SCHEDULE 14A INFORMATION
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FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
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PRELIMINARY COPY
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FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
June __, 2001
To the Limited Partners of Fairfield Inn by Marriott Limited Partnership:
We are seeking your consent to certain amendments to the partnership
agreement to permit the implementation of a Restructuring Plan intended to
address the critical needs of the partnership. The amendments and Restructuring
Plan are discussed in detail in the attached consent solicitation statement,
which you are urged to read in its entirety and to act upon promptly. Your vote
is important.
As we previously reported to you, the Inns have experienced a substantial
decline in operating results over the past several years. Forecasts indicate
that the partnership's operating cash flow will be insufficient to cover debt
service obligations to the partnership's mortgage lender during 2001, as was the
case in 2000. In addition, the decline in operating results has led to a
projected shortfall of more than $15 million for capital improvements to the
Inns as required under the management agreement. The manager of the Inns has
notified us that it believes that failure to fund this shortfall would
constitute a default under the management agreement for the Inns, which in turn
could result in the loss of the partnership's right to operate some or all of
the Inns as part of the Fairfield Inn by Marriott brand.
We have developed a Restructuring Plan for the partnership that is intended
to address the partnership's continued decline in operating results and provide
up to $23 million of additional capital. The Restructuring Plan contemplates
the following:
. a new management group, which will include (1) a new general partner
for the partnership, the principals of which have extensive experience
in partnership, asset and property management, and (2) a new hotel
manager for the Inns with extensive experience in managing limited
service hotels similar to those owned by the partnership;
. the opportunity for all limited partners to participate in a new
unsecured loan of up to $23 million to the partnership and the
commitment of an affiliate of the new general partner to provide any
funds not supplied by limited partners;
. a new franchise agreement with Marriott International on terms which
include the ability to sell up to five Inns without payment by the
partnership of termination fees estimated at $2.5 million;
. a guarantee by the new general partner's affiliate of up to $25
million of the partnership's obligations under certain circumstances
to Marriott International under the new franchise agreement; and
. a ground lease amendment providing for the reduction of the ground
rent payable by the partnership, substantially more favorable terms
with respect to the partnership's right to purchase the land
underlying 32 Inns and cancellation of the partnership's obligation to
pay all unpaid deferred ground rent, which could be as much as $2.3
million by the end of 2001.
If the Restructuring Plan is approved and implemented, the partnership
intends to make a distribution to limited partners of a portion of the funds
currently being held as cash reserves by the partnership. Limited partners will
have the option of retaining the distribution or applying the
distribution towards their participation in the New Loan. It is currently
estimated by the general partner that the amount of the distribution will be
approximately $25 per partnership unit.
The substitution of the general partner and the New Loan each require the
approval of the limited partners. In addition, the substitution of the general
partner, the New Loan and various other aspects of the Restructuring Plan
require the approval or consent of the partnership's mortgage lender. In order
to implement the Restructuring Plan, we are seeking your approval in the
attached consent solicitation statement to the following amendments to the
partnership agreement:
1. an amendment to provide for our voluntary withdrawal as the general
partner of the partnership and the substitution of AP-Fairfield GP,
LLC as the new general partner of the partnership; and
2. an amendment to enable the partnership to obtain the New Loan, on
economic terms to be determined by the new general partner, from an
affiliate of the new general partner and from limited partners who
elect to participate.
You are being asked to vote on each amendment separately. Accordingly, you
may vote to approve the amendment authorizing the substitution of the general
partner without voting to approve the amendment authorizing the New Loan. The
New Loan, the retention of the new manager for the Inns and the financial
concessions and other benefits relating to Inn operations will not be available
or occur unless the limited partners approve both amendments. For the reasons
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described in the attached consent solicitation statement, we recommend that you
vote "YES" to both amendments by checking both "YES" boxes on the enclosed
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consent form. In making your decision, you should carefully review and consider
the information set forth under "Risk Factors and Possible Effects of the
Restructuring Plan" in the consent solicitation statement.
