISOR: - ----------- MARRIOTT INTERNATIONAL, INC., a Delaware corporation, By: ------------------------- Name: Julie Snowden Repetti Title: Vice President LANDLORD: - -------- BIG BOY PROPERTIES, INC., a Delaware corporation, By: ------------------------- Name: Julie Snowden Repetti Title: Vice President OWNER: - ------ FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership By: AP-Fairfield GP, LLC, a Delaware limited liability company, its general partner By: AP-Fairfield Manager Corp., a Delaware corporation, its manager By: --------------------- Name: --------------------- Title: --------------------- LENDER: - ------ LASALLE BANK, N.A., a national banking association, not in its individual capacity but solely as Trustee By: Clarion Partners, LLC, as Special Servicer, its Attorney in Fact By: --------------------- Name: --------------------- Title: --------------------- -8- SAGE: - ----- SAGE MANAGEMENT RESOURCES III, LLC, a Colorado limited liability company, By: -------------------------- Name: ------------------------ Title: ----------------------- GUARANTOR: - ---------- WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP a Maryland limited partnership, By: -------------------------- Name: ------------------------ Title: ----------------------- -9- EXHIBIT A
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- AL Birmingham Homewood 132 155 Vulcan Road Homewood, AL 35209 CA Orange County Buena Park 135 7032 Orangethorpe Avenue Buena Park, CA 90621 CA Orange County Placentia 135 710 W. Kimberly Avenue Placentia, CA 92870 FL Gainesville Gainesville 135 6901 NW 4th Blvd Gainesville, FL 32607 FL Miami Airport-West 135 3959 NW 79th Avenue Miami, FL 33166 FL Orlando International Drive 135 8342 Jamaican Court Orlando, FL 32819 FL Orlando South-Beeline Pkwy 133 1850 Landstreet Road Orlando, FL 32809 GA Atlanta Airport 132 2451 Old National Highway College Park, GA 30349 GA Atlanta Gwinnett Mall 135 3500 Venture Parkway Duluth, GA 30096 GA Atlanta Northlake 133 2155 Ranchwood Drive Atlanta, GA 30345 GA Atlanta Northwest-Delk Road 132 2191 Northwest Parkway Marietta, GA 30067 GA Atlanta Peachtree Corners 135 6650 Bay Circle Drive Norcross, GA 30071 GA Savannah Savannah 135 2 Lee Blvd Savannah, GA 31405 IA Des Moines West-Clive 135 1600 NW 114th Street Clive, IA 50325 IL Bloomington Normal 132 202 Landmark Drive Normal, IL 61761 IL Peoria Peoria 135 4203 N. War Memorial Drive Peoria, IL 61615 IL Rockford Rockford 135 7712 Potawatomi Trail Rockford, IL 61107 IN Indianapolis Castleton 132 8325 Bash Road Indianapolis, IN 46250 IN Indianapolis College Park 132 9251 Wesleyan Road Indianapolis, IN 46268 KS Kansas City Overland Park 134 4401 W. 107th Street Overland Park, KS 66207 KS Kansas City West-Merriam 135 6601 Frontage Road Merriam, KS 66202 MI Detroit Airport 133 31119 Flynn Drive Romulus, MI 48174 MI Detroit Auburn Hills 134 1294 Opdyke Road Auburn Hills, MI 48326 MI Detroit Madison Heights/Troy 134 32800 Stephendson Highway Madison Heights, MI 48071 MI Detroit Warren 131 7454 Convention Blvd Warren, MI 48092 MI Detroit West/Canton 133 5700 Haggerty Road Canton, MI 48187 MI Kalamazoo Kalamazoo East 133 3800 E. Cork Street Kalamazoo, MI 49001 MO St. Louis Hazelwood 135 9079 Dunn Road Hazelwood, MO 63042 NC Charlotte Northeast 133 5415 N. I-85 Service Road Charlotte, NC 28262 NC Durham I-85 135 3710 Hillsborough Road Durham, NC 27705 NC Fayetteville Fayetteville 135 562 Cross Creek Mall Fayetteville, NC 28303 NC Greensboro Greensboro 135 2003 Athena Court Greensboro, NC 27407 NC Raleigh Northeast 132 2641 Appliance Court Raleigh, NC 27604 NC Wilmington Wilmington 134 306 S. College Road Wilmington, NC 28403 OH Cleveland Airport-Brook Park 135 16644 Snow Road Brook Park, OH 44142 OH Columbus North 135 887 Morse Road Columbus, OH 43229 OH Dayton North/West 135 6960 Miller Lane Dayton, OH 45414 OH Toledo Holland/Airport 135 1401 E. Mall Drive Holland, OH 43528 SC Florence Florence 135 140 Dunbarton Drive Florence, SC 29501 SC Greenville Greenville 132 60 Roper Mountain Road Greenville, SC 29607 SC Hilton Head Hilton Head 120 9 Marina Side Drive Hilton Head Island, SC 29928 TN Johnson City Johnson City 132 207 E. Mountcastle Drive Johnson City, TN 37601 VA Norfolk Hampton-Coliseum 134 1905 Coliseum Drive Hampton, VA 23666 VA Norfolk Virginia Beach-Euclid 134 4760 Euclid Road Virginia Beach, VA 23462 WI Madison East 135 4765 Hayes Road Madison, WI 53704 WI Milwaukee West 135 20150 W. Blue Mound Road Brookfield, WI 53045
EXHIBIT B Hotels That Must Leave the System By September 1, 2004
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Orlando South-Beeline Pkwy 133 1850 Landstreet Road Orlando, FL 32809 AL Birmingham Homewood 132 155 Vulcan Road Homewood, AL 35209 GA Atlanta Airport 132 2451 Old National Highway College Park, GA 30349 MI Detroit Warren 131 7454 Convention Blvd Warren, MI 48092 NC Raleigh Northeast 132 2641 Appliance Court Raleigh, NC 27604 OH Columbus North 135 887 Morse Road Columbus, OH 43229 NC Charlotte Northeast 133 5415 N. I-85 Service Road Charlotte, NC 28262 KS Kansas City West-Merriam 135 6601 Frontage Road Merriam, KS 66202 KS Kansas City Overland Park 134 4401 W. 107th Street Overland Park, KS 66207 SC Greenville Greenville 132 60 Roper Mountain Road Greenville, SC 29607 GA Atlanta Peachtree Corners 135 6650 Bay Circle Drive Norcross, GA 30071 GA Atlanta Northlake 133 2155 Ranchwood Drivfe Atlanta, GA 30345
EXHIBIT C Hotels That Must Remain in the System
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Miami Airport-West 135 3959 NW 79th Avenue Miami, FL 33166 IL Peoria Peoria 135 4203 N. War Memorial Drive Peoria, IL 61615 IN Indianapolis College Park 132 9251 Wesleyan Road Indianapolis, IN 46268 SC Hilton Head Hilton Head 120 9 Marina Side Drive Hilton Head Island, SC 29928 CA Orange County Placentia 135 710 W. Kimberly Avenue Placentia, CA 92870 TN Johnson City Johnson City 132 207 E. Mountcastle Drive Johnson City, TN 37601 CA Orange County Buena Park 135 7032 Orangethorpe Avenue Buena Park, CA 90621
EXHIBIT D
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Gainesville Gainesville 135 6901 NW 4th Blvd Gainesville, FL 32607 FL Orlando International Drive 135 8342 Jamaican Court Orlando, FL 32819 GA Atlanta Gwinnett Mall 135 3500 Venture Parkway Duluth, GA 30096 GA Atlanta Northwest-Delk Road 132 2191 Northwest Parkway Marietta, GA 30067 GA Savannah Savannah 135 2 Lee Blvd Savannah, GA 31405 IA Des Moines West-Clive 135 1600 NW 114th Street Clive, IA 50325 IL Bloomington Normal 132 202 Landmark Drive Normal, IL 61761 IL Rockford Rockford 135 7712 Potawatomi Trail Rockford, IL 61107 IN Indianapolis Castleton 132 8325 Bash Road Indianapolis, IN 46250 MI Detroit Airport 133 31119 Flynn Drive Romulus, MI 48174 MI Detroit Auburn Hills 134 1294 Opdyke Road Auburn Hills, MI 48326 MI Detroit Madison Heights/Troy 134 32800 Stephendson Highway Madison Heights, MI 48071 MI Detroit West/Canton 133 5700 Haggerty Road Canton, MI 48187 MI Kalamazoo Kalamazoo East 133 3800 E. Cork Street Kalamazoo, MI 49001 MO St. Louis Hazelwood 135 9079 Dunn Road Hazelwood, MO 63042 NC Durham I-85 135 3710 Hillsborough Road Durham, NC 27705 NC Fayetteville Fayetteville 135 562 Cross Creek Mall Fayetteville, NC 28303 NC Greensboro Greensboro 135 2003 Athena Court Greensboro, NC 27407 NC Wilmington Wilmington 134 306 S. College Road Wilmington, NC 28403 OH Cleveland Airport-Brook Park 135 16644 Snow Road Brook Park, OH 44142 OH Dayton North/West 135 6960 Miller Lane Dayton, OH 45414 OH Toledo Holland/Airport 135 1401 E. Mall Drive Holland, OH 43528 SC Florence Florence 135 140 Dunbarton Drive Florence, SC 29501 VA Norfolk Hampton-Coliseum 134 1905 Coliseum Drive Hampton, VA 23666 VA Norfolk Virginia Beach-Euclid 134 4760 Euclid Road Virginia Beach, VA 23462 WI Madison East 135 4765 Hayes Road Madison, WI 53704 WI Milwaukee West 135 20150 W. Blue Mound Road Brookfield, WI 53045
EXHIBIT E --------- UNCONDITIONAL LIMITED GUARANTY OF PAYMENT ----------------------------------------- WHEREAS, Fairfield Inn by Marriott Limited Partnership, a Delaware limited partnership ("Owner") owns or has a leasehold interest in certain real property, improvements and personal property consisting of forty-six (46) hotel properties that are commonly known as Fairfield Inns and identified on Exhibit A attached hereto (each an "Inn" and collectively, the "Inns"). RECITALS 1. Marriott International, Inc. ("Franchisor") and Owner are parties to those certain Franchise Agreements dated as of November 30, 2001 with respect to the Inns (as amended from time to time, including by that Amendment to Certain Franchise Agreements of even date hereof, the "Franchise Agreements"). 2. Thirty (30) of the Inns are subject to an existing ground lease by and between Big Boy Properties, Inc. ("Landlord") and Owner for each such Inn, as amended by that certain Amendment of Ground Leases dated as of November 30, 2001 (as amended from time to time, including the Amendment of Ground Leases of even date herewith, collectively the "Ground Leases"). 3. To allow Owner to engage in an orderly liquidation of its assets, Owner has requested from Franchisor and Landlord (collectively, "Marriott") the following: (a) waiver of the ground rent otherwise due and payable to Landlord under the Ground Leases with respect to each Inn for one calendar year from the date of this Agreement (the "Waiver Year") in an aggregate amount not to exceed $1.2 million (the "Waiver Cap"), with payment of any ground rent due and payable to Landlord with respect to the Waiver Year in excess of the Waiver Cap deferred for each Inn until the earlier of (i) a sale of the Inn; or (ii) April 1, 2005; (b) deferral of the ground rent for each Inn otherwise due and payable to Landlord under the Ground Leases with respect to the period of time beginning upon termination of the Waiver Year and ending the earlier of (i) a sale of the Inn; or (ii) April 1, 2005 (each, a "Deferral Termination Event"), with such deferred rental to be paid in full by Tenant to Landlord immediately upon the occurrence of any Deferral Termination Event; (c) liquidated damages otherwise due and payable to Franchisor pursuant to the Franchise Agreements to be waived with respect to each Inn sold by Owner on or before September 1, 2004 or de-flagged on or before September 1, 2004. 4. As a condition to, and in consideration of Marriott entering into the 2003 Omnibus Agreement of even date hereof by and among Franchisor, Owner, Landlord, Lender, Guarantor, and Sage Management Resources III, LLC (the "2003 Omnibus Agreement"), Marriott has required that the undersigned (hereinafter called "Guarantor") guaranty the payment of the "Guarantied Obligations" (as defined below). 5. Guarantor is an affiliate of the general partner of Owner, and believes it is in the best interest of Owner to enter into the 2003 Omnibus Agreement and that Guarantor will derive substantial benefit in the event the 2003 Omnibus Agreement is entered into between Owner and Lender; and NOW, THEREFORE, in consideration of $10.00 and other good and valuable considerations, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows: THE GUARANTY. The guaranty of Guarantor hereunder is as follows: 1.1. Guaranty of Payment. Subject to the limitations set forth in Paragraph 17 below, Guarantor unconditionally guaranties (i) full and punctual payment by Owner to Franchisor of all franchise fees and other sums due and payable to Franchisor pursuant to the Franchise Agreements (as amended by the Amendment to Certain Franchise Agreements of even date hereof); (ii) full and punctual payment by Tenant to Landlord of all Rental and other sums due and payable by Tenant to Landlord pursuant to the Ground Leases (as amended by that certain Amendment of Ground Leases of even date hereof); and (iii) full and punctual payment by Owner to Marriott of all sums due and payable to Marriott pursuant to the 2003 Omnibus Agreement (including, without limitation, payment of liquidated damages to Marriott pursuant to Section IV of the 2003 Omnibus Agreement). Guarantor's liability for items (i) through (iii) in the immediately preceding sentence (collectively, the "Guaranteed Obligation"), together with all interest thereon and all other fees and expenses due and payable, shall not exceed $5,000,000 in the aggregate. If an "Event of Default" (as defined in the 2003 Omnibus Agreement) occurs, then notwithstanding anything contained in any of the 2003 Restructuring Documents or other agreements by or among the parties, Guarantor shall, subject to the limitations set forth in Paragraph 17 below, on demand, pay to Marriott the entire Guarantied Obligations, or so much as is then due and payable. 1.2. Guaranty of Payment; Not Collection. Guarantor hereby agrees that this Guaranty is a guaranty of payment and not of collection, that the obligations of Guarantor are joint and several, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of and unaffected by: (a) the lack of genuineness, validity, regularity, enforceability or any future amendment of or change in the 2003 Omnibus Agreement, the Franchise Agreements, the Ground Leases (as amended, collectively the "Documents"), or any agreement or instrument to which Owner and/or Guarantor are or may be a party (including without limitation this Guaranty); (b) the absence of any action to enforce the Documents or the waiver or consent by Marriott with respect to any provisions thereof; (c) the existence, value or condition of any security for the Guarantied Obligations or any action or the absence of any action by Marriott with respect thereof (including without limitation the release thereof); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged except by payment as provided herein. Guarantor shall be regarded as, and shall be in the same position as, a principal debtor with respect to the Guarantied Obligations. 1.3. Waivers. Guarantor hereby waives and agrees not to assert or take advantage of any defense based upon failure of Marriott to commence an action against Owner. In addition, Guarantor -2- expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Marriott to proceed in respect of the Guarantied Obligations against Owner, or any other party or against any security for the payment of the Guarantied Obligations before proceeding against, or as a condition to proceeding against Guarantor. Guarantor agrees that any notice or directive given at any time to Marriott which is inconsistent with the waivers in the immediately preceding sentences shall be void and may be ignored by Marriott, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Marriott has specifically agreed otherwise in writing, signed by a duly authorized officer. It is agreed between Guarantor and Marriott that the foregoing waivers are of the essence of the transaction and that, but for this Guaranty and such waivers, Marriott would decline to enter into the 2003 Omnibus Agreement and consummate the actions contemplated thereby. 1.4. Payment Default by Owner. If any default shall remain after the expiration of any grace period applicable under the terms of the Documents, then Guarantor, shall, within ten (10) business days after demand in writing therefor shall have been made by Marriott to Guarantor, pay to Marriott the amount of any and all outstanding and unpaid Guarantied Obligations due and owing Marriott. Payment by Guarantor shall be made to Marriott at the address indicated below for the giving of notice to Marriott or at any other address that may be specified in writing from time to time by Marriott. 1.5. Enforcement of Guaranty. Marriott may proceed to exercise any right or remedy which it may have against any property, real or personal, of Owner, it being agreed that in no event shall Marriott have any obligation to (but may at its option) proceed against Owner or any other person or entity or any such real or personal property before seeking satisfaction from Guarantor under this Guaranty. 1.6. Additional Waivers. In addition to the waivers contained in paragraph 1.3 above, Guarantor waives, and agrees that it will not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any and all appraisal, valuation, stay, extension, marshalling-of-assets or redemption laws, or right of homestead or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its obligations under, or the enforcement by Marriott of this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guarantied Obligations, acceptance of further security, release of security, composition or agreement arrived at as to the amount of or the terms of the Guarantied Obligations, notice of adverse change in Owner's financial condition and any other fact which might materially increase the risk to Guarantor), with respect to any of the Guarantied Obligations, and all other demands whatsoever, and waive the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty, except to the extent that this Guaranty may otherwise specify the giving of notice. Guarantor represents and warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any counterclaims, offsets or defenses against Marriott of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defense against Marriott or against Owner of any kind which may arise in the future. 1.7. Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Marriott and its successors and assigns, and nothing herein contained shall impair as between Owner and Marriott the obligations of Owner under the Documents or under any other agreements, documents, instruments or certificates by, between, or among Owner and Marriott. -3- 1.8. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against Owner under the Bankruptcy Reform Act of 1978, as at any time amended, (or under any substitute or successor legislation relating to the same general subject matter), for liquidation or reorganization, should Owner become insolvent or make an assignment for the benefit of creditors or a receiver or trustee be appointed for all or any significant part of Owner's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment of the Guarantied Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Marriott whether as a preferential transfer, post-petition transfer, fraudulent conveyance, or otherwise, all as though such reduction, repayment or restoration by Marriott had not been made. 1.9. Subrogation. Guarantor hereby waives, to the fullest extent possible, as against Owner and its assets any and all rights, whether at law, in equity, by agreement or otherwise, to subrogation, indemnity, reimbursement, contribution, or any other similar claim, cause of action or remedy that otherwise would arise out of Guarantor's performance of its obligations to Marriott under this Guaranty. The preceding waiver is intended by Guarantor and Marriott to be for the benefit of Owner, and the waiver shall be enforceable by Owner or any of its successors or assigns as an absolute defense to any action by Guarantor against Owner or its assets which arises out of Guarantor having made any payment to Marriott with respect to any of the liabilities guarantied hereunder. 