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