Your vote on these matters is very important. Abstentions or failure to
return the enclosed consent form will have the same effect as voting against the
amendments. Therefore, you are requested to complete, sign and return the
consent form in the enclosed pre-paid envelope at your earliest convenience and,
in any event, by the expiration date of the consent period which is 12:00
midnight, New York City time, on August __, 2001, or such later date and time as
we may set.
If you have any questions about the consent solicitation statement, please
call our information agent, MacKenzie Partners, Inc., at (800) 322-2885.
FIBM One LLC
General Partner
PRELIMINARY COPY
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FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
CONSENT SOLICITATION STATEMENT
You are receiving this consent solicitation statement as a holder of units
of limited partnership interest of Fairfield Inn by Marriott Limited
Partnership, a Delaware limited partnership. FIBM One LLC, the general partner
of the partnership, has developed the restructuring plan for the partnership
described in this consent solicitation statement (the "Restructuring Plan").
The Restructuring Plan is intended to address the critical needs of the
partnership by providing the partnership with (1) a new general partner and a
new manager for the Inns with extensive experience in hotel management, (2) up
to $23 million of additional capital and (3) financial concessions and other
benefits to the partnership under various agreements related to Inn operations.
In order to implement the Restructuring Plan, the general partner is soliciting
your consent to two amendments to the partnership agreement. The amendments,
which are more particularly described in this consent solicitation statement and
the full texts of which are attached as Exhibit A-1 and A-2, would:
1. provide for the voluntary withdrawal of FIBM One LLC as the general
partner of the partnership and the substitution of AP-Fairfield GP,
LLC as the new general partner of the partnership; and
2. enable the partnership to obtain a new loan of up to $23 million (the
"New Loan"), on economic terms to be determined by the new general
partner, from an affiliate of the new general partner and from limited
partners who elect to participate.
You are being asked to vote on each amendment separately. The New Loan,
the retention of the new manager for the Inns and the financial concessions and
other benefits relating to Inn operations will not be available or occur unless
the limited partners approve both amendments. For the reasons described in this
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consent solicitation statement, we recommend that you vote "YES" to both
amendments by checking both "YES" boxes on the enclosed consent form. In making
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your decision, you should carefully review and consider the information set
forth below under "Risk Factors and Possible Effects of the Restructuring Plan."
Only limited partners of record at the close of business on June 18, 2001
are entitled to notice of and to vote on the amendments. On the record date,
there were 83,337 units issued and outstanding, held of record by 2,720
limited partners. Approval of each amendment requires the affirmative vote of
limited partners holding a majority of the outstanding units.
This consent solicitation will expire at 12:00 midnight, New York City
time, on August ___, 2001, unless the general partner extends the period for
giving consents. You may revoke your consent at any time before the expiration
of the consent solicitation period.
Your vote is important. Failure to return the enclosed consent form will
have the same effect as a vote against the amendments. You are encouraged,
therefore, to review carefully this consent solicitation statement and to
complete, date, sign and mail your consent form in the enclosed postage-paid
envelope.
This consent solicitation statement is dated June __, 2001. The consent
solicitation statement and the related consent form is being mailed to limited
partners on or about June __, 2001.