2. REPRESENTATIONS AND WARRANTIES. Full reliance by Marriott upon the following representations and warranties is acknowledged: 2.1. Representations and Warranties of Guarantor. Guarantor represents and warrants to Marriott as Zollows: (a) Guarantor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of its formation. (b) Guarantor has full power, authority and legal right to enter into this Guaranty and to perform its obligations under the terms hereof. (c) Guarantor has duly executed and delivered this Guaranty. This Guaranty constitutes a legal, valid and binding obligation of such Guarantor, enforceable against it in accordance with the terms of this Guaranty. (d) No authorization, consent, approval, exemption, permit or license of, or filing with, any governmental or public body or authority is required to authorize, or is otherwise required in connection with, the valid execution or delivery by Guarantor of this Guaranty, or the performance of Guarantor's obligations hereunder, except such as have been obtained and are in full force and effect. All conditions required to the execution and delivery hereof and performance hereunder have been satisfied on or before the date hereof. -4- (e) Guarantor is not a party to, or otherwise bound by or subject to, any agreement or instrument, the observance of the terms and provisions of which would materially impair Guarantor's ability to perform his obligations under, and to be bound by, this Guaranty. Neither the execution and delivery by Guarantor of this Guaranty, nor compliance by Guarantor with the terms and provisions of this Guaranty, will conflict with, constitute a default under, or result in a breach of, any of the terms, conditions or provisions of, any law or decree or any regulation, order, writ, injunction, determination or award of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality (domestic or foreign), or any agreement or instrument to which Guarantor is a party or by which it or any of its properties may be affected. 3. CONTINUING GUARANTY. Guarantor agrees that this Guaranty is a continuing guaranty and shall remain in full force and effect until the payment in full of the Guarantied Obligations. 4. PERMITTED ASSIGNMENT BY MARRIOTT. Marriott may freely assign its rights and delegate its duties under this Guaranty, but no such assignment or delegation shall increase Guarantor's obligation or diminish its rights hereunder. In the event of any such assignment or delegation, Marriott agrees to endeavor to give notice of such assignment or delegation at least ten (10) days prior to such assignment or delegation, but the consent of Guarantor shall not be required for any such assignment or delegation and failure to give such notice shall not affect the validity or enforceability of any such assignment or delegation or subject Marriott to any liability or diminish any of the obligations of Guarantor under this Guaranty. 5. FURTHER ASSURANCE. Guarantor agrees, upon the written request of Marriott, to execute and deliver to Marriott from time to time any additional instruments or documents reasonably considered necessary by Marriott or its counsel to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Guarantor set forth in this Guaranty shall survive for so long as all or any portion of the Guarantied Obligations remains unpaid. 7. ENTIRE AGREEMENT; AMENDMENT. This Guaranty contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to such subject matter (including but not by way of limitation, any commitment or term letter which Marriott may have given to Owner or Guarantor) and cannot be amended or supplemented as to Guarantor, except by a written agreement signed by Guarantor and Marriott. 8. HEADINGS. The headings in this Guaranty are for convenience only and are not part of the substance of this Guaranty. 9. SEVERABILITY. In the event that any one or more of the provisions contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and of the remaining provisions of this Guaranty shall not be in any way impaired. 10. COUNTERPARTS. This Guaranty may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which shall constitute one document and the signature of any party or partner to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart. -5- 11. NOTICES. All notices, requests, demands and other communications under or in connection with this Guaranty shall be in writing, shall be delivered by federal express or similar overnight courier service, by hand or sent by registered or certified mail and shall be deemed to have been given or made five (5) days after the date when mailed, postage prepaid to the following addresses: If to Marriott: Marriott International, Inc. Law Department 10400 Fernwood Road Bethesda, MD 20817 Attention: Associate General Counsel, Franchise Telephone: (301) 380-9555 Telefacsimile: (301) 380-6727 With a copy to: Marriott International, Inc. Law Department 10400 Fernwood Road Bethesda, MD 20817 Attention: Lodging Operations (Dept. # 52/923.27) Telephone: (301) 380-9555 Telefacsimile: (301) 380-6727 If to Guarantor: First Winthrop Corporation 7 Bulfinch Place, Suite 500 P.O. Box 9507 Boston, Massachusetts 02114 Attention: Carolyn Tiffany Telephone: (617) 570-4600 Telefacsimile: (617) 570-4710 with a copy to: Post & Heymann, LLP 100 Jericho Quadrangle, Suite 214 Jericho, New York 11753 Attention: William W. Post Telephone: (516) 681-3636 Telefacsimile: (516) 433-2777 The above addresses may be changed by either Marriott or Guarantor by writing to the other addressed as above. 12. BINDING EFFECT. This Guaranty shall bind and inure to the benefit of the parties and their respective heirs, permitted successors, delegees and assigns. -6- 13. NON-WAIVER. The failure of Marriott to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against Marriott, nor excuse the Guarantor from his obligations hereunder. Any waiver of any such right or remedy must be in writing and signed by Marriott. 14. INITIATION OF SUIT. Any suit initiated by Marriott against Guarantor under or in connection with this Guaranty may be brought in any state or federal court in the state referred to under the paragraph "Governing Law" in any court in such state having jurisdiction over the subject matter hereof. Guarantor hereby submits itself to the jurisdiction of any such court and agrees that service of process against it in any such action may be effected by any means permissible under federal law or under the laws of such state. Guarantor agrees to pay all expenses (including reasonable attorneys' fees and all out-of-pocket costs and disbursements) which may be incurred by Marriott in the event of the initiation of any suit under or in connection with this Guaranty. 15. ADDITIONAL COLLATERAL. In the event any other guarantor shall furnish a letter of credit or other collateral to Marriott as additional collateral for the Obligations of Owner to Marriott, whether heretofore or hereafter, such additional collateral shall not diminish or modify Guarantor's liability to Marriott hereunder unless Marriott shall otherwise specifically agree in writing. 16. GOVERNING LAW. The terms of this Guaranty have been negotiated and delivered, in the State of New York, and it is the intention of the parties that this Guaranty be construed and enforced in accordance with the laws of such State. 17. CONDITIONS AND TERMINATION. 17.1. Notwithstanding any other provision of this Guaranty to the contrary, Guarantor shall have no liability under this Guaranty so long as no "Bankruptcy Case" (as hereinafter defined) or "Common Law Civil Action" (as hereinafter defined) has been filed or instituted. 17.2. For the avoidance of doubt, it is the intention of the parties that, notwithstanding any other provisions of this Guaranty to the contrary, the liability of Guarantor under this Guaranty shall cease and terminate without need for any further act or agreement of Marriott (and at such time Marriott shall execute and deliver such documents and writings as Guarantor may reasonably request to confirm and evidence such termination) upon the satisfaction of Owner's obligations under the 2003 Omnibus Agreement, the Franchise Agreements (as amended by even date hereof), and the Ground Leases (as amended by even date hereof), without there having been filed a Bankruptcy Case or a Common Law Civil Action. -7- 17.3. As used in this Guaranty, the term "Bankruptcy Case" shall mean a reorganization, liquidation or other similar bankruptcy proceeding under Title 11 of the United States Code or under any other federal or state debtor relief laws or the re-opening of any bankruptcy proceeding instituted by Owner or on behalf of Owner by Guarantor or its affiliates or instituted against Owner at the instance, encouragement, or suggestion of Owner or Guarantor or their affiliates, excluding, however, any proceeding instituted by the limited partners of Owner not instituted at the instance, encouragement, or suggestion of Guarantor or its affiliates. As used in this Guaranty, the term "Common Law Civil Action" means any suit or other proceeding (whether by making any motion, bringing any counterclaim, claiming any defense, seeking any injunction or other restraint, commencing any action, or otherwise) instituted or filed by Owner or on behalf of Owner by Guarantor or their affiliates or instituted by any third party at the instance, encouragement, or suggestion of Owner or Guarantor which wrongly contests in bad faith or in any way wrongly interferes with, in bad faith, directly or indirectly, the exercise by Lender against Owner of any rights or remedies available to Lender at law, in equity, by agreement or otherwise, excluding, however, any proceeding instituted by the limited partners of Owner not instituted at the instance, encouragement, or suggestion of Guarantor or its affiliates. 17.4. As used in this Guaranty with respect to the definition of a Bankruptcy Case or a Common Law Civil Action, the term "Guarantor" shall include, in addition to Guarantor, any owners of all or any portion of or interest in the Inns which are controlled by Guarantor or any general partner of Owner. 18. Required Minimum Value of Guarantor's Net Worth. (a) Net Worth. Guarantor hereby represents, warrants, and covenants to Marriott that (i) as of the date of execution of this Agreement, its Net Worth (defined below) is equal to or greater than Fifteen Million Dollars ($15,000,000.00); and (ii) true and correct copies of Guarantor's most recent financial statements are attached hereto as Exhibit ___. (b) Maintenance of Net Worth. Guarantor hereby represents, warrants, covenants, and agrees that its Net Worth shall not fall below Five Million Dollars ($5,000,000.00) during the term of this Guaranty. (c) Definition of Net Worth. For purposes of this Guaranty, "Net Worth" means the fair market value of (x) all assets (reduced by the amount of intangible assets) of Guarantor, less (y) all liabilities of Guarantor. 19. INDEPENDENT OBLIGATIONS; EXCULPATORY LANGUAGE. The liability of Guarantor to Marriott under this Guaranty shall not be affected, impaired, diminished or limited by any provisions of the Documents, or any other document or agreement that purports to in any way limit or exculpate the personal liability of Guarantor. [SIGNATURES ON FOLLOWING PAGE] -8- IN WITNESS WHEREOF, Guarantor have executed and delivered this Guaranty under seal as of. WITNESS: WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP, a Maryland limited partnership By: ------------------------ Name: ------------------------ Title: ------------------------ STATE OF } } ss.: COUNTY OF } On this___ day of , in the year 2003, before me, the undersigned, a Notary Public in and for said County and State, personally appeared personally known to me or proved to me on the basis of satisfactory evidence to be the individual that executed the within instrument. WITNESS my hand and official seal. ----------------------------------- [SEAL] Notary Public -9- EXHIBIT F --------- RELEASE OF ALL CLAIMS --------------------- THIS RELEASE (this "Release") is made effective as of the _____ day of August, 2003 by FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership with a mailing address at 100 Jericho Quadrangle - Ste. 214, Jericho NY 11753 ("Owner") and AP-FAIRFIELD GP LLC, a Delaware limited liability corporation ("FIBMLP GP") in favor and for the benefit of MARRIOTT INTERNATIONAL, INC., a Delaware corporation with a mailing address at 10400 Fernwood Road, Bethesda, MD 20817 ("Franchisor") and BIG BOY PROPERTIES, INC., a Delaware corporation having its principal address at 10400 Fernwood Road, Bethesda, Maryland 20817 ("Landlord"). RECITALS -------- 1. Franchisor and Owner are parties to those certain Franchise Agreements dated as of November 30, 2001 (as amended from time to time, the "Franchise Agreements") regarding forty-six (46) Fairfield Inn by Marriott hotels owned by Owner listed on Schedule A hereto (each an "Inn" and collectively, the "Inns"). The FIBMLP GP is the general partner of Owner and owns a certain portion of the limited partnership interests in Owner. 2. The Inns are operated and managed by Sage pursuant to management agreements between Owner and Sage (the "Sage Management Agreements"). 3. Thirty (30) of the Inns are subject to an existing ground lease by and between Landlord and Owner for each such Inn, as amended by that certain Amendment of Ground Leases dated as of November 30, 2001 (collectively, the "Ground Leases"). 4. Among other parties, Owner, Franchisor, Landlord, Sage, and Lender were parties to a November 30, 2001 restructuring involving the Inns (the "2001 Restructuring"); in connection therewith, various documents were executed by and among various of the parties (all such documents, collectively the "2001 Restructuring Documents"), including, without limitation: the Franchise Agreements; that certain comfort letter from Franchisor to Lender dated as of November 30, 2001 regarding the Franchise Agreements (the "2001 Comfort Letter"); that certain Amendment of Ground Leases dated as of November 30, 2001; that certain Omnibus Agreement dated as of November 30, 2001; that certain Waterfall Agreement dated as of November 30, 2001; and that certain Agreement Regarding Right to Terminate Certain Franchise Agreement ("Franchise Termination Agreement"). 5. To allow Owner to engage in an orderly liquidation of its assets, Owner has requested from Franchisor and Landlord (collectively, "Marriott") that: (a) the ground rent otherwise due and payable to Landlord under the Ground Leases be waived with respect to each Inn for one calendar year from the date of this Agreement (the "Waiver Year") in an aggregate amount not to exceed $1.2 million, with payment of any ground rent due and payable to Landlord in excess of the aggregate waived amount of $1.2 million deferred with respect to each Inn until the earlier of (i) a sale of the Inn, or (ii) April 1, 2005; (b) liquidated damages otherwise due an payable to Franchisor pursuant to the Franchise Agreements be waived upon a sale or deflagging of each Inn for Inns that are sold or de-flagged by Owner on or before September 1, 2004. 6. Marriott is currently discussing a possible conversion of an existing hotel located in Overland Park, KS (the "Proposed Inn") to a Fairfield Inn and Suites that is in close proximity to the Inn owned by Owner located at 4401 W. 107th Street, Overland Park, KS 66207 (the "KS Inn") 7. Marriott desires to accommodate the aforementioned requests by Owner provided that each of the 2003 Restructuring Preconditions set forth in that certain Omnibus Agreement of even date hereof by and among Franchisor, Owner, Landlord, Sage, and others (the "Omnibus Agreement") is satisfied, including execution by Owner and FIBMLP GP of this Release of all claims and liabilities, of whatever kind or nature, known or unknown, concerning the purchase, renovation, franchising, operation, and/or management of the Inns, individually and/or collectively, arising out of or relating to acts, omissions, and/or events occurring on or before the date of this Release. NOW, THEREFORE, without either party acknowledging any liability, the same being expressly denied, in consideration of the mutual covenants contained herein, and for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, it is agreed as follows: (a) The parties hereby incorporate by reference every recital set forth above as a substantive part of this Release. (b) Owner and Marriott, among others, have executed the Omnibus Agreement as of even dated hereof, of which this Release is an attachment and a material component thereof. (c) Owner and FIBMLP GP, each on behalf of itself and each of its heirs, partners, trustees, parents, affiliates, subsidiaries, shareholders, officers, -2- directors, employees, executors, administrators, predecessors, successors, affiliates, and assigns ("Releasors"), hereby forever and unrevocably releases, relinquishes, and discharges Franchisor and Landlord, together with each of their predecessors, successors, parents, subsidiaries, divisions, affiliates, and related companies, and each of their respective employees, officers, directors, partners, members, principals, trustees, agents, servants, appraisers, underwriters, issuers, shareholders, insurers, co-insurers, reinsurers, independent contractors, wholesalers, resellers, distributors, retailers, attorneys, accountants, auditors, consultants, investment bankers, advisors, personal representatives, predecessors, successors, parents, subsidiaries, divisions, assigns, spouses, heirs, executors, administrators, associates, and related or affiliated companies or entities (collectively, the "Marriott Released Persons") from any and all past, present, existing, future, pending or threatened, suspected or unsuspected, class, derivative, representative, and individual claims, rights, demands, assertions, actions, cause of action, litigation lawsuits, allegations, debts, liens, accounts, dues, sums of money, reckonings, bonds, bills, specialties, contracts, covenants, agreements, controversies, promises, cross-actions, liabilities, trespasses, obligations, losses, damages, costs, expenses, judgments, executions, remedies, and suits, of every kind and nature whatsoever; whether in contract or in tort; whether at law or in equity; whether based upon fraud, breach of contract, misrepresentation, negligent misrepresentation, negligence, gross negligence, intentional conduct, libel, slander, business disparagement, oppression, civil conspiracy, deceit, tortuous interference, all other business torts, breach of the duty of good faith and fair dealing, breach of fiduciary duty, or any other duty or claim under common law or statute of any nature or jurisdiction whether arising under or out of any sale, purchase, offer, tender, contract, agreement, conspiracy, combination, communication, meeting, joint or concerted action; whether arising from the development, opening and operation of those hotels currently operating (or under development to operate) under brands owned or licensed by Marriott in the Overland Park or Kansas City, KS market including, without limitation, the development, opening and operation of the Proposed Inn or any claim that the Proposed Inn encroaches on or negatively impacts the economic performance of the KS Inn; or whether arising under or by virtue of any statute or regulation that now exists or may be created or recognized in the future in any manner, including without limitation, by statute, regulation or judicial decision, including without limitation, all claims arising under or by virtue of the federal and/or state securities laws; together with all past, present, existing, -3- future, liquidated or unliquidated, fixed or contingent, known or unknown, suspected or