TABLE OF CONTENTS
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FORWARD-LOOKING and other STATEMENTS........................................................... 1
BACKGROUND OF THE AMENDMENTS................................................................... 2
Overview.................................................................................... 2
Capital Shortfall........................................................................... 2
Potential Loss of Brand Affiliation......................................................... 2
Debt Service Shortfall; Downgrade of Debt Rating; Appointment of Special Servicer........... 3
RESTRUCTURING PLAN............................................................................. 4
Reorganization of Inn and Partnership Management............................................ 5
Substitution of General Partner........................................................ 5
Franchise Agreement.................................................................... 6
New Manager for the Inns............................................................... 7
New Loan.................................................................................... 8
Financial Concessions and Other Concessions Related to Restructuring Plan................... 9
Ground Lease Modifications............................................................. 9
Franchisor Concessions................................................................. 9
Possible Sale of Certain Inns............................................................... 9
RISK FACTORS AND POSSIBLE EFFECTS OF THE RESTRUCTURING PLAN.................................... 10
DESCRIPTION OF RELATED AGREEMENTS.............................................................. 15
General Partner Substitution Agreement...................................................... 15
Sale of Limited Partnership Interests....................................................... 16
THE AMENDMENTS AND GENERAL PARTNER RECOMMENDATION.............................................. 16
Amendment No. 1: Approval of Withdrawal and Substitution of General Partner................. 16
Amendment No. 2: Amendment to Permit New Loan.............................................. 17
General Partner Recommendation.............................................................. 18
VOTING RIGHTS AND INFORMATION.................................................................. 19
Record Date................................................................................. 19
Required Vote............................................................................... 19
Solicitation Period......................................................................... 19
Consents.................................................................................... 19
Effective Time of Amendments................................................................ 20
Cost of Solicitation........................................................................ 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 21
EXHIBIT A-1 FORM OF SUBSTITUTION AMENDMENT
EXHIBIT A-2 FORM OF FINANCING AMENDMENT
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QUESTIONS AND ANSWERS ABOUT THE REQUESTED CONSENTS
Why is the general partner soliciting consents?
The general partner is seeking your consent to certain amendments to the
partnership agreement to permit the implementation of a Restructuring Plan
intended to address the critical needs of the partnership. Among other things,
the Restructuring Plan contemplates a new general partner and a new manager for
the partnership's Inns as well as a new unsecured loan of up to $23 million to
the partnership, which is referred to as the "New Loan," in which all limited
partners will be entitled to participate and the commitment of an affiliate of
the proposed new general partner to provide any funds not supplied by the
limited partners. The substitution of the general partner and the New Loan each
require the approval of the limited partners. Certain aspects of the
Restructuring Plan also require the consent of the partnership's mortgage
lender. See "Restructuring Plan," pages 4 through 9.
What are the proposed amendments to the partnership agreement?
In order to implement the Restructuring Plan, the general partner is seeking
your approval to the following amendments to the partnership agreement:
(1) an amendment to provide for the substitution of AP-Fairfield GP, LLC
as the new general partner of the partnership, and
(2) an amendment to enable the partnership to obtain the New Loan, on
economic terms to be determined by the proposed new general partner,
from an affiliate of the new general partner and from limited
partners who elect to participate.
The proposed amendments are described in detail under the heading "The
Amendments and General Partner Recommendation," pages 16 through 18.
What are the benefits to the partnership and to me if the amendments are
approved?
If both of the amendments are approved and the consent of the partnership's
mortgage lender is obtained, the Restructuring Plan will be implemented in an
effort to address the partnership's continued decline in operating results and
provide up to $23 million of additional capital to the partnership. In addition
to the substitution of the general partner, a new manager with substantial
experience managing properties similar to the partnership's Inns, Sage
Management Resources III, LLC, will be retained and various financial
concessions will be implemented which are intended to reduce the overall costs
of Inn operations. There can be no assurance, however, that the implementation
of the actions contemplated by the Restructuring Plan will be successful in
reversing the decline in the partnership's operating results or, if successful,
will be sufficient to remedy the partnership's debt service and capital
expenditure shortfalls.
In addition, if the Restructuring Plan is implemented, the partnership intends
to make a distribution to limited partners of a portion of the funds currently
being held as cash reserves by the partnership. The distribution is intended to
give existing limited partners the benefit of a portion of the net unrestricted
cash of the partnership. The partnership expects to be able to make this
distribution upon consummating the Restructuring Plan because of the investment
of new capital into the partnership at that time. The partnership intends for
the distribution to equal approximately $25 per partnership unit. See
"Restructuring Plan," pages 4 through 9.
Notwithstanding any potential benefits of the Restructuring Plan for the
partnership, because of the financial condition of the partnership, the interest
rate and the other terms of the proposed New Loan are likely to be favorable to
the debt-holders. Accordingly, if the amendment permitting the New Loan is
approved and the New Loan is advanced, limited partners should not expect any
additional economic benefits in their capacity as limited partners other than
the distribution to be made in connection with the New Loan, unless the
partnership experiences an improvement in operating results in excess of what
the current general partner believes is likely to occur. See "Risk Factors And
Possible Effects Of Restructuring Plan," pages 10 through 14.
What is the tax impact to me if the amendments are approved?
If the amendments are approved, it is likely that, over time, depreciation
deductions (in a maximum aggregate amount equal to the principal amount of the
New Loan) and deductions attributable to accrued interest on the New Loan that
otherwise would have been allocable to all of the limited partners will be
allocated solely to holders of the New Loan.
If you do not participate in the New Loan, these allocations may initially
result in an increase in the amount of partnership taxable income allocated to
you. It is not possible to predict with certainty at this time when, or to what
extent, this increase in taxable income will occur. As the New Loan is repaid,
the holders of the New Loan will be allocated income and gain that will offset
the depreciation and accrued interest deductions allocated to them in previous
years as a result of the New Loan. Accordingly, the taxable income of the
partners who do not participate in the New Loan will decrease at that time as a
result of such allocations.
If the amendments are approved but the New Loan is not respected as indebtedness
of the partnership for federal income tax purposes, then limited partners who do
not participate in the New Loan could suffer adverse tax consequences.
In reaching your decision as to whether you will approve the amendments, you are
strongly urged to consult with your own tax advisors concerning the tax
consequences that would result to you if the Restructuring Plan is not approved.
See "Risk Factors And Possible Effects Of Restructuring Plan," pages 13 and 14.
What is the future for the partnership if the amendments are not approved?
If both of the amendments to the partnership agreement are not approved by
limited partners holding a majority of the outstanding units (excluding units
held by the general partner and its affiliates), the Restructuring Plan will not
be implemented. If the Restructuring Plan is not implemented, the general
partner will continue its efforts to develop alternative solutions to rectify
the decline in Inn operating results. There is a significant risk that the
general partner will be unable to develop alternative means of reversing the
partnership's deteriorating financial condition or access additional capital. In
that event, the partnership would ultimately be unable to meet its obligations
under its debt agreements and under its management agreement and the Inns may
lose their brand affiliation, in which case the partnership may ultimately lose
its ownership of the Inns. See "Risk Factors And Possible Effects Of
Restructuring Plan," pages 10 through 14.
What is the tax impact to me if the amendments are not approved?
The failure to implement the Restructuring Plan increases the likelihood of a
default under the partnership's mortgage loan. In the event the partnership were
to lose its ownership of the Inns as a result
of foreclosure or other action taken by the mortgage lender, such event would
constitute a taxable disposition of the Inns by the partnership and, under the
terms of the partnership's partnership agreement, would cause the partnership to
dissolve and wind up its affairs.
As a limited partner in the partnership, you would be allocated by the
partnership your share of the aggregate taxable income and gain resulting from
the disposition of the Inns and repayment of debt, although you would not
receive any cash from the partnership except in the very unlikely event that
proceeds from the disposition of the Inns exceeded the partnership's liabilities
at the time of the disposition. If your basis in your partnership interest is
less than your share of the partnership's basis in its assets, the amount of any
income or gain recognized by you would be increased by this difference.
If, at the time the partnership is dissolved, you have a tax basis in your
partnership interest that exceeds zero (taking into account the allocations to
you of income and gain resulting from the disposition of the Inns and repayment
of the debt), you would have a capital loss (assuming you held your interest as
a capital asset) that could be applied to offset allocations of capital gain by
the partnership to you during the taxable year.