unsuspected, pending or threatened injuries, damages, losses, costs, expenses and remedies of every kind and nature, including, but not limited to, actual damages; all exemplary and punitive damages; all penalties of any kind, including but not limited to tax liabilities or penalties; all statutory damages; all property and economic damages; all damages to loss of individual or business reputation, loss of business, loss of company, loss of assets, diminution in assets or investments, loss of standard of living, lost profits and goodwill; all consequential damages; all mental anguish and other similar emotional and psychological damages, including loss of society, affection, consortium, enjoyment and the like, and all other personal injury damages; together with all prejudgment and postjudgment interest, costs and attorneys' fees; whether heretofore or hereafter accruing (all collectively, the "Claims"), regardless of whether such Claims are known or unknown, that have, had, or may in the future arise, directly or indirectly, collectively or individually, out of, in relation to, or in connection with: (1) any one or more Franchise Agreements ; (2) the purchase of, franchising, operation, or management of any or more of the Inns; (3) any one or more of the 2001 Restructuring Documents; (4) any one or more of the Ground Leases, and arising out of or relating to acts, omissions, and/or events occurring on or before the date of this Release. (d) Releasors each agree not to make any statements, orally or in writing or otherwise, to any non-party to this agreement that, in whole or in part, is disparaging or negative about the Marriott Released Parties, individually or collectively, relating in whole or in part to the Inns, the 2001 Restructuring, and/or the 2003 Restructuring. OWNER: FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership By: AP-Fairfield GP, LLC, a Delaware limited liability company, its general partner By: AP-Fairfield Manager Corp., a Delaware corporation, its manager By: ---------------------- -4- Name: ---------------------- Title: ---------------------- FIBMLP GP: AP-FAIRFIELD GP LLC, a Delaware limited liability company, By: AP-Fairfield Manager Corp., a Delaware corporation, its manager By: ---------------------- Name: ---------------------- Title: ---------------------- By and on behalf of STATE OF ) ) SS: COUNTY OF ) IN WITNESS HEREOF, I _____________________, being a Notary Public am authorized to notarize documents within the above-stated State and County and that swear that _____________________, appeared and signed before me said Release on this ________ day of ____________________, 2003. ------------------------------- Notary Public My Commission Expires: -5- STATE OF ) ) SS: COUNTY OF ) IN WITNESS HEREOF, I _____________________, being a Notary Public am authorized to notarize documents within the above-stated State and County and that swear that _____________________, appeared and signed before me said Release on this ________ day of ____________________, 2003. ------------------------------- Notary Public -6- EXHIBIT G --------- RELEASE OF ALL CLAIMS --------------------- THIS RELEASE (this "Release") is made effective as of the _____ day of October____, 2003 by LASALLE BANK, N.A., successor in interest to Nomura Asset Capital Corporation ("Lender") in favor and for the benefit of MARRIOTT INTERNATIONAL, INC., a Delaware corporation with a mailing address at 10400 Fernwood Road, Bethesda, MD 20817 ("Franchisor") and BIG BOY PROPERTIES, INC., a Delaware corporation having its principal address at 10400 Fernwood Road, Bethesda, Maryland 20817 ("Landlord"). RECITIALS --------- 1. Franchisor and Owner are parties to those certain Franchise Agreements dated as of November 30, 2001 (as amended from time to time, the "Franchise Agreements") regarding forty-six (46) Fairfield Inn by Marriott hotels owned by Owner listed on Schedule A hereto (each an "Inn" and collectively, the "Inns"). The FIBMLP GP is the general partner of Owner and owns a certain portion of the limited partnership interests in Owner. 2. The Inns are operated and managed by Sage pursuant to a management agreement between Owner and Sage (the "Sage Management Agreements"). 3. Lender is the successor in interest to Nomura Asset Capital Corporation with respect to a $165,400,000 loan from Lender to Owner. 4. Thirty (30) of the Inns are subject to an existing ground lease by and between Landlord and Owner for each such Inn, as amended by that certain Amendment of Ground Leases dated as of November 30, 2001 (collectively, the "Ground Leases"). 5. Among other parties, Owner, Franchisor, Landlord, Sage, and Lender were parties to a November 30, 2001 restructuring involving the Inns (the "2001 Restructuring"); in connection therewith, various documents were executed by and among various of the parties (all such documents, collectively the "2001 Restructuring Documents"), including, without limitation: the Franchise Agreements; that certain comfort letter from Franchisor to Lender dated as of November 30, 2001 regarding the Franchise Agreements (the "2001 Comfort Letter"); that certain Amendment of Ground Leases dated as of November 30, 2001; that certain Omnibus Agreement dated as of November 30, 2001; that certain Waterfall Agreement dated as of November 30, 2001; and that certain Agreement Regarding Right to Terminate Certain Franchise Agreement ("Franchise Termination Agreement"). 6. To allow Owner to engage in an orderly liquidation of its assets, Owner has requested from Franchisor and Landlord (collectively, "Marriott") the following: (a) waiver of the ground rent otherwise due and payable to Landlord under the Ground Leases with respect to each Inn for one calendar year from the date of this Agreement (the "Waiver Year") in an aggregate amount not to exceed $1.2 million (the "Waiver Cap"), with payment of any ground rent due and payable to Landlord with respect to the Waiver Year in excess of the Waiver Cap deferred for each Inn until the earlier of (i) a sale of the Inn; or (ii) April 1, 2005; (b) deferral of the ground rent for each Inn otherwise due and payable to Landlord under the Ground Leases with respect to the period of time beginning upon termination of the Waiver Year and ending the earlier of (i) a sale of the Inn; or (ii) April 1, 2005 (each, a "Deferral Termination Event"), with such deferred rental to be paid in full by Tenant to Landlord immediately upon the occurrence of any Deferral Termination Event; (c) liquidated damages otherwise due and payable to Franchisor pursuant to the Franchise Agreements to be waived with respect to each Inn sold by Owner on or before September 1, 2004 or de-flagged on or before September 1, 2004. 7. Marriott desires to accommodate the aforementioned requests by Owner provided that each of the 2003 Restructuring Preconditions set forth in that certain 2003 Omnibus Agreement of even date hereof by and among Franchisor, Owner, Landlord, Lender, Sage and others (the "2003 Omnibus Agreement") is satisfied, including execution by Lender of this Release of all claims and liabilities, of whatever kind or nature, known or unknown, concerning the purchase, renovation, franchising, operation, and/or management of the Inns, individually and/or collectively, arising out of or relating to acts, omissions, and/or events occurring on or before the date of this Release. NOW, THEREFORE, without either party acknowledging any liability to the other, the same being expressly denied, in consideration of the mutual covenants contained herein, and for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, it is agreed as follows: (a) The parties hereby incorporate by reference every recital set forth above as a substantive part of this Release. -2- (b) Lender and Marriott, among other parties, have executed the 2003 Omnibus Agreement as of even dated hereof, of which this Release is an attachment and a material component thereof. (c) Lender, on behalf of itself and each of its heirs, partners, trustees, parents, affiliates, subsidiaries, shareholders, officers, directors, employees, executors, administrators, predecessors, successors, and assigns ("Releasors"), hereby forever and unrevocably releases, relinquishes, and discharges Franchisor and Landlord, together with each of their predecessors, successors, parents, subsidiaries, divisions, affiliates, and related companies, and each of their respective employees, officers, directors, partners, members, principals, trustees, agents, servants, appraisers, underwriters, issuers, shareholders, insurers, co-insurers, reinsurers, independent contractors, wholesalers, resellers, distributors, retailers, attorneys, accountants, auditors, consultants, investment bankers, advisors, personal representatives, predecessors, successors, parents, subsidiaries, divisions, assigns, spouses, heirs, executors, administrators, associates, and related or affiliated companies or entities (collectively, the "Marriott Released Persons") from any and all past, present, existing, future, pending or threatened, suspected or unsuspected, class, derivative, representative, and individual claims, rights, demands, assertions, actions, cause of action, litigation lawsuits, allegations, debts, liens, accounts, dues, sums of money, reckonings, bonds, bills, specialties, contracts, covenants, agreements, controversies, promises, cross-actions, liabilities, trespasses, obligations, losses, damages, costs, expenses, judgments, executions, remedies, and suits, of every kind and nature whatsoever; whether in contract or in tort; whether at law or in equity; whether based upon fraud, breach of contract, misrepresentation, negligent misrepresentation, negligence, gross negligence, intentional conduct, libel, slander, business disparagement, oppression, civil conspiracy, deceit, tortuous interference, all other business torts, breach of the duty of good faith and fair dealing, breach of fiduciary duty, or any other duty or claim under common law or statute of any nature or jurisdiction whether arising under or out of any sale, purchase, offer, tender, contract, agreement, conspiracy, combination, communication, meeting, joint or concerted action; or whether arising under or by virtue of any statute or regulation that now exists or may be created or recognized in the future in any manner, including without limitation, by statute, regulation or judicial decision, including without limitation, all claims arising under or by virtue of the federal and/or state -3- securities laws; together with all past, present, existing, future, liquidated or unliquidated, fixed or contingent, known or unknown, suspected or unsuspected, pending or threatened injuries, damages, losses, costs, expenses and remedies of every kind and nature, including, but not limited to, actual damages; all exemplary and punitive damages; all penalties of any kind, including but not limited to tax liabilities or penalties; all statutory damages; all property and economic damages; all damages to loss of individual or business reputation, loss of business, loss of company, loss of assets, diminution in assets or investments, loss of standard of living, lost profits and goodwill; all consequential damages; all mental anguish and other similar emotional and psychological damages, including loss of society, affection, consortium, enjoyment and the like, and all other personal injury damages; together with all prejudgment and postjudgment interest, costs and attorneys' fees; whether heretofore or hereafter accruing (all collectively, the "Claims"), regardless of whether such Claims are known or unknown, that have, had, or may in the future arise, directly or indirectly, collectively or individually, out of, in relation to, or in connection with any events occurring prior to the date hereof. (d) Releasors agree not to make any statements, orally or in writing or otherwise, to any non-party to this agreement that, in whole or in part, is disparaging or negative about the Marriott Released Parties, individually or collectively, relating in whole or in part to the Inns, the 2001 Restructuring, and/or the 2003 Restructuring. By: LASALLE BANK, N.A., a national banking association, not in its individual capacity but solely as Trustee By: Clarion Partners, LLC, as Special Servicer, its Attorney-in-Fact By: ------------------------------- Name: ----------------------------- Title: ---------------------------- -4- STATE OF ) ) SS: COUNTY OF ) IN WITNESS HEREOF, I _____________________, being a Notary Public am authorized to notarize documents within the above-stated State and County and that swear that _____________________, appeared and signed before me said Release on this ________ day of ____________________, 2003. ------------------------------- Notary Public -5- EXHIBIT H --------- __________________, 2003 Administrator for ASC Nomura 1997-MDVII LaSalle Bank N.A. 135 South LaSalle Street Suite 1625 Chicago, Illinois 60603-4159 Attention: Susan Abbott Re: Fairfield Inn Hotels Dear Lender: Marriott International, Inc. ("Franchisor") has entered into a series of Franchise Agreements, as amended (collectively, the "Franchise Agreements" and each individually, a "Franchise Agreement") dated as of November 30, 2001, with Fairfield Inn by Marriott Limited Partnership ("Franchisee"). The Franchise Agreements permit Franchisee to operate the thirty four (34) hotels identified on Schedule A attached hereto as Fairfield Inn hotels (collectively, the "Hotels" and each individually, a "Hotel"). LaSalle Bank, N.A., as trustee ("Lender"), and Franchisee have informed Franchisor that Lender has loaned funds that are secured by the Hotels (the "Loan"). In exchange for Lender's agreement to approve a restructuring plan with respect to the Hotels, Lender and Franchisee have requested that Franchisor enter into this comfort letter, and the undersigned parties agree as follows: 1. Franchisee Default. Franchisor will copy Lender on any notice of default or termination issued to Franchisee under a Franchise Agreement. Lender shall have the right, but not the obligation, upon notice to Franchisor to cure such default on behalf of Franchisee during the time period for cure established in the default notice for any default under the Franchise Agreement. For any default under the Franchise Agreement other than a default of Article III or Section VII.E of the Franchise Agreement, or a default set forth in Sections XVII.B.9 or XVII.B.10 of the Franchise Agreement or a default under Paragraph 8 of the Amendment between Franchisee or Franchisor dated _________, Franchisor shall extend Lender's right to cure for such reasonable period of time beyond the cure period established in the default notice (but in no event for more than an additional thirty (30) days if: (i) the default is not related to health or safety as determined by Franchisor; (ii) the default is susceptible to cure by Lender; (iii) Lender notifies Franchisor of Lender's agreement to cure the default as soon as reasonably possible but no later than the two (2) days prior to expiration of the cure period established in the default notice; (iv) all royalties, fees, charges and other amounts due to Franchisor or any of its affiliates under the Franchise Agreement or in connection with the Hotel are kept current; (v) Lender diligently pursues the cure of the default; and (vi) the Hotel is at all times operated in accordance with the Franchise Agreement except for the specific default described in the default notice. Notwithstanding anything to the contrary stated herein, Lender shall have no obligation to cure any default on behalf of Franchisee. For the avoidance of doubt, Lender and Franchisor agree that after the Franchisee's applicable cure period established in the default notice for LaSalle Bank, N.A. _______________, 2003 Page 2 any default under any Franchise Agreement, for any default that Lender is entitled to an additional cure period under this Section 1, Lender shall have the additional cure period set forth in this Section 1, however if said default is not cured within the applicable cure period established in the default notice and the additional Lender cure period set forth in this Section 1, Franchisor shall have the right to terminate said Franchise Agreement and all of the other Franchise Agreements without any further right of Lender or Franchisee to cure any defaults. Lender and Franchisor agree and acknowledge that except as set forth in this Section 1, this Comfort Letter is not intended to confer on Lender any rights in addition to the rights Franchisee has under the Franchise Agreement, as amended, and that therefore, Franchisor is not required to extend Lender's right to cure for such reasonable period of time beyond the cure period established in the default notice for those defaults specifically enumerated in the third sentence of this Section. 2. Lender Foreclosure. A. If Lender acquires a Hotel through foreclosure, a transfer of deed in lieu of foreclosure, or through any other exercise of its rights as a secured lender, and Lender desires the Hotel to continue to be operated as a Fairfield Inn hotel, Lender may, by notice to Franchisor within ten (10) days of Lender's acquisition, request Franchisor to approve substitute qualified management for the Hotel pursuant to Paragraph 4. If Franchisor approves substitute management, Lender and Franchisor will execute a new Fairfield Inn franchise agreement ("New Franchise Agreement") within thirty (30) days of Lender's acquisition of the Hotel. The New Franchise Agreement shall be dated as of the date that Lender acquired the Hotel from Franchisee, shall be for a term equal to Franchisee's then remaining term and shall be identical to the Franchise Agreement for such Hotel (as such agreement may have been modified, amended, or supplemented), except that (a) Lender will be the franchisee thereunder and the identity of the management company may change to reflect the approved substitute management, (b) Lender shall not be charged any initial fee, (c) Lender will be required to cure any quality or service deficiencies and shall be subject to any renovation or upgrading requirements that are required under the Franchise Agreement, including commencing the work set forth in the Property Improvement Addendum attached thereto by no later than October 1, 2004 and completing such work no later than April 1, 2005, and (d) Lender shall be given the unconditional right, exercisable upon not less than thirty (30) days' written notice, as its sole remedy to terminate the New Franchise Agreement for any reason for a period ending November 30, 2004. If such termination occurs prior to September 1, 2004, Lender shall have no obligation to pay Franchisor liquidated damages or any other termination fee as a consequence of such termination. If such termination occurs between September 1, 2004 and November 30, 2004, Lender shall be obligated to pay Franchisor liquidated damages in the amount of $25,000 for each New Franchise Agreement that is terminated pursuant to this Paragraph 2.A.(ii).