In reaching your decision as to whether you will approve the amendments, you are
strongly urged to consult with your own tax advisors concerning tax consequences
that would result to you if the Restructuring Plan is approved. See "Risk
Factors And Possible Effects Of Restructuring Plan," pages 10 and 11.
Who is AP-Fairfield GP, LLC?
AP-Fairfield GP, the proposed new general partner, is a Delaware limited
liability company that is affiliated with Apollo Real Estate Advisors, L.P. and
Winthrop Financial Associates. Apollo Real Estate Advisors, L.P. is an
investment advisor that oversees in excess of $20 billion of investments in real
estate assets, joint ventures and operating companies. Winthrop Financial
Associates is a Boston-based full-service real estate firm that provides asset
management services, investor relation services and property management services
to over 350 limited partnerships that own commercial property and other assets
and also makes investments in real estate.
What are the terms of the New Loan?
As part of the Restructuring Plan, the new general partner will provide limited
partners the opportunity to participate in the New Loan. The New Loan will be
unsecured and subordinate to the partnership's existing mortgage loan and will
otherwise be on terms determined by the proposed new general partner and
acceptable to the partnership's mortgage lender. Limited partners will be
entitled to participate in the New Loan in proportion to their percentage
interests in the partnership, but will not have the right to subscribe for
amounts not subscribed for by other limited partners. If you participate in the
New Loan, you will be required to include in your taxable income interest on the
New Loan as it accrues, which interest will be taxable as ordinary income. Any
portion of the New Loan not provided by limited partners will be provided by an
affiliate of the new general partner. The new general partner has informed the
general partner that the economic terms of the New Loan have not been finally
determined and are, in part, contingent on approval of the partnership's
mortgage lender.
Who is entitled to vote on the proposed amendments to the partnership agreement?
You are entitled to vote on the proposed amendments to the partnership agreement
if you owned units on June 18, 2001 and have been admitted as a limited partner.
See "Voting Rights and Information--Record Date," page 19.
How do I consent to the proposed amendments?
If you wish to consent to the amendments, you should complete, sign, date and
return the consent form to the information agent in the enclosed envelope with
pre-paid postage. YOUR VOTE ON THESE MATTERS IS VERY IMPORTANT. Your failure to
return the enclosed consent form will have the same effect as a vote against the
amendments. See "Voting Rights and Information--Consents," page 19.
How long do I have to consent?
You may submit your signed consent form now. In order for your consent form to
be accepted, it must be received by the information agent no later than 12:00
midnight, New York City time, August ___, 2001, unless the general partner
extends the period for giving consents, in which case the new expiration date
will be the last date on which your consent form will be accepted. See "Voting
Rights and Information--Solicitation Period," page 19.
How will I be notified if the consent period is extended?
If the consent period is extended, the general partner will issue a press
release announcing the extension no later than 9:00 a.m., New York City time, on
the next business day after the day the consent period was scheduled to expire.
See "Voting Rights And Information--Solicitation Period," page 19.
How do I withdraw or change my consent?
You may withdraw or change your executed and returned consent form at any time
prior to the expiration of the solicitation period by delivering to the
information agent a signed and subsequently dated consent form or a written
notice stating that your consent is revoked. After the expiration of the
solicitation period, all consents previously executed and delivered and not
revoked will become irrevocable. See "Voting Rights and Information--Consents,"
page 19.
What happens if only one of the amendments is approved?
You are being asked to vote on each amendment separately. Accordingly, you may
vote to approve the amendment authorizing the substitution of the general
partner without voting to approve the amendment authorizing the New Loan.
However, the New Loan, the retention of the new manager for the Inns and the
financial concessions and other benefits of the Restructuring Plan relating to
Inn operations will not be available or occur, unless the limited partners
approve both amendments.
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What happens if I vote against the amendments, but the amendments nevertheless
receive the required limited partner approval?