(c). In no event shall Lender be responsible for payment of any amounts owed to Franchisor by Franchisee under the Franchise Agreement. B. If Lender acquires a Hotel through foreclosure, a transfer of deed in lieu thereof, or through any other exercise of its rights as a secured lender, and Lender no longer desires that the Hotel be operated as a Fairfield Inn hotel, Lender agrees to notify Franchisor within ten (10) days of Lender's acquisition of same, to cooperate with Franchisor in the removal of the Hotel from the Fairfield Inn hotel system, and to promptly comply with Paragraph 13 hereof. C. If Lender, in connection with a foreclosure or similar proceeding, or following Lender's acquisition of the Hotel through foreclosure, a transfer of deed in lieu of foreclosure, or through any other -2- LaSalle Bank, N.A. _______________, 2003 Page 3 exercise of its rights as a secured lender, desires to sell a Hotel or cause a Hotel to be sold to a third party (such party being hereinafter referred to as a "Foreclosure Buyer"), and the Foreclosure Buyer desires such Hotel to continue to be operated as a Fairfield Inn hotel, such Foreclosure Buyer may by notice and payment to Franchisor of a non-refundable application fee no later than thirty (30) days prior to the anticipated closing date on the purchase and sale enter into a New Franchise Agreement with Franchisor with respect to the Hotel, provided that Franchisor has approved the Foreclosure Buyer to be a franchisee of Fairfield Inn hotels, which approval Franchisor may grant or withhold in its sole discretion. Prior to the submission of an application and only after Franchisor receives its then current Property Improvement Plan ("PIP") fee (currently, Five Thousand Dollars ($5,000)) to cover Franchisor's costs associated with such PIP, Franchisor will review the Hotel to determine the renovations necessary to bring the Hotel into good repair and to conform the Hotel to Franchisor's then current standards to transfer. Franchisor shall have no obligation to perform the PIP until it receives payment of the PIP fee and no obligation to review the application until such time as the PIP is completed. The terms of any such New Franchise Agreement shall be substantially identical to Franchisor's then current form of agreement (as same is described in Franchisor's then current franchise offering circular) except that the Foreclosure Buyer will be required to cure any quality or service deficiencies and shall be subject to any renovation or upgrading requirements that are required under the Franchise Agreement or the PIP. Franchisor agrees to follow its then current standard policies and procedures for evaluating prospective Fairfield Inn franchisees in assessing whether to approve a Foreclosure Buyer for purposes of this Paragraph 2.C. The amount of the application fee paid to Franchisor by any Foreclosure Buyer under this Paragraph 2.C shall be determined according to the following schedule: Number of Hotels Purchased by Foreclosure Buyer* Application Fee ------------------------------- --------------- All $5,000 More than 20 but less than all $6,000 4-20 $7,500 1-3 $10,000 (* Purchase must be in a single transaction or a series of related transactions, closing on all of which occurs within a period of no more than ninety (90) consecutive days; provided, however, that if closing on any one or more of such Hotels occurs outside such 90-day time period, the Foreclosure Buyer will be obligated to pay Franchisor the higher application fee only with respect to such Hotels, and not with respect to those that close within the requisite time period.) D. Notwithstanding anything to the contrary stated in this comfort letter: -3- LaSalle Bank, N.A. _______________, 2003 Page 4 (i) Neither Lender nor any Foreclosure Buyer shall be liable for any act or omission of Franchisee under the Franchise Agreement, including without limitation any failure by Franchisee to make any payments due to Franchisor under the Franchise Agreement; (ii) Neither Lender nor any Foreclosure Buyer shall be subject to any offsets, defenses or counterclaims accruing prior to the date or dates of foreclosure or delivery of a deed in lieu of foreclosure that Franchisor might have against Franchisee under the Franchise Agreement; (iii) Neither Lender nor any affiliate thereof shall in any event or at any time be personally liable for the payment or performance of the obligations required by or permitted of Franchisee under the Franchise Agreement; (iv) If as of the date Lender or any Foreclosure Buyer acquires title to the Hotel there remains to be performed any work required to be performed pursuant to the Property Improvement Addendum to the Franchise Agreement or any other upgrading of the Hotel that is required in accordance with the terms of the Franchise Agreement or any New Franchise Agreement, then, notwithstanding any other terms, covenants or conditions contained in the Franchise Agreement or in any New Franchise Agreement to the contrary, Lender or such Foreclosure Buyer shall have until October 1, 2004 to commence, and until April 1, 2005 to complete, the work required to be performed pursuant to the Property Improvement Addendum to the Franchise Agreement or any other upgrading of the Hotel that is required in accordance with the terms of the Franchise Agreement or any New Franchise Agreement. For purposes of this letter, commencement of work shall mean that Lender or Foreclosure Buyer has entered into a contract with a contractor relating to the physical renovation of the Hotel that requires contractor to begin work within the next 30 days and complete the work no later than April 1, 2005, and sets forth a realistic and reasonable project plan for achieving those results, and has ordered the necessary FF&E required for the renovation; (v) The definition of "Gross Room Revenues" in any New Franchise Agreement shall be amended as follows: (a) By the exclusion of any imputed charges for rooms made available on a complimentary basis; (b) By the exclusion of gratuities intended for employees of the Hotel; (c) By the exclusion of any interest income and the proceeds of sale of any furnishings, fixtures and equipment; and (d) By the exclusion of any revenue from telephones, televisions or vending machines; and 3. Receivership. If Lender has a receiver appointed for a Hotel during a foreclosure proceeding, Lender shall have the right to have the Hotel operated by a management company approved by Franchisor -4- LaSalle Bank, N.A. _______________, 2003 Page 5 pursuant to Paragraph 4 if, with respect to the Hotel: (i) Franchisor and Lender have reached agreement concerning the cure of any defaults under the Franchise Agreement for such Hotel, including any defaults under any other agreements with Franchisor and its affiliates relating to the Hotel and defaults related to the Property Improvement Addendum attached to the Franchise Agreement; (ii) Lender or the receiver enter into a franchise agreement on terms acceptable to Franchisor; and (iii) the receiver is specifically authorized by order of the court appointing such receiver to enter into a franchise agreement as described herein and such order further requires the Hotel to be operated in accordance with state, local and federal laws. If the receiver is the party contracting with Franchisor, Franchisor may condition its obligations under this Paragraph 3 on posting of a performance bond for the receiver's obligations to Franchisor, on terms and conditions acceptable to Franchisor, or on receipt of Lender's guaranty of such receiver's obligations under any agreement with Franchisor. 4. Substitute Manager. Lender's right to propose a substitute manager for a Hotel under this comfort letter shall be on the terms and conditions of this Paragraph 4. Upon Lender's request, Franchisor will provide Lender a list of management companies that Franchisor would approve for operation of the Hotel and, if possible, such list shall contain at least three (3) management companies. Franchisor reserves the right to approve only those management companies to operate the Hotel that, in Franchisor's sole judgment, are experienced and qualified in operating Fairfield Inn hotels and are otherwise able to adhere fully to the obligations and requirements of the Franchise Agreement. Notwithstanding anything to the contrary in this comfort letter, if the Hotel is operated by a management entity not approved by Franchisor, Franchisor shall have the right immediately upon notice and without further action to terminate the Franchise Agreement, this comfort letter and the Hotel's relationship with the Fairfield Inn system of hotels. Notwithstanding anything to the contrary contained in this comfort letter, Franchisor will not be obligated to manage the Hotel if in Franchisor's reasonable judgement such management would violate any contractual or other legal obligation of Franchisor or its affiliates. 5. Notification of Franchisor. Lender agrees to notify Franchisor not later than upon actually taking any action to: (i) commence foreclosure proceedings regarding a Hotel; (ii) petition for appointment of a receiver, obtain the entry of an order for relief or take any action under federal or state bankruptcy laws or similar laws with regard to a Hotel; (iii) accept a deed for a Hotel in lieu of foreclosure; or (iv) take ownership or possession of a Hotel in any manner. Lender shall notify Franchisor in writing of the commencement by another party of foreclosure proceedings or the filing of an action for the appointment of a receiver or petition for relief under state or federal bankruptcy laws within thirty (30) days after Lender receives notice of commencement of such proceedings. Franchisee agrees to notify Franchisor within ten (10) days after any termination or release of Lender's mortgage, security deed or interest in a Hotel. Lender's obligations under this Paragraph 5 shall survive termination of this comfort letter. 6. No Assignment of Franchise Agreement. Lender and Franchisee represent, warrant and covenant to Franchisor that Franchisee has not and will not collaterally assign, pledge, grant a security interest or otherwise transfer to Lender or its affiliates any interest in the Franchise Agreements without Franchisor's written consent and except as expressly provided below. Franchisee further represents, warrants and covenants to Franchisor that the granting of the Loan will not cause Franchisee to violate any financial covenants contained in the Franchise Agreements. If a Hotel is acquired by anyone other than Lender, neither Lender nor Franchisee shall have the right or authority to sell, convey, assign or in any manner transfer any rights hereunder or under the Franchise Agreements without the consent of Franchisor. Franchisor acknowledges that any rights in the Hotels that it may have pursuant to the Franchise -5- LaSalle Bank, N.A. _______________, 2003 Page 6 Agreements shall be subject and subordinate to the rights and interests of Lender; provided, however, that nothing in the previous clause shall be construed to relieve Franchisee of any of its obligations to operate the Hotel in a manner consistent with the requirements of the Franchise Agreement. Notwithstanding anything to the contrary stated in this comfort letter, Franchisor hereby consents to a grant of a security interest in and/or a collateral assignment of the Franchise Agreements to Lender, provided that Lender's rights with respect to this security interest are limited by and subject to the terms and conditions of this comfort letter. 7. Transition of Control of the Hotel. Lender, Franchisor and Franchisee shall cooperate so that any change in control of a Hotel pursuant to this comfort letter shall be conducted efficiently without inconvenience to the guests and employees of the Hotel and in accordance with applicable law, including, but not limited to, the WARN Act (29 U.S.C. ss.ss.2101et seq.) (1999). 8. No Claims. Franchisor may discuss with Lender the terms of the Franchise Agreements or any of the matters to which Lender is entitled to notice. If Lender exercises any rights pursuant to this comfort letter, Franchisee hereby releases Franchisor and its respective affiliates, agents, employees, officers, directors, successors, assigns and representatives of and from any and all actions, causes of action, suits, claims, demands, contingencies, debts, accounts and judgments whatsoever, at law or in equity, as a result of such exercise of rights. 9. Notices. All notices required under this comfort letter shall be in writing, sent by certified mail, return receipt requested, or by Federal Express or other national express delivery service and addressed, if to Lender, to the address stated above, with copies to: Pacific Life Insurance Company 700 Newport Center Drive Newport Beach, CA 92660-6397 Attention: Ms. Wendy Balden Clarion Partners, LLC 230 Park Avenue 12th Floor New York, New York 10169 Attn: Mr. Michael O'Brien and, if to Franchisor, to: Marriott International, Inc. 10400 Fernwood Road Department 52/923 Bethesda, Maryland 20817 Attention: Franchise Attorney Any notice sent pursuant to this comfort letter shall be deemed to be given three (3) days after mailing or on the day of delivery by hand. -6- LaSalle Bank, N.A. _______________, 2003 Page 7 10. No Representations or Warranties. In no event shall this comfort letter or any other circumstances surrounding the provision of financing by Lender be construed to involve: (i) any representation by Franchisor that it endorses, approves, recommends or otherwise concurs in the financing; (ii) any guarantee or assurance by Franchisor that Franchisee or any other party to the Loan will necessarily be in a financial position to repay the Loan in accordance with its terms; (iii) any endorsement, approval, recommendation or concurrence in any financial projections submitted to Lender in connection with the Loan; or (iv) any endorsement, approval or recommendation of Franchisee's character or reputation; it being understood as to all such matters that the decision of Lender to provide financing was made by Lender without intervention or support by Franchisor. 11. Substitute Comfort Letter. Upon receipt of a written request from Lender, Franchisor will issue a replacement comfort letter, identical to this comfort letter, to a wholly owned subsidiary of Lender, to the trustee of a trust established in connection with the securitization of the Loan, to a third-party loan servicing agent or to a successor mortgagee that is a financial institution in the business of routinely financing real estate transactions, in good financial condition, and is not a "Competitor," or an affiliate of a Competitor, as defined in the Franchise Agreements. Any such replacement comfort letter shall supersede this comfort letter. 12. Lender not Liable for Liquidated Damages. Franchisor specifically acknowledges and agrees that Lender shall not be liable for payment of any liquidated damages not paid by the Franchisee. 13. Possession of the Hotel. If Lender owns, controls or possesses a Hotel after termination of the Franchise Agreement for any reason, Lender shall (i) upon Franchisor's request immediately perform the requirements of Section XVIII of the Franchise Agreement with respect to de-identifying the Hotel as a Fairfield Inn hotel and (ii) indemnify, defend and hold harmless Franchisor and its affiliates from and against any loss, claim or other liability of any kind arising from or in connection with the operation of the Hotel as a Fairfield Inn hotel during such ownership, control or possession. Lender's obligations under this Paragraph 13 shall survive termination of this comfort letter. 14. Termination. This comfort letter shall terminate with respect to any Hotel and Lender shall have no rights hereunder if: (i) Lender has been taken over in any manner by any state or federal agency or is in a receivership, conservatorship, reorganization, or liquidation, or Lender or any of its officers or directors has entered into or is subject to a cease and desist order or any other formal or informal written agreement with a federal or state regulatory agency; (ii) Lender no longer holds a valid first mortgage or security deed with respect to such Hotel; (iii) the Franchise Agreement for such Hotel has expired or terminated, unless such occurrence is the result of the timely exercise of Lender's rights pursuant to Paragraphs 2, 3 or 4 of this comfort letter, in which such event this comfort letter shall terminate with respect to such Hotel upon the exercise or expiration of such rights, which in any event shall expire no more than one hundred twenty (120) days after the expiration or termination of such Franchise Agreement; or -7- LaSalle Bank, N.A. _______________, 2003 Page 8 (iv) Lender breaches this comfort letter. 15. Estoppel Statement and Letter. As of the date hereof, to the best of our knowledge, and except as specifically provided in this comfort letter: (i) Franchisor is the franchisor under the Franchise Agreement and the Franchise Agreement is in effect as to each Hotel; (ii) the Franchise Agreements (including the exhibits and addenda thereto and all documents executed contemporaneously therewith with respect to the Hotels) constitute the entire written agreement between Franchisee and Franchisor with respect to the operation of the Hotels under the Fairfield Inn trade name and the licensing of Franchisee to utilize such trade name in connection therewith; (iii) the Franchise Agreements are in full force and effect and have not been modified, amended or assigned except as stated in this comfort letter, including the Amendment to Certain Franchise Agreements, dated _______; (iv) Franchisor has not delivered or received any termination notice under the Franchise Agreements, and (v) Franchisee is current on all sums due and payable to Franchisor under the Franchise Agreements (the "Estoppel Statement"). Because the Estoppel Statement above only covers the status of the Franchise Agreements as of the date of this comfort letter, Lender shall not rely on its belief, whether or not correct, that Franchisor has not given any notice under this comfort letter when Lender is making any decision or representation or warranty in connection with any material modification, securitization, or sale of the Loan. In connection with any material modification, securitization, or sale of the Loan, Franchisor shall, at the written request of Lender, execute a written estoppel letter stating whether or not, as of that date, the following statements are correct to the best of Franchisor's knowledge (and indicating in reasonable detail, where applicable, the circumstances causing any of the statements not to be correct): (a) the Franchise Agreements are in full force and effect and have not been modified, amended or assigned, (b) neither Julie Repetti nor Liam Brown are aware of any default under any of the terms, covenants or provisions of the Franchise Agreements or of any event which, but for the passage of time or the giving of notice or both, would constitute an event of default under any of the Franchise Agreements, (c) Franchisor has not delivered or received any termination notice under the Franchise Agreements, and (d) Franchisee is current on all sums due and payable to Franchisor under the Franchise Agreements. 16. Effectiveness. This Comfort Letter supercedes and replaces the Comfort Letter by and among the same parties dated November 30, 2001. Franchisor shall have no obligations hereunder unless Lender and Franchisee have evidenced their agreement with the provisions hereinabove by the execution of a copy of this comfort letter and the delivery to Franchisor of such copy within twenty (20) days of the date hereof. 17. No Involuntary Bankruptcy Filings. Franchisor agrees not to file an involuntary petition in bankruptcy against Franchisee for non-payment to Franchisor of any amounts payable to Franchisor under the Franchise Agreement until the Loan has been paid in full and the period equal to the applicable preference period under the Federal Bankruptcy Code (Title 11 of the United States Code) plus ten (10) days following the date on which the Loan has been paid in full has passed. Very truly yours, MARRIOTT INTERNATIONAL, INC. -8- LaSalle Bank, N.A. _______________, 2003 Page 9 By: ---------------------------- Vice President -9- LaSalle Bank, N.A. _______________, 2003 Page 10 Accepted and agreed to as of this ___ day of October, 2003: FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership By: AP-Fairfield GP, LLC, a Delaware limited liability company, its general partner By: AP-Fairfield Manager Corp., a Delaware corporation, its manager By: --------------------------- Name: Title: Accepted and agreed to as of this ___ day of October, 2003: LASALLE BANK, N.A., a national banking association, not in its individual capacity, but solely as trustee By: Clarion Partners, LLC, as special servicer, its attorney-in-fact By: -------------------- Name: Title: cc: Noah J. Silverman, Esq. -10- SCHEDULE A TO COMFORT LETTER
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- CA Orange County Placentia 135 710 W. Kimberly Avenue Placentia, CA 92870 FL Gainesville Gainesville 135 6901 NW 4th Blvd Gainesville, FL 32607 FL Miami Airport-West 135 3959 NW 79th Avenue Miami, FL 33166 FL Orlando International Drive 135 8342 Jamaican Court Orlando, FL 32819 GA Atlanta Gwinnett Mall 135 3500 Venture Parkway Duluth, GA 30096 GA Atlanta Northwest-Delk Road 132 2191 Northwest Parkway Marietta, GA 30067 GA Savannah Savannah 135 2 Lee Blvd Savannah, GA 31405 IA Des Moines West-Clive 135 1600 NW 114th Street Clive, IA 50325 IL Bloomington Normal 132 202 Landmark Drive Normal, IL 61761 IL Peoria Peoria 135 4203 N. War Memorial Drive Peoria, IL 61615 IL Rockford Rockford 135 7712 Potawatomi Trail Rockford, IL 61107 IN Indianapolis Castleton 132 8325 Bash Road Indianapolis, IN 46250 IN Indianapolis College Park 132 9251 Wesleyan Road Indianapolis, IN 46268 MI Detroit Airport 133 31119 Flynn Drive Romulus, MI 48174 MI Detroit Auburn Hills 134 1294 Opdyke Road Auburn Hills, MI 48326 MI Detroit Madison Heights/Troy 134 32800 Stephendson Highway Madison Heights, MI 48071 MI Detroit West/Canton 133 5700 Haggerty Road Canton, MI 48187 MI Kalamazoo Kalamazoo East 133 3800 E. Cork Street Kalamazoo, MI 49001 MO St. Louis Hazelwood 135 9079 Dunn Road Hazelwood, MO 63042 NC Durham I-85 135 3710 Hillsborough Road Durham, NC 27705 NC Fayetteville Fayetteville 135 562 Cross Creek Mall Fayetteville, NC 28303 NC Greensboro Greensboro 135 2003 Athena Court Greensboro, NC 27407 NC Wilmington Wilmington 134 306 S. College Road Wilmington, NC 28403 OH Cleveland Airport-Brook Park 135 16644 Snow Road Brook Park, OH 44142 OH Dayton North/West 135 6960 Miller Lane Dayton, OH 45414 OH Toledo Holland/Airport 135 1401 E. Mall Drive Holland, OH 43528 SC Florence Florence 135 140 Dunbarton Drive Florence, SC 29501 SC Hilton Head Hilton Head 120 9 Marina Side Drive Hilton Head Island, SC 29928 TN Johnson City Johnson City 132 207 E. Mountcastle Drive Johnson City, TN 37601 VA Norfolk Hampton-Coliseum 134 1905 Coliseum Drive Hampton, VA 23666 VA Norfolk Virginia Beach-Euclid 134 4760 Euclid Road Virginia Beach, VA 23462 WI Madison East 135 4765 Hayes Road Madison, WI 53704 WI Milwaukee West 135 20150 W. Blue Mound Road Brookfield, WI 53045
EXHIBIT I AMENDMENT OF GROUND LEASES -------------------------- THIS AMENDMENT OF GROUND LEASES (this "Amendment") is entered into as of this ______ day of ____________, 2003, by and among FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership with its principal address at 100 Jericho Quadrangle - Ste. 214, Jericho, New York 11753 (the "Tenant"), and BIG BOY PROPERTIES, INC., a Delaware corporation, having its principal address at 10400 Fernwood Road, Bethesda, Maryland 20817 ("Landlord"). RECITALS A. Landlord is the landlord under the ground lease agreements identified on EXHIBIT A attached hereto, each as amended by a certain Subordination, Estoppel, Consent and Amendment of Ground Leases (the "Subordination Agreement") dated January 13, 1997 by and among Tenant, Landlord, and Marriott International, Inc. and Essex House Condominium Corporation (Landlord's predecessors-in-interest as to certain of the Ground Leases), and the November 30, 2001 Amendment (as defined below) (such ground lease agreements listed on EXHIBIT A, as so amended, and as amended by the November 30, 2001 Amendment, being hereinafter referred to each as a "Lease" and collectively as the "Leases", and the land that is subject to each Lease being hereinafter referred to as the "Leased Premises"). Each of the Leased Premises is improved with a hotel (each a "Hotel" and collectively, the "Hotels"). Prior to the date of this Amendment, each Hotel was managed by Fairfield FMC Corporation pursuant to a certain Management Agreement dated November 17, 1989, by and between Fairfield FMC Corporation and Tenant, as amended by a First Amendment to Management Agreement dated July 31, 1990 by and between Tenant and Fairfield FMC Corporation, as further amended by a Second Amendment to Management Agreement dated July 13, 1997 by and between Tenant and Fairfield FMC Corporation and by letter agreement dated April 28, 1999. B. On or about August 16, 2001, AP Fairfield GP, LLC acquired from Marriott FIBM One Corporation, the general partnership interest in Tenant (the "Partnership Interest Acquisition"). The Management Agreement was terminated pursuant to an Agreement for Termination of Management Agreement and Working Capital Maintenance Agreement dated November 30, 2001, by and between Fairfield FMC Corporation and Tenant. C. In connection with the Partnership Interest Acquisition and pursuant to the terms of an Omnibus Agreement dated November 30, 2001 by and among Landlord, Tenant, Marriott International, Inc., Fairfield FMC Corporation, and AP-Fairfield GP LLC, the parties hereto executed an Amendment of Ground Leases, amending certain terms of the Leases (the "November 30, 2001 Amendment"). D. Marriott International, Inc. and Tenant are parties to those certain Franchise Agreements dated as of November 30, 2001 (as amended from time to time, the "Franchise Agreements") regarding each of the Hotels. E. Marriott International, Inc., Big Boy Properties, Inc., Fairfield Inn by Marriott Limited Partnership, LaSalle Bank, N.A., Sage Management Resources III, LLC, and Winthrop Financial Associates, a Limited Partnership, are now entering into an Omnibus Agreement of even date herewith (the "Omnibus Agreement") in connection with certain agreements among the parties thereto. Pursuant to the terms of the Omnibus Agreement, Tenant and Landlord have agreed to execute and deliver this Amendment. NOW THEREFORE, in consideration of these premises, and for other good and valuable consideration, the receipt and sufficiency of which each of the parties acknowledges, the parties agree as follows: 1.01 GENERAL A representative form of one of the Leases is attached hereto as EXHIBIT B. The amendments herein sometimes refer to particular sections of EXHIBIT B. If the Section numbering in any Lease differs from the Section numbering in EXHIBIT B, the amendments herein shall be deemed to be amendments to the corresponding sections of such other Lease so that each Lease is amended in accordance with the substantive intent of the parties as reflected herein. From and after the date hereof, each of the Leases shall be deemed to be amended in the following respects. 2.01 CAPITALIZED TERMS Capitalized terms that are used herein shall have the meanings ascribed to them (a) where such capitalized terms are otherwise defined herein or (b) in the Leases. 3.01 TENANT OWNS IMPROVEMENTS; LANDLORD OWNER LEASED PREMISES The Tenant represents that the Improvements (as defined in the applicable Lease) are the sole property of the Tenant, subject only to the Landlord's reversionary interest in the Improvements, and the lien in favor of the Lender holding the first leasehold mortgage loan on the Improvements. The Landlord represents that it is the fee owner of the Leased Premises. 4.01 AMENDMENTS TO LEASES The following amendments shall be made to each Lease: (1) A new Section 3.07 is hereby added to each Lease to read as follows: 3.07 Obligation to Purchase Landlord's Interest Tenant shall have the absolute obligation to purchase Landlord's Interest under this Lease in accordance with the terms of Section 3.03 of this Lease (including the purchase price for Landlord's Interest established under Section 3.03(a)(2) of this Lease), on the date that the Franchise Agreement for the Hotel located on the Leased Premises is terminated, whether or not such termination is in connection with an assignment, transfer or sale of this Lease (including an assignment by operation of law, including the sale, transfer or assignment of any ownership interests in the Tenant) by Tenant. (2) Landlord hereby waives all Minimum Rental and Percentage Rental due under each Lease for the Rent Waiver Period (as defined below), not to exceed the Rent Waiver Cap (as defined below). The "Rent Waiver Period" shall mean, as to each Lease, the period commencing on the date of this Agreement and terminating on the earlier of (a) _____________, 2004 [one year from the date of this Agreement], or (b) as to an individual Lease, the date on which Tenant assigns, transfers or sells its interest in such Lease (including any assignment by operation of law, including a sale, transfer or -2- assignment of any ownership interest in the Tenant); provided that the Rent Waiver Period shall terminate and any and all Minimum Rental and Percentage Rental which was waived during the Rent Waiver Period pursuant to this Section 4.01 (2) shall become immediately due and payable, upon (i) the occurrence of an Event of Default under any Lease, as modified by this Agreement or (ii) the occurrence of an Event of Default (as defined therein) under the Omnibus Agreement or (iii) the occurrence of any default under any Franchise Agreement which continues past any applicable notice or cure period available to the Tenant, as franchisee, unless the Tenant, as franchisee, delivers to Landlord, as franchisor, written notice that it is immediately terminating such Franchise Agreement prior to the expiration of the applicable notice or cure period under such Franchise Agreement (which termination will require Tenant, as franchisee, to pay all applicable liquidated damages and perform all post-termination obligations under such Franchise Agreement). Landlord hereby agrees that the late charge payable on the Minimum Rental and Percentage Rental which was originally waived for the Rent Waiver Period pursuant to the terms of this Section 4.01(2), but which subsequently becomes payable by Tenant as provided above in this Section 2.01(2), shall be seven percent (7%) per annum, rather than fifteen percent (15%) per annum as provided in Section 4.06 of each Lease. The "Rent Waiver Cap" shall mean, as to all thirty (30) Hotels collectively, the amount of One Million Two Hundred Thousand Dollars ($1,200,000), which amount is allocated to each Hotel on a percentage basis as shown on EXHIBIT C, attached hereto. The Rent Waiver Cap shall be reduced upon the termination of any Lease by an amount equal to the unutilized portion of the Rent Waiver Cap allocated to the Hotel subject to such Lease. (3) From the date of this Agreement until the Deferral Termination Date (defined below), Landlord hereby agrees to defer the payment of (a) all Minimum Rental and Percentage Rental in excess of the Rent Waiver Cap due for the Rent Waiver Period, and (b) all Minimum Rental and Percentage Rental which is due for the period from the expiration of the Rent Waiver Period through the Deferral Termination Date. The "Deferral Termination Date" shall mean the earlier of (i) April 1, 2005, (ii) as to any individual Lease, the date on which the Tenant assigns, transfers or sells its interest in such Lease (including an assignment by operation of law, including a sale, transfer or assignment of any ownership interest in the Tenant), or (iii) the date of any Event of Default under any Lease, as modified by this Agreement, or under the Omnibus Agreement or any Franchise Agreement. On and after the Deferral Termination Date, all Minimum Rental and Percentage Rental which was deferred pursuant to this Section 4.01(3) shall become immediately due and payable by Tenant. (4) The following new Section 4.06 is hereby added to each Lease: 4.06 All Rental and other sums payable by Tenant under this Lease, accruing under this Lease and not paid when due, shall bear interest at the rate of fifteen percent (15%) per annum from the due date until paid. Additionally, any monthly or quarterly installment of Minimum Rental or Percentage Rental not paid within five (5) days of the due date shall be considered delinquent and subject to a late payment charge equal to five percent (5%) of the amount which is overdue and payable. This late payment charge shall be in addition to the interest provided for above and shall be due and payable with the payment of the arrearage. (5) The following Sections are hereby added to Section 10.01 of each Lease: -3- 10.01 (c) The failure of the Tenant to purchase Landlord's Interest in accordance with the terms of Section 3.07 hereof, without any grace, cure or notice period. 10.01(d) The filing of a voluntary petition in bankruptcy or insolvency or a petition for reorganization under any bankruptcy law by Tenant, or the admission by Tenant that it is unable to pay its debts as they become due. 10.01(e) The consent to an involuntary petition in bankruptcy or the failure to vacate, within ninety (90) days from the date of entry thereof, any order approving an involuntary petition by Tenant. 10.01(f) The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating either party as bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all or a substantial part of Tenant's assets, and such order, judgment or decree's continuing unstayed and in effect for an aggregate of sixty (60) days (whether or not consecutive). (6) The Landlord hereby waives all Subordinated Rental Obligations (as defined in the Subordination Agreement) of Tenant accrued for Fiscal Years 2002 and 2003. 5.01 LEASES OTHERWISE IN EFFECT Except as specifically amended hereby, each of the Leases is unmodified and is in full force and effect. 6.01 CONSTRUCTION No term or provision of any Lease or of this Amendment shall be construed more strictly against one party hereto or thereto than against any other party hereto or thereto. The parties hereto have been represented by competent counsel and all have participated in the negotiation and drafting hereof. 7.01 HEADINGS Headings of particular sections are inserted only for the convenience of the parties and are in no way to be construed as a part of this Amendment or as a limitation on the scope of the particular section to which they refer. 8.01 APPLICABLE LAW The laws of the state in which the Leased Premises are situated shall govern the validity, performance, and enforcement hereof. 9.01 COUNTERPARTS This Amendment may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. 10.01 FURTHER ASSURANCE The parties hereto agree, at the sole expense of the requesting party, to execute, acknowledge and deliver such further instruments and agreements reasonably required. -4- IN WITNESS WHEREOF, this Amendment of Ground Leases has been duly executed and delivered by the parties hereto as of the day and year first above written. -5- TENANT: FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership, BY: AP - FAIRFIELD GP LLC, A DELAWARE LIMITED LIABILITY COMPANY, ITS GENERAL PARTNER By: ______________________________ Its: ______________________________ LANDLORD: BIG BOY PROPERTIES, INC. By: ______________________________ Its: ______________________________ LASALLE BANK, N.A., AS TRUSTEE, SUCCESSOR-IN-INTEREST TO NOMURA ASSET CAPITAL CORPORATION, HEREBY CONSENTS TO THE TERMS OF THIS AMENDMENT. LASALLE BANK, N.A., a national banking association, not in its individual capacity but solely as Trustee By: Clarion Partners, LLC, as Special Servicer, its Attorney-in-Fact By:_____________________________ Name: Title: -6- STATE OF _____________ ) ) ss: COUNTY OF ___________ ) I, _____________________________, a notary public in and for said County, in said State, hereby certify that ___________________, whose name as ________________ of AP - Fairfield GP LLC, the General Partner of Fairfield Inn by Marriott Limited Partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day, that being informed of the contents of said instrument, he, as such officer, and with full authority, executed the same voluntarily for and as the act of said corporation, acting in its capacity as the sole general partner of said limited partnership as aforesaid. Given under my hand this the ______ day of _____________, 2003. - ------------------------------------ Notary Public STATE OF _____________ ) ) ss: COUNTY OF ___________ ) I, _____________________________, a notary public in and for said County, in said State, hereby certify that ______________________, whose name as ______________________ of Big Boy Properties, Inc., a Delaware corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day, that being informed of the contents of said instrument, he, as such officer, and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this the ______ day of _____________, 2003. - ------------------------------------ Notary Public -7- EXHIBITS -------- EXHIBIT A - Ground Lease Agreements EXHIBIT B - Sample Lease EXHIBIT C - Allocation of Rent Waiver Cap to each Hotel -8- EXHIBIT A --------- -9- EXHIBIT B --------- -10- EXHIBIT C --------- ALLOCATION OF RENT WAIVER CAP Hotel/Lease Percentage of Rent Waiver Cap Amount of Rent Waiver Cap - ----------- ----------------------------- ------------------------- ------% ------% -11- EXHIBIT J --------- AMENDMENT TO CERTAIN FRANCHISE AGREEMENTS ----------------------------------------- This Amendment (the "Amendment") to the Franchise Agreements identified in Attachment A hereto (individually, a "Franchise Agreement" and when referring to more than one, the "Franchise Agreements") is made and entered into as of the _____ day of ________, 2003, between Marriott International, Inc., a Delaware corporation ("Franchisor"), and Fairfield Inn by Marriott Limited Partnership, a Delaware limited partnership ("Franchisee"). WITNESSETH: WHEREAS, Franchisor and Franchisee are parties to those certain Franchise Agreements pursuant to which Franchisor has authorized Franchisee to operate the forty-six (46) hotels that are the subject of the Franchise Agreements identified on Attachment A hereto as Fairfield Inn hotels (individually, a "Hotel" and when referring to more than one, the "Hotels"); WHEREAS, Property Improvement Plans have been prepared for each Hotels and attached to each Hotel's Franchise Agreement (the "Existing PIPs"); WHEREAS, Franchisor and Franchisee are parties to that certain Agreement Regarding Right to Terminate Certain Franchise Agreement ("Franchise Termination Agreement"); WHEREAS, Franchisor and Franchisee have agreed that certain Hotels will leave the System no later than September 1, 2004, certain Hotels, regardless of whether they are sold, must remain in the System and that all Hotels must be renovated by no later than April 1, 2005 in order to remain in the System, on the terms and conditions stated in this Amendment; WHEREAS, thirty (30) of the Hotels are subject to an existing ground lease by and between Big Boy Properties, Inc. ("Landlord") and Franchisee for each such Hotel, as amended by that certain Amendment of Ground Leases dated as of November 30, 2001 (the "Ground Leases"); WHEREAS, among other parties, Franchisee and Franchisor have entered into that certain 2003 Omnibus Agreement, dated on a date contemporaneous herewith (the "2003 Omnibus Agreement"); and WHEREAS, Winthrop Financial Associates, A Limited Partnership, a Maryland limited partnership with a mailing address at 100 Jericho Quadrangle - Ste. 214, Jericho, NY 11753 ("Guarantor") has provided Franchisor an unconditional limited guarantee of Franchisee's obligations under the Franchise Agreements, the Ground Leases and the 2003 Omnibus Agreement. NOW, THEREFORE, the parties, in consideration of the premises and the undertakings and commitments of each party to the other party set forth herein and in the Franchise Agreements, agree as follows: 1. Section II.A of the Franchise Agreements for the Hotels identified in Attachment B hereto is hereby amended and restated in its entirety as follows: "Except as otherwise provided in this Agreement, including without limitation, Section 8 of the Amendment, the term of this franchise shall begin on the date first set forth above and expire September 1, 2004. This Agreement and the franchise granted by this Agreement is not renewable." 2. The last paragraph of Section VII.E of all Franchise Agreements is hereby amended and restated in its entirety as follows: "Notwithstanding anything to the contrary stated in the Agreement, for each Hotel in Attachment A to the Amendment, all funds currently in the Reserve, owed to the Reserve after June 1, 2003 but not yet paid, or to be paid to the Reserve in the future shall be deposited in one escrow reserve account that will hold all the funds that each Hotel is required to deposit in the Reserve (the "Master Reserve"). All funds currently in each Hotel's Reserve or owed to each Hotel's Reserve after June 1, 2003 but not yet paid must be deposited into the Master Reserve within twenty-four (24) hours after execution of this Amendment. All funds to be paid to each Hotel's Reserve in the future must be deposited in the Master Reserve no later than fifteen (15) days following the end of each Accounting Period. All funds deposited in the Master Reserve must be spent within one hundred and eighty (180) days of its being deposited in the Master Reserve to accomplish renovation, repair, replacements or other work required by the Existing PIPs, provided that in no event shall the Master Reserve be allowed to accumulate an amount in excess of the lesser of (x) the amount reasonably necessary to undertake the renovation, repair, replacements or other work required by an Existing PIP or (y) $2,000,000, in which event Franchisee must immediately spend such money to accomplish the renovation, repair, replacements or other work required by an Existing PIP or Existing PIPs in accordance with this section. Franchisee shall perform all renovation, repair, replacements or other work required by the Existing PIPs in the following order: (i) the Hotels identified in Attachment C attached hereto first, then (ii) upon such completion, the Hotels identified in Attachment D and then, (iii) upon such completion, the Hotels identified in Attachment B. All renovation, repair, replacements or other work required by the Existing PIPs for the Hotels identified in Attachment C attached hereto shall commence no later than two months after the date of execution of this Amendment. In the event the available funds in the Master Reserve are insufficient to complete all the renovation, repair, replacements or other work required by the Existing PIPs for the Hotels on Attachment C and those Hotels in Attachment D that as of October 1, 2004 are still subject to a Franchise Agreement, Franchisee will provide the necessary additional funds so that the work required by the Existing PIPs shall not be delayed and will remain on schedule to be completed by April 1, 2005. Franchisee agrees and acknowledges that the Hotels are in critical need of renovation and that the renovations set forth in the Existing PIPs must be performed in accordance with the time frames set forth in this Amendment for performing the Existing PIPs. Franchisee further agrees and acknowledges that its failure to perform the Existing PIPs in accordance with the time frames set forth in this Amendment for performing the Existing PIPs will cause Franchisor substantial damage and injury to the good will in Marriott's proprietary marks and brands. Franchisee shall deliver to Franchisor, or shall cause Manager to deliver to Franchisor, each month a written report that identifies in detail the capital expenditures that Franchisee has made with respect to the Hotels, regardless of whether the source of funds for such expenditures is the Master Reserve, and a Master Reserve analysis, which identifies each month's Master Reserve beginning and ending balance and a detailed description of each expenditure made with funds from the Master Reserve and each contribution to the Master Reserve in such month." 3. The following new Section XV.N is hereby added to Section XV of the Franchise Agreements for the Hotels identified in Attachment B attached hereto. "Notwithstanding anything to the contrary stated in this Agreement, Franchisee and Franchisor hereby agree that Franchisee may not Transfer this franchise, including any direct or indirect ownership interest in Franchisee, or this Agreement under any circumstances and that this Agreement will terminate immediately without any further action upon any sale of the Franchise Business or a substantial portion of the assets of the Franchise Business." 4. Section XV.C.3 of the Franchise Agreements for the Hotels identified in Attachments C and D is hereby amended and restated in its entirety as follows: -2- "3. the proposed transferee shall submit to Franchisor an application, in the form prescribed by Franchisor, for a new franchise agreement to replace this Agreement for its unexpired term, and shall pay to Franchisor a transfer fee (which fee shall be refunded, less Ten Thousand Dollars ($10,000) to cover Franchisor's cost of processing the application, in the event the application is disapproved) and Franchisor may charge its then current Property Improvement Plan ("PIP") fee (currently, Five Thousand Dollars ($5,000)) to cover Franchisor's costs associated with such PIP and consent review under this Paragraph XV.C. The amount of the transfer fee shall be equal to the amount of the application fee then being charged by Franchisor per room for System franchises for new development multiplied by the number of rooms in the Hotel or the minimum amount per hotel then being charged by Franchisor for System franchises for new development, whichever amount is greater. Prior to the submission of an application, so long as the PIP fee is paid, Franchisor will review the Hotel to determine the renovations necessary to bring the Hotel into good repair and to conform the Hotel to Franchisor's then current standards to transfer. Franchisor shall have no obligation to provide or review a proposed transferee's application or perform the PIP and consent review under this Paragraph XV.C unless and until it is paid the PIP fee, regardless of whether such delay shall negatively impact Franchisee or the proposed transferee. If Franchisor enters into a new franchise agreement with the transferee for this Hotel within six (6) months after the PIP and a full transfer fee has been paid to Franchisor in connection therewith, the PIP fee paid to Franchisor will be refunded or credited against other amounts due from the party that paid for the PIP to Franchisor. Franchisor reserves the right to reject an application for a Transfer if (i) Franchisor, in its Reasonable Business Judgment, deems the transferee's proposed debt service to be too great to permit the transferee to operate the Hotel successfully under the System or (ii) the proposed transferee or any of its affiliated entities (other than those holding interests as limited partners only) is a Competitor (as defined in Paragraph XV.D.). In all events, the transferee will be required to certify in writing that (a) Franchisor did not endorse, recommend, or otherwise concur with the terms of the Transfer, (b) Franchisor did not comment upon any financial projections submitted by Franchisee to the transferee, and (c) Franchisor did not participate in the decision of the price to be paid for the Hotel, which decision was made without any intervention, support or participation by Franchisor;" 5. The first paragraph of Section XVII.B of the Franchise Agreements for the Hotels identified in Attachments C and D is hereby amended and restated in its entirety as follows: "Franchisee shall be deemed to be in material default under this Agreement and Franchisor may, at its option, terminate this Agreement and all rights granted hereunder, upon the occurrence of any of the events in the immediately following subparagraphs (i) with respect to the following subparagraphs 1, 2, 3, 5, and 8 only, without affording Franchisee any opportunity to cure the default, effective immediately upon Franchisee's receipt of notice (or refusal of delivery), or (ii) with respect to the following subparagraphs 4, 6, 7 and 9 only, effective upon expiration of the cure period established by Franchisor in the notice to Franchisee if such default is then uncured."6. The following new Sections XVII.B.9 and XVII.B.10 are hereby added to Section XVII.B of the Franchise Agreements for the Hotels identified in Attachments C and D: "8. If all renovation, repair, replacement or other work required by the Existing PIPs for the Hotel has not been completed by April 1, 2005; 9. If substantially all renovation, repair, replacement or other work required by the Existing PIPs for the Hotel has not commenced as of October 1, 2004. For purposes of this Agreement, commencement of work on the Existing PIPs shall mean that Franchisee has entered into a contract with a contractor relating to the physical renovation of the Hotel that requires contractor to begin work within the next 30 days and complete the work no later than April 1, 2005, and sets forth a realistic and reasonable project plan for achieving those results, and has ordered the necessary FF&E required for the renovation." -3- 7. The following new Section XVII.E shall be added to the Franchise Agreements for the Hotels identified in Attachments C and D: "Franchisee shall be deemed to be in material default under this Agreement and Franchisor may, at its option, terminate this Agreement and all rights granted hereunder without affording Franchisee any opportunity to cure the default, effective immediately upon Franchisee's receipt of notice (or refusal of delivery), if Franchisee is in default of any other Franchise Agreement and such default remains uncured for the applicable notice or cure period set forth in such Franchise Agreement, or there is any Event of Default under any Ground Lease or the 2003 Omnibus Agreement (Event of Default under any Ground Lease and the 2003 Omnibus Agreement is defined to include the applicable tenant cure period)" 8. Section XVIII.E of all the Franchise Agreements is hereby amended by adding the following three sentences to the end of the section: "Notwithstanding the foregoing, Franchisee shall not be required to pay the foregoing liquidated damages if this Agreement is terminated prior to September 1, 2004. If such termination occurs between September 1, 2004 and November 30, 2004, Franchisee shall only be obligated to pay Franchisor liquidated damages in the amount of $25,000. If such termination occurs after November 30, 2004, Franchisee shall be obligated to pay the liquidated damages set forth above in this Section XVIII.E." 9. Franchisee hereby agrees and acknowledges that many of the Franchise Agreements for the Hotels identified in Attachment B attached hereto, as well as some of the other Franchise Agreements, are in default based on these Hotels' performance under Franchisor's Quality Assurance Program. In exchange for Franchisor's agreement not to exercise its right to terminate these Franchise Agreements immediately, which Franchisee acknowledges, Franchisee agrees that the Franchise Agreements for the Hotels identified in Attachment B will terminate without further action and the Hotels will voluntarily leave the System no later than September 1, 2004 with at least two (2) Hotels listed on Exhibit B leaving the System on or before April 1, 2004, and at least four (4) additional Hotels (for a total of six (6) Hotels) listed on Exhibit B leaving the System no later than July 1, 2004. Franchisee shall give Franchisor written notice no later than (i) March 1, 2004 identifying the two (2) Franchise Agreements that are to terminate no later than April 1, 2004 and (ii) June 1, 2004 identifying the four (4) Franchise Agreements that are to terminate no later than July 1, 2004. Accordingly, the parties agree that if Franchisee has not provided such notice identifying the two (2) Franchise Agreements governing the Hotels listed on Exhibit B that are to terminate no later than April 1, 2004 by March 1, 2004 and/or the four (4) additional Franchise Agreements governing the Hotels listed on Exhibit B that are to terminate on or before July 1, 2004 no later than June 1, 2004, then in such event Franchisor may designate the two (2) Franchise Agreements governing the Hotels listed on Exhibit B that will terminate on April 1, 2004 and/or the four (4) additional Franchise Agreements governing the Hotels listed on Exhibit B that will terminate on July 1, 2004 and such Franchise Agreements will terminate without further action by any party and such Hotels will leave the System as of that date. The liquidated damages, if any, otherwise due under the Franchise Agreement for such Hotel will be waived as part of Franchisee's execution of Marriott's standard form Termination Agreement to be executed by the parties upon such termination. Upon any such termination, Franchisee will perform all de-identification and all post-termination requirements and obligations under the applicable Franchise Agreement and Franchisor's normal procedures. 10. In the event of the filing of any voluntary or involuntary petition under the U.S. Bankruptcy Code by or against Franchisee (other than an involuntary petition filed by or joined in by Franchisor), the Franchisee shall not assert, or request any other party to assert, that the automatic stay under ss. 362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Franchisor to enforce any rights it has by virtue of any Franchise Agreement, or any other rights that Franchisor has, whether now or hereafter acquired, against Franchisee or Guarantor. -4- Further, Franchisee shall not seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to ss. 105 of the Bankruptcy Code or any other provision therein to stay, interdict, condition, reduce or inhibit the ability of Franchisor to enforce any rights it has by virtue of any Franchise Agreement against Franchisee or Guarantor. The waivers contained in this paragraph are a material inducement to Franchisor's willingness to enter into this Amendment and Franchisee acknowledges and agrees that no ground exists for equitable relief which would bar, delay or impede the exercise by Franchisor of Franchisor's rights and remedies against Franchisee or Guarantor. 11. The parties hereby agree that the Franchise Termination Agreement is terminated. 12. Capitalized terms not otherwise defined herein shall the same meaning as set out in the Franchise Agreements. 13. The matters set forth in this Amendment are strictly confidential and, except as otherwise required by law, the parties shall not disclose the terms hereof without the prior written consent of the other party. Notwithstanding the foregoing, Franchisee shall be permitted to disclose the terms of this Amendment to the management company that has been approved by Franchisor to operate the Hotel, provided that, in the event of such disclosure, Franchisee shall (i) advise the management company of the confidential nature of the information being provided and of the confidentiality requirements set forth herein and (ii) ensure that the management company agrees to be bound by such terms. 14. This Amendment (a) sets forth the entire agreement between the parties and fully supersedes any and all prior agreements and understandings (whether written or oral) between the parties and pertaining to the subject matter hereof, (b) is governed by, and interpreted and construed in accordance with, the laws of the State of Maryland (without regard to its conflicts of law principles), (c) shall be binding upon and shall inure to the benefit of the parties and their permitted successors and assigns, and (d) may be executed in counterparts, all of which taken together shall constitute one document. Items capitalized but not defined herein shall have the same meaning as set forth in the Agreement. 15. Except as specifically modified by this Amendment, the terms and conditions of the Agreement remain in full force and effect. {SIGNATURES ON NEXT PAGE} -5- IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to Franchise Agreement in duplicate as of the day and year first written above. FRANCHISOR ATTEST: MARRIOTT INTERNATIONAL, INC. By: (SEAL) - -------------------------------- -------------------------- Assistant Secretary Vice President FRANCHISEE FAIRFIELD BY MARRIOTT LIMITED PARTNERSHIP By: AP-Fairfield GP, LLC, a Delaware limited liability company, its general partner ATTEST: By: AP-Fairfield Manager Corp., a Delaware corporation, its manager By: (SEAL) - ----------------------------------- --------------------- Assistant Secretary Name: ------------------- Title: ------------------ -6- ATTACHMENT A
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- AL Birmingham Homewood 132 155 Vulcan Road Homewood, AL 35209 CA Orange County Buena Park 135 7032 Orangethorpe Avenue Buena Park, CA 90621 CA Orange County Placentia 135 710 W. Kimberly Avenue Placentia, CA 92870 FL Gainesville Gainesville 135 6901 NW 4th Blvd Gainesville, FL 32607 FL Miami Airport-West 135 3959 NW 79th Avenue Miami, FL 33166 FL Orlando International Drive 135 8342 Jamaican Court Orlando, FL 32819 FL Orlando South-Beeline Pkwy 133 1850 Landstreet Road Orlando, FL 32809 GA Atlanta Airport 132 2451 Old National Highway College Park, GA 30349 GA Atlanta Gwinnett Mall 135 3500 Venture Parkway Duluth, GA 30096 GA Atlanta Northlake 133 2155 Ranchwood Drive Atlanta, GA 30345 GA Atlanta Northwest-Delk Road 132 2191 Northwest Parkway Marietta, GA 30067 GA Atlanta Peachtree Corners 135 6650 Bay Circle Drive Norcross, GA 30071 GA Savannah Savannah 135 2 Lee Blvd Savannah, GA 31405 IA Des Moines West-Clive 135 1600 NW 114th Street Clive, IA 50325 IL Bloomington Normal 132 202 Landmark Drive Normal, IL 61761 IL Peoria Peoria 135 4203 N. War Memorial Drive Peoria, IL 61615 IL Rockford Rockford 135 7712 Potawatomi Trail Rockford, IL 61107 IN Indianapolis Castleton 132 8325 Bash Road Indianapolis, IN 46250 IN Indianapolis College Park 132 9251 Wesleyan Road Indianapolis, IN 46268 KS Kansas City Overland Park 134 4401 W. 107th Street Overland Park, KS 66207 KS Kansas City West-Merriam 135 6601 Frontage Road Merriam, KS 66202 MI Detroit Airport 133 31119 Flynn Drive Romulus, MI 48174 MI Detroit Auburn Hills 134 1294 Opdyke Road Auburn Hills, MI 48326 MI Detroit Madison Heights/Troy 134 32800 Stephendson Highway Madison Heights, MI 48071 MI Detroit Warren 131 7454 Convention Blvd Warren, MI 48092 MI Detroit West/Canton 133 5700 Haggerty Road Canton, MI 48187 MI Kalamazoo Kalamazoo East 133 3800 E. Cork Street Kalamazoo, MI 49001 MO St. Louis Hazelwood 135 9079 Dunn Road Hazelwood, MO 63042 NC Charlotte Northeast 133 5415 N. I-85 Service Road Charlotte, NC 28262 NC Durham I-85 135 3710 Hillsborough Road Durham, NC 27705 NC Fayetteville Fayetteville 135 562 Cross Creek Mall Fayetteville, NC 28303 NC Greensboro Greensboro 135 2003 Athena Court Greensboro, NC 27407 NC Raleigh Northeast 132 2641 Appliance Court Raleigh, NC 27604 NC Wilmington Wilmington 134 306 S. College Road Wilmington, NC 28403 OH Cleveland Airport-Brook Park 135 16644 Snow Road Brook Park, OH 44142 OH Columbus North 135 887 Morse Road Columbus, OH 43229 OH Dayton North/West 135 6960 Miller Lane Dayton, OH 45414 OH Toledo Holland/Airport 135 1401 E. Mall Drive Holland, OH 43528 SC Florence Florence 135 140 Dunbarton Drive Florence, SC 29501 SC Greenville Greenville 132 60 Roper Mountain Road Greenville, SC 29607 SC Hilton Head Hilton Head 120 9 Marina Side Drive Hilton Head Island, SC 29928 TN Johnson City Johnson City 132 207 E. Mountcastle Drive Johnson City, TN 37601 VA Norfolk Hampton-Coliseum 134 1905 Coliseum Drive Hampton, VA 23666 VA Norfolk Virginia Beach-Euclid 134 4760 Euclid Road Virginia Beach, VA 23462 WI Madison East 135 4765 Hayes Road Madison, WI 53704 WI Milwaukee West 135 20150 W. Blue Mound Road Brookfield, WI 53045
-7- ATTACHMENT B Hotels That Must Leave the System By September 1, 2004
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Orlando South-Beeline Pkwy 133 1850 Landstreet Road Orlando, FL 32809 AL Birmingham Homewood 132 155 Vulcan Road Homewood, AL 35209 GA Atlanta Airport 132 2451 Old National Highway College Park, GA 30349 MI Detroit Warren 131 7454 Convention Blvd Warren, MI 48092 NC Raleigh Northeast 132 2641 Appliance Court Raleigh, NC 27604 OH Columbus North 135 887 Morse Road Columbus, OH 43229 NC Charlotte Northeast 133 5415 N. I-85 Service Road Charlotte, NC 28262 KS Kansas City West-Merriam 135 6601 Frontage Road Merriam, KS 66202 KS Kansas City Overland Park 134 4401 W. 107th Street Overland Park, KS 66207 SC Greenville Greenville 132 60 Roper Mountain Road Greenville, SC 29607 GA Atlanta Peachtree Corners 135 6650 Bay Circle Drive Norcross, GA 30071 GA Atlanta Northlake 133 2155 Ranchwood Drivfe Atlanta, GA 30345
-8- ATTACHMENT C Hotels That Must Remain in the System
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Miami Airport-West 135 3959 NW 79th Avenue Miami, FL 33166 IL Peoria Peoria 135 4203 N. War Memorial Drive Peoria, IL 61615 IN Indianapolis College Park 132 9251 Wesleyan Road Indianapolis, IN 46268 SC Hilton Head Hilton Head 120 9 Marina Side Drive Hilton Head Island, SC 29928 CA Orange County Placentia 135 710 W. Kimberly Avenue Placentia, CA 92870 TN Johnson City Johnson City 132 207 E. Mountcastle Drive Johnson City, TN 37601 CA Orange County Buena Park 135 7032 Orangethorpe Avenue Buena Park, CA 90621
-9- ATTACHMENT D
ST CITY/METRO MARKET ROOMS STREET ADDRESS CITY AND SATE ZIP -- ---------- ------- ----- -------------- -------------- --- FL Gainesville Gainesville 135 6901 NW 4th Blvd Gainesville, FL 32607 FL Orlando International Drive 135 8342 Jamaican Court Orlando, FL 32819 GA Atlanta Gwinnett Mall 135 3500 Venture Parkway Duluth, GA 30096 GA Atlanta Northwest-Delk Road 132 2191 Northwest Parkway Marietta, GA 30067 GA Savannah Savannah 135 2 Lee Blvd Savannah, GA 31405 IA Des Moines West-Clive 135 1600 NW 114th Street Clive, IA 50325 IL Bloomington Normal 132 202 Landmark Drive Normal, IL 61761 IL Rockford Rockford 135 7712 Potawatomi Trail Rockford, IL 61107 IN Indianapolis Castleton 132 8325 Bash Road Indianapolis, IN 46250 MI Detroit Airport 133 31119 Flynn Drive Romulus, MI 48174 MI Detroit Auburn Hills 134 1294 Opdyke Road Auburn Hills, MI 48326 MI Detroit Madison Heights/Troy 134 32800 Stephendson Highway Madison Heights, MI 48071 MI Detroit West/Canton 133 5700 Haggerty Road Canton, MI 48187 MI Kalamazoo Kalamazoo East 133 3800 E. Cork Street Kalamazoo, MI 49001 MO St. Louis Hazelwood 135 9079 Dunn Road Hazelwood, MO 63042 NC Durham I-85 135 3710 Hillsborough Road Durham, NC 27705 NC Fayetteville Fayetteville 135 562 Cross Creek Mall Fayetteville, NC 28303 NC Greensboro Greensboro 135 2003 Athena Court Greensboro, NC 27407 NC Wilmington Wilmington 134 306 S. College Road Wilmington, NC 28403 OH Cleveland Airport-Brook Park 135 16644 Snow Road Brook Park, OH 44142 OH Dayton North/West 135 6960 Miller Lane Dayton, OH 45414 OH Toledo Holland/Airport 135 1401 E. Mall Drive Holland, OH 43528 SC Florence Florence 135 140 Dunbarton Drive Florence, SC 29501 VA Norfolk Hampton-Coliseum 134 1905 Coliseum Drive Hampton, VA 23666 VA Norfolk Virginia Beach-Euclid 134 4760 Euclid Road Virginia Beach, VA 23462 WI Madison East 135 4765 Hayes Road Madison, WI 53704 WI Milwaukee West 135 20150 W. Blue Mound Road Brookfield, WI 53045
-10- EX-10.5 4 file003.txt THIRD AMENDMENT TO LOAN AGREEMENT THIRD AMENDMENT TO LOAN AGREEMENT THIRD AMENDMENT, dated as of ____________, 2003 ("Third Amendment"), between Fairfield Inn by Marriott Limited Partnership, a Delaware limited partnership (the "Borrower"), and Clarion Partners, LLC, as Special Servicer (the "Special Servicer") on behalf of LaSalle Bank National Association, a national banking association, as Trustee, in respect of the Asset Securitization Corporation Commercial Mortgage Pass-Through Certificates Series 1997-MD VII Securitization (the "Lender") to that certain Loan Agreement, dated as of January 13, 1997 (the "Agreement"), between the Borrower and Nomura Asset Capital Corporation, as amended by that certain First Amendment to Loan Agreement ("First Amendment") and that Second Amendment to Loan Agreement ("Second Amendment"), between the Borrower and the Lender. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower entered into the Agreement, pursuant to which the Borrower borrowed the sum of One Hundred Sixty Five Million Four Hundred Thousand Dollars and 00/100 ($165,400,000.00) (the "Loan"); WHEREAS, a Securitization has occurred, as contemplated by the Agreement, and as a result, all right, title and interest of Nomura Asset Capital Corporation as lender under the Loan is currently held by Lender under that certain Pooling and Servicing Agreement dated as of March 27, 1997, as amended (the "Pooling and Servicing Agreement"); WHEREAS, the Special Servicer assumed the role of special servicer under the Pooling and Servicing Agreement pursuant to that certain Instrument of Assumption dated as of February 15, 2000 between the Servicer, as the removed special servicer, and the Special Servicer, as successor thereto, as acknowledged and accepted by the Trustee; WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, on October 30, 2000, the Loan became, and as of the date hereof, continues to be, a Specially Serviced Mortgage Loan under the Pooling and Servicing Agreement; WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Special Servicer is authorized and permitted to modify and restructure the Loan on behalf of the trust established by the Pooling and Servicing Agreement; WHEREAS, the Borrower and Lender desire to amend the Agreement in certain respects, as hereinafter provided; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower and the Lender agree as follows: ARTICLE I AMENDMENTS Section 1.1 Definitions Generally. Capitalized terms used and not otherwise defined herein shall have the meaning set forth in the Agreement, the First Amendment or the Second Amendment, as applicable. Section 1.2 Certain New Definitions. For all purposes of the Agreement and this Third Amendment, except as otherwise expressly provided or unless the context otherwise requires: (a) "2003 Amendment of Ground Leases" means that certain Amendment of Ground Leases, dated as of the date hereof, by and among the Borrower and Big Boy Properties, Inc., as the same may be amended from time to time in accordance with the terms hereof. (b) "2003 Amendment to Certain Franchise Agreements" means that certain Amendment to Certain Franchise Agreements, dated as of the date hereof, between Marriott International, Inc., as franchisor, and the Borrower, as franchisee, as the same may be amended from time to time in accordance with the terms hereof. (c) "2003 Franchise Comfort Letter" means that certain letter agreement, dated as of the date hereof, between Marriott International, Inc., as franchisor, and the Lender, as the same may be amended from time to time in accordance with the terms hereof. (d) "2003 Omnibus Agreement" means that certain Omnibus Agreement, dated as of the date hereof, by and among Marriott International, Inc., Big Boy Properties, Inc., Borrower, Lender, Sage Management Resources III, LLC and Winthrop Financial Associates, a limited partnership.. (e) "Liquidation Release Price" means the amount set forth on Exhibit A hereto that is allocated to each Liquidation Release Property in connection with a sale on or prior to April 1, 2005 of each Liquidation Release Property. Notwithstanding anything to the contrary contained herein, after April 1, 2005, the Liquidation Release Prices will no longer be in effect and Borrower shall not be permitted to sell any Liquidation Release Property without the prior written consent of the Lender. (f) "Liquidation Release Property" means any of the 46 Properties owned by Borrower as of the date hereof. Section 1.3 Amendments to Certain Definitions. 2 (a) The definition of the term "Property" or "Properties" contained in the Agreement is amended as of the date hereof by inserting the phrase "or Section 2.8 hereof" after the phrase "Section 2.7 of this Agreement." (b) The definition of the term "Release Price" contained in the Agreement is amended as of the date hereof by inserting the phrase "or Section 2.8 hereof" after the phrase "Section 2.7." (c) The definition of "Transaction Documents" contained in the Agreement is amended as of the date hereof by inserting the phrase "the Third Amendment and each other document executed in connection with the transactions contemplated by the Third Amendment (including but not limited to the 2003 Omnibus Agreement, the 2003 Amendment to Certain Franchise Agreements, the 2003 Franchise Comfort Letter and the 2003 Amendment of Ground Leases) (collectively, the "Third Amendment Documents")" after the phrase "the Omnibus Agreement." Section 1.4 Certain Other Amendments. (a) A new Section 2.8 is hereby inserted into the Agreement to provide as follows: Section 2.8 Liquidation Release Properties. Notwithstanding anything to the contrary contained in this Agreement, at any time prior to April 1, 2005, the Borrower may sell any of the Liquidation Release Properties to any Person (other than to the Borrower or its affiliates) and cause the release of such Liquidation Release Property from the Lien of the Security Documents upon the satisfaction of the following conditions: (a) delivery of notice not less than 20 days in advance to the Lender (or such earlier period of time as determined by the Lender, the Servicer or the Special Servicer) specifying the Debt Service Payment Date (or such other date as determined by either the Lender, the Servicer or the Special Servicer in its sole discretion) on which the amount set forth in clause (c) below is to be provided to the Servicer, which notice shall also be accompanied by an Officer's Certificate to the effect that other than the Events of Default currently existing as of the date hereof (the "Existing Defaults"), no default under any of the Third Amendment Documents and no new Potential Event of Default or new Event of Default has occurred and is continuing (or, in the case of a default under the Third Amendment Documents or new Potential Event of Default or new Event of Default that shall be cured or avoided by the release of the affected Property, describing the nature of same, and certifying that such default under the Third Amendment Documents or new Potential Event of Default or new Event of Default shall be cured by such release) and certifying that such Release will comply with all applicable requirements of this Section 2.8; provided, however, that either the Lender, the Servicer or the Special Service may waive any default under the Third Amendment Loan 3 Documents or new Potential Event of Default or new Event of Default in its sole discretion and permit the sale of the Property if such sale otherwise complies with the requirements of this Section 2.8; and provided, further, that any default resulting from Borrower not having sufficient cash flow to make any required payments under the Loan Documents shall not be considered a default under the Third Amendment Documents, a new Event of Default or new Potential Event of Default but any advances made by Lender, the Servicer or the Special Servicer in connection with such required payments shall be added to the Debt; (b) the payment to the Lender of interest accrued and unpaid on the principal balance of the Note and all other sums due under the Transaction Documents, through and including such payment date; (c) the payment to the Lender, to be applied to prepayment of the Principal Payments in inverse order of maturity, of an amount equal to the greater of (i) the Liquidation Release Price of such Liquidation Release Property, and (ii) the actual gross sales price of such Liquidation Release Property less any applicable amounts owed to MII or any landlord in connection with the sale of such Liquidation Release Property (the "Sales Price") less (A) customary and reasonable closing costs, including any applicable brokerage commission up to a maximum of 3.5% of the gross sales price, reasonable legal fees up to 1% of the sales price, customary title and search fees and applicable transfer taxes (collectively, the "Closing Costs"), (B) the liquidation fees due to Borrower in connection with each sale of a Liquidation Release Property as more fully set forth on Exhibit B hereto, and (C) all other costs and expenses incurred in connection with the release of such Liquidation Release Property from the Lien of the Security Documents (the "Net Liquidation Price"). Notwithstanding anything to the contrary contained herein, if (x) the Sales Price is less than the Liquidation Release Price, (y) a competitive bidding process is not used to sell such Liquidation Release Property, or (z) there is a sale of more than one Liquidation Release Property to the same purchaser or any of such purchaser's affilates in one or more related transactions, then in each of the foregoing instances, the Borrower shall not be permitted to sell a Liquidation Release Property without the prior written consent of either the Lender, the Servicer or the Special Servicer; and (d) delivery to the Lender for execution of forms of release of such Liquidation Release Property from the Lien of the Security Documents appropriate for the jurisdiction in which such Liquidation Release Property is located. (b) Section 3.1 of the Agreement is hereby amended as of the date hereof by inserting the phrase ", Section 2.8 hereof" after the phrase "Section 2.7 hereof." 4 (c) Section 3.4(c) of the Agreement is hereby amended as of the date hereof by inserting the phrase "or Section 2.8 hereof" after the phrase "Section 2.7." (d) Section 4.1A(e) of the Agreement is hereby amended as of the date hereof by inserting the phrase "or Section 2.8 hereof" after the phrase "or 2.7." (e) Section 5.3(h) of the Agreement is hereby amended as of the date hereof by inserting the phrase "or 2.8" after the phrase "or 2.7." ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Reaffirmation of Representations and Warranties. The Borrower hereby reaffirms, as of the date hereof, each and every representation and warranty made by it in the First Amendment and Second Amendment and represents and warrants that, except as set forth herein, each such representation and warranty is true and accurate in all material respects as of the date hereof. Section 2.2 Additional Representations and Warranties. The Borrower represents and warrants that as of the date hereof: (a) The Borrower has the requisite power and authority to execute and deliver this Third Amendment and to carry out the transactions contemplated hereby; (b) The execution, delivery and performance by the Borrower of this Third Amendment has been duly and validly authorized by all necessary actions and proceedings on the part of the General Partner and the Borrower, and no further approvals or filings of any kind, including, without limitation, any approval of or filing with any Governmental Authority, are required as a condition thereof; (c) Neither the execution and delivery of this Third Amendment, nor the fulfillment of or compliance with the terms and conditions hereof: (i) will conflict with or result in any breach or violation of any law, rule or regulation issued by any Governmental Authority, or any judgment or order applicable to the Borrower or the General Partner, or to which the Borrower or the General Partner or any of the Properties are subject; (ii) will conflict with or result in any breach or violation of, or constitute a default under, any of the provisions of the Amended and Restated Agreement of Limited Partnership of the Borrower as amended by that certain First Amendment, Second Amendment, Third Amendment and Fourth Amendment to the Amended and Restated Agreement of Limited Partnership relating thereto, the Certificate of Formation or the LLC Agreement of the General Partner, or any agreement or instrument to which the Borrower or the 5 General Partner is a party or to which the Borrower or the General Partner or any of the Properties is subject; or (iii) will result in or require the creation of any Lien on any of the Properties except Permitted Exceptions and Liens in favor of the Lender; (d) This Third Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law); (e) The Borrower (1) has not entered into this Third Amendment with the actual intent to hinder, delay, or defraud any creditor and (2) has received reasonably equivalent value in exchange for its obligations under this Third Amendment.; (f) There have been one or more Events of Default under the Loan Agreement and all principal and amounts accrued but unpaid under the Note and the Transaction Documents, together with the Yield Maintenance Premium, have been declared immediately due and payable; and (g) To the Best Knowledge of the Borrower, no representation or warranty by the Borrower made in this Third Amendment, and no schedule, exhibit, certificate, written statement, list, document or other material furnished or to be furnished to the Lender pursuant to or in connection with this Third Amendment or any of the transactions contemplated thereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Section 2.3 Performance of Covenants. The Borrower hereby represents and warrants to Lender that it has duly performed and observed the covenants and undertakings set forth in the Transaction Documents on its part to be performed, and covenants and undertakes to continue to duly perform and observe such covenants and undertakings so long as the Transaction Documents, as amended hereby, shall remain in effect. Section 2.4. Forebearance/Foreclosure. Subject to the terms and conditions set forth below, from the date hereof until April 1, 2005 (the "Forebearance Period"), Lender agrees to forebear from foreclosing on the Properties so long as (i) the Borrower is not in default under any of the Third Amendment Documents, (ii) there are no new Potential Events of Default or new Events of Default (other than the Existing Defaults); provided, however, that any default resulting from Borrower not having sufficient cash flow to make any required payments under the Loan Documents shall not be considered a default under the Third Amendment Documents, a new Event of Default or new Potential Event of Default but any advances made by Lender, the Servicer or the Special Servicer in connection with such required 6 payments shall be added to the Debt, (iii) the Borrower is diligently attempting to sell the Properties in accordance with the terms hereof and the other Transaction Documents; (iv) the Borrower has commenced the work required by the Existing PIPs (as such term is defined in that certain Amendment to Franchise Agreements, dated as of the date hereof, between the Borrower and Marriott International, Inc.) by no later than the date that is 60 days prior to commencement date required by Marriott under the Third Amendment Documents; (v) the Borrower shall have completed the work required by the Existing PIPs by no later than the date that is 60 days prior to completion date required by Marriott under the Third Amendment Documents; and (vi) the Borrower and Lender meet periodically (either by phone or in person), but in no event less often than once per calendar quarter, to discuss the order in which the PIPs should be performed and/or which Properties should no longer remain under the Marriott flag. In connection with this clause (vi), the Borrower shall (A) comply with any specific requests made by Lender as to the order of priority in which the PIPs are performed and (B) take all necessary action as soon as practicable to remove the Marriott flag and terminate the applicable Franchise Agreement with respect to any Property that Lender specifies should not remain under the Marriott flag. (a) . After the expiration of the Forebearance Period or in the event that any of the conditions set forth in clauses (i), (ii) (iii), (iv), (v) or (vi) above are not satisfied at any time, Lender may exercise any such foreclosure remedies. (b) In consideration for Lender's forbearance from foreclosing on the Properties during the Forebearance Period, the Borrower hereby (i) agrees to actively pursue the sale of the Properties in order to fully repay the Debt, (ii) agrees to provide Lender, the Servicer and the Special Servicer with monthly updates (or such other updates as are reasonably requested by Lender) as to the status and progress of its efforts with respect to the sale of the Properties, (iii) acknowledges that an Event of Default has occurred, that the Debt has been accelerated and that it is unconditionally obligated to pay the Debt, without any defense, setoff, or counterclaim of any kind or nature whatsoever, (iv) unconditionally and irrevocably releases Lender, the Servicer, the Special Servicer, and their respective predecessors, successors, assigns, affiliates and subsidiaries and each and all of their respective current and former officers, directors, managers, employees, trustees, agents, attorneys, representatives, advisors, shareholders and members from any and all claims of whatsoever kind or nature which it ever had arising out of, in connection with or in any way related to any of the Transaction Documents. (c) The Borrower hereby agrees that if, at the end of the Forbearance Period (or such earlier time in case of a breach of any of the provisions of Section 2.4(a)(i), (ii), (iii), (iv), (v) or (vi) above), if the Debt has not been repaid in full, Lender's agreement to forbear from foreclosing on the Properties shall terminate and Lender shall be entitled, without further notice or delay, to exercise its foreclosure remedies under the Transaction Documents. In this regard, the Borrower hereby (i) consents to the exercise of Lender's rights under the Transaction Documents to foreclose on the Properties and agrees that it will not raise any defense to any such 7 foreclosure and will not commence or join in any action or proceeding in law or in equity to prevent or interfere with any such foreclosure, and (ii) agrees to fully cooperate with Lender and take all such actions and execute all such documents as may be necessary or desirable in connection with any such foreclosure. (d) Notwithstanding anything to the contrary contained herein, Lender's forbearance to date and any forebearance in the future in no way constitutes a waiver by Lender of any of its rights under the Transaction Documents and Lender continues to expressly require strict compliance with the terms of the Transaction Documents in all respects. Lender hereby reserves all other rights and remedies it may have under the Loan Agreement and the other Transaction Documents, including the right to enforce any and all remedies available to Lender under the Loan Agreement and the other Transaction Documents. Section 2.5 Lender's Cure Rights. The Borrower hereby agrees that upon receipt of notice of any default under any Transaction Document from Marriott, any of its affiliates or any other third party, Lender shall have the right, but not the obligation, to cure such default on behalf of the Borrower during the cure period , if any, applicable to the Borrower. The Borrower hereby agrees to advise Lender as soon as practicable whether the Borrower intends to cure any such default, shall keep Lender apprised of all actions taken to cure such default and shall cooperate with Lender and take all actions reasonably requested by Lender if Lender chooses to cure such default on behalf of the Borrower. ARTICLE III MISCELLANEOUS Section 3.1 Broker. Neither the Borrower nor any Person acting on behalf of the Borrower has dealt with any broker or any other Person entitled to a fee or commission in connection with this Third Amendment and the Borrower agrees to indemnify and hold the Lender and any Person acting on behalf of the Lender harmless from and against any claims or commission, finder's fees and other payments, no matter how described, and against any and all costs and expenses including, without limitation, attorneys' fees relating to any such claim. Section 3.2 Index, Descriptive Headings. The descriptive headings of the several Sections and Articles of this Third Amendment are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Third Amendment. In the preparation of this Third Amendment indistinguishable contributions were made by representatives of both the Lender and the Borrower, and each of the Lender and the Borrower waives any and all rights, either at law or in equity, to have the provisions of this Third Amendment interpreted in favor of one over the other based on a claim that representatives of one or the other were the principal draftsmen thereof. Section 3.3 No Further Modifications. Except as modified herein, all of the terms and conditions of the Agreement, as modified by the First Amendment and the Second Amendment, shall remain in full force and effect and, as modified hereby, the 8 Lender and the Borrower confirm and ratify all of the terms, covenants and conditions of the Agreement in all respects. Section 3.4 Survival of Representations and Warranties; Reliance. All representations and warranties contained in this Third Amendment shall survive the execution and delivery of this Third Amendment and the making of the Loan and shall be considered to have been relied upon by the Lender regardless of any investigation made by or on behalf of it. Section 3.5 Enforceability. Any provision of this Third Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Borrower hereby waives any provisions of law which renders any provision hereof prohibited or unenforceable in any respect. Section 3.6 Benefit of Agreement. This Third Amendment shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. Except as expressly provided otherwise in this Third Amendment, any assignment shall not release the Borrower from any obligations or liabilities hereunder. The Lender's interests under the Transaction Documents shall be freely assignable and transferable. No party other than the parties hereto and their permitted assigns shall be deemed to have any benefits or obligations under this Third Amendment. Section 3.7 Governing Law. This Third Amendment shall be governed by the internal laws of the State of New York without regard to choice of law principles. Section 3.8 JURISDICTION AND SERVICE; WAIVER OF JURY TRIAL. EACH OF THE GENERAL PARTNER AND THE BORROWER HEREBY (I) IRREVOCABLY CONSENTS AND SUBMITS ITSELF AND ACKNOWLEDGES AND RECOGNIZES THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR PURPOSES OF ANY ACTION ARISING OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY TRANSACTION DOCUMENT, INCLUDING THIS THIRD AMENDMENT, OR THE SUBJECT MATTER HEREOF OR THEREOF, (II) AGREES THAT SUCH COURTS SHALL BE THE SOLE AND EXCLUSIVE COURTS AND FORUMS FOR THE PURPOSE OF ANY SUCH ACTION AND (III) WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, ANY CLAIM THAT SUCH COURTS DO NOT HAVE JURISDICTION OVER IT OR THAT SUCH ACTION IS BROUGHT IN AN INCONVENIENT FORUM; PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL LIMIT, IN ANY MANNER, THE RIGHT OF THE LENDER TO INSTITUTE OR TAKE ANY ACTION IN ANY COURT IN ANY JURISDICTION FOR THE PURPOSE OF PROTECTING, PRESERVING OR REALIZING UPON ANY COLLATERAL, IF ANY, SECURING THE DEBT OR 9 ENFORCING ANY JUDGMENT OBTAINED BY IT IN CONNECTION WITH ANY TRANSACTION DOCUMENT, INCLUDING THIS THIRD AMENDMENT, OR THE SUBJECT MATTER HEREOF OR THEREOF. EACH OF THE GENERAL PARTNER, THE BORROWER AND THE LENDER HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY TRANSACTION DOCUMENT, INCLUDING THIS THIRD AMENDMENT, OR THE SUBJECT MATTER HEREOF OR THEREOF, AND AGREES THAT PROCESS IN ANY SUCH ACTION, IN ADDITION TO ANY OTHER METHOD PERMITTED BY LAW, MAY BE SERVED UPON IT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO THE GENERAL PARTNER OR THE BORROWER OR THE LENDERAT THE ADDRESS DESIGNATED BY THE BORROWER AND THE LENDER IN SECTION 3.10 HEREOF, AND SUCH SERVICE SHALL BE DEEMED EFFECTIVE AS IF PERSONAL SERVICE HAD BEEN MADE UPON IT WITHIN NEW YORK COUNTY. Section 3.9 Conflicting Terms. In the event of any direct conflict between any provision of this Third Amendment and any provision of any other Transaction Document, this Third Amendment shall govern; provided, however, that (a) notwithstanding the foregoing, the remedies contained in the Mortgages and any other Transaction Document shall govern in the event of any direct conflict with any remedy contained in this Third Amendment, and (b) the parties intend that the terms and provisions of each of the Transaction Documents be given full effect, and, accordingly, the provisions of the other Transaction Documents, to the fullest extent possible, shall be construed to be additional and supplementary to, and not in conflict with or in derogation of, the provisions of this Third Amendment. Section 3.10 Notices. In accordance with Section 9.1 of the Agreement, the Lender and the Borrower each notify the other that notices given under the Agreement shall henceforth be given at the addresses set forth below: If to Lender: LaSalle Bank National Association, as Trustee 135 S. LaSalle Street, Suite 1625 Chicago, Illinois 60603-4159 Attention: Administrator for ASC Nomura 1997-MD VII With copies to: Pacific Life Insurance Company 700 Newport Center Drive Newport Beach, California 92660 Attention: Wendy Balden and: 10 Clarion Partners, LLC 230 Park Avenue, 12th Floor New York, New York 10169 Attention: Michael O'Brien If to Borrower: Fairfield Inn by Marriott Limited Partnership c/o Winthrop Financial Associates Suite 214 100 Jericho Quadrangle Jericho, New York 11753 Attention: Peter Braverman With copies to: Post & Heymann LLP 100 Jericho Quadrangle, Suite 214 Jericho, New York 11753 Attention: William Post, Esq. Section 3.11 Counterparts. This Third Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 3.12 Relationship of Parties. The relationship of the Borrower to the Lender is strictly and solely that of borrower and lender and mortgagor and mortgagee and nothing contained in any Transaction Document, including this Third Amendment, is intended to create, or shall in any event or under any circumstance be construed as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or other relationship of any nature whatsoever between the Borrower and the Lender other than as borrower and lender and mortgagor and mortgagee. The Borrower acknowledges that (a) Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of the Borrower or its Affiliates, (b) it is represented by competent counsel and has consulted counsel before executing this Third Amendment and (c) it shall rely solely on its own judgement and advisors in entering into the transactions contemplated hereby without relying in any manner on any statements, representations or recommendations of the Lender. [balance of page intentionally left blank] 11 IN WITNESS WHEREOF, this Third Amendment to Loan Agreement is executed as of the date first set forth above. LENDER: LASALLE BANK NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Trustee By: Clarion Partners LLC, as Special Servicer, its Attorney-in-Fact By: ------------------------- Name: Title: BORROWER: FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership By: AP-Fairfield GP, LLC, a Delaware limited liability company, its general partner By: AP-Fairfield Manager Corp., its manager By: ------------------------ Name: Title: 12 EXHIBIT A LIQUIDATION RELEASE PRICES - ------------------------------------------------------------------------ Liquidation Release Property Liquidation - ---------------------------- ----------- Release Price ------------- Atlanta Airport $2,000,000 Atlanta Gwinett $2,100,000 Atlanta Northlake $1,200,000 Atlanta Northwest $1,100,000 Atlanta Peachtree Corners $1,600,000 Birmingham-Homewood $1,400,000 Bloomington / Normal $2,900,000 Buena Park $1,000,000 Charlotte Northeast $650,000 Cleveland Airport $2,900,000 Columbus North $1,500,000 Dayton North $2,400,000 Des Moines $1,800,000 Detroit Metro Airport $3,800,000 Detroit / Auburn Hills $3,400,000 Detriot / Troy / Madison Heights $3,600,000 Detroit / Warren $2,100,000 Detroit / West Canton $3,500,000 Durham $2,600,000 Fayetteville $4,300,000 Florence $3,900,000 Gainesville $1,400,000 Greensboro $3,300,000 Greenville $2,200,000 Hampton $3,700,000 Hilton Head $2,800,000 Indianapoils / Castleton $2,100,000 Indianapolis / College Park $2,200,000 Johnson City $1,700,000 Kalamazoo $2,700,000 Kansas City / Merriam $2,200,000 Kansas City / Overland Park $3,400,000 Madison -Wisconsin $1,900,000 Miami West $1,900,000 13 Milwaukee / Brookfield $3,700,000 Orlando / I-Drive $3,700,000 Orlando South $1,400,000 Peoria $3,900,000 Placentia / Anaheim $5,100,000 Raleigh / Northeast $1,700,000 Rockford $2,300,000 Savannah $2,400,000 St. Louis / Hazelwood $2,200,000 Toledo / Holland Airport $3,400,000 Virginia Beach $4,900,000 Wilmington East $2,700,000 TOTALS $118,650,000 - ------------------------------------------------------------------------ 14 EXHIBIT B LIQUIDATION FEES TO BORROWER - ------------------------------------------------------------- Date Incentive Fee Base ---- ------------------ October 1, 2003 $118,650,000 November 1, 2003 $118,650,000 December 1, 2003 $118,650,000 January 1, 2004 $118,650,000 February 1, 2004 $118,650,000 March 1, 2004 $118,650,000 April 1, 2004 $118,650,000 May 1, 2004 $118,650,000 June 1, 2004 $118,650,000 July 1, 2004 $118,650,000 August 1, 2004 $118,650,000 September 1, 2004 $118,650,000 October 1, 2004 $119,243,250 November 1, 2004 $119,839,466 December 1, 2004 $120,438,664 January 1, 2005 $121,040,857 February 1, 2005 $121,646,061 March 1, 2005 $122,254,291 April 1, 2005 $122,967,442 - ------------------------------------------------------------- The Borrower shall be paid a base fee of $65,217 per Liquidation Release Property at the closing of each Liquidation Release Property sale. The cumulative base fee for all of the Liquidation Release Properties is $3,000,000. If the Liquidation Release Properties are sold by the dates set forth in the above table, the Borrower shall also be paid an incentive fee of 10% times the positive difference, if any, of the aggregate Net Liquidation Price received for all of the Liquidation Release Properties less the "Incentive Fee Base" set forth in the above table and as determined in accordance with Section 2.8(c); provided, however, that the Incentive Base Fee amounts shall be increased by all amounts advanced after the date hereof by the Lender under the Transaction Documents other than advances of principal and interest. For example, if the last Liquidation Release Property is sold after December 1, 2004 but prior to January 1, 2005, and the aggregate Net Liquidation Price received for all of Liquidation Release Properties is $122,000,000, then the incentive fee would be $95,914.30 [i.e., ($122,000,000 minus $121,040,857) * 10%]. 15 EX-31 5 file004.txt CERTIFICATIONS PURSUANT TO SECTION 302 EXHIBIT 31 - ---------- CERTIFICATIONS I, THOMAS C. STAPLES, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairfield Inn by Marriott Limited Partnership; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant is made known to us, particularly during the period in which this quarterly report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 19, 2003 /s/ Thomas Staples ----------------------------- Thomas C. Staples Chief Financial Officer CERTIFICATIONS I, MICHAEL L. ASHNER, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairfield Inn by Marriott Limited Partnership; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant is made known to us, particularly during the period in which this quarterly report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 19, 2003 /s/ Michael L. Ashner ---------------------- Michael L. Ashner Chief Executive Officer EX-32 6 file005.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32 ---------- FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP --------------------------------------------- FORM 10-Q SEPTEMBER 30, 2003 ---------------------------- CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Fairfield Inn by Marriott Limited Partnership, (the "Partnership"), on Form 10-Q for the quarterly period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: December 19, 2003 /s/ Michael L. Ashner ---------------------------------- Michael L. Ashner Chief Executive Officer Date: December 19, 2003 /s/ Thomas C. Staples ---------------------------------- Thomas C. Staples Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----