Whether or not you vote against the amendments, if the amendments receive the
approval of limited partners holding a majority of the outstanding units
(excluding units held by the general partner and its affiliates), the amendments
will be adopted.
To whom may I speak if I have questions about the Restructuring Plan or the
consent solicitation?
The partnership has retained Mackenzie Partners, Inc. as the information agent
to answer your questions about the Restructuring Plan and regarding completion
of the consent form and to provide you with additional copies of this consent
solicitation, the consent form, and other related materials. The telephone
number of Mackenzie Partners is (800) 322-2885.
FORWARD-LOOKING AND OTHER STATEMENTS
This consent solicitation statement contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, that are subject to risks and uncertainties. Forward-looking
statements include information relating to the partnership's intent, belief or
current expectations, primarily, but not exclusively, with respect to:
. economic outlook
. capital needs and expenditures
. cost reductions
. cash flow
. operating performance
. financing activities
. possible inability to comply with debt agreements and maintain brand
standards or
. related industry developments, including trends affecting the
partnership's business, financial condition and results of operations.
Forward-looking statements in this consent solicitation statement are
identified by words or phrases such as "anticipate," "believe," "estimate,"
"expect," "intend," "may be," "objective," "plan," "predict," "project" and
"will be" and similar words or phrases (or the negative thereof). Actual events
or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, those
discussed elsewhere in this consent solicitation statement.
Information contained herein regarding the proposed new general partner,
its business, affiliates, beliefs and intentions is based solely upon
information provided by the proposed new general partner.
1
BACKGROUND OF THE AMENDMENTS
The following is a summary of significant operating and financial issues
facing the partnership which led to the development of the Restructuring Plan.
More information, including the most recent financial statements for the
partnership, is included in the Form 10 filed by the partnership with the
Securities Exchange Commission registering the partnership's units under the
Securities Exchange Act of 1934. A copy of the Form 10 was previously provided
to limited partners. Limited partners can obtain a copy of the Form 10 from the
general partner or from the SEC's website at www.sec.gov.
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Overview
The Inns have experienced a substantial decline in operating results over
the past several years and this decline has continued through the first quarter
of 2001. This decline in operating results is primarily due to increased
competition, an over-supply of limited service hotels in the markets where the
Inns operate, the deferral of capital improvements needed to make certain of the
Inns competitive in their marketplaces because of a lack of funds, and a
slowdown in the economy resulting in a softness in the lodging industry as a
whole. The deterioration in operating results has led to various related
problems for the partnership, which include: (1) debt service and capital
expenditure shortfalls and (2) the potential cancellation of the partnership's
management agreement and the ability to use the "Fairfield Inn by Marriott"
brand. The Restructuring Plan is designed to address these problems. There can
be no assurance, however, that the Restructuring Plan will reverse the decline
in operations, provide adequate capital to satisfy debt service and capital
expenditure shortfalls or avoid the loss of brand affiliation.
Capital Shortfall
In light of the age of the Inns, which range from 11 to 14 years, capital
expenditures are required over the next several years for the Inns (a) to remain
competitive with the significant number of newly-opened limited service hotels
in the markets in which the Inns operate and (b) to satisfy brand standards
required by the partnership's management agreement with Fairfield FMC
Corporation, which is a subsidiary of Marriott International. Substantial
capital expenditures are needed for room refurbishments and the replacement of
roofs, facades, carpets, wall vinyl and furniture for certain of the Inns.
Based upon information provided by the manager, the estimated capital
expenditure shortfall for the Inns by the end of 2001 is expected to be $15 to
$20 million. The amount of the shortfall will be dependent upon the actual
capital needs, the amount of funds contributed to the partnership's FF&E escrow
accounts and the amount of unrestricted cash available to the partnership.
Until a resolution is reached concerning the funding of this capital expenditure
shortfall, the partnership will defer discretionary expenditures for capital
improvements that cost more than the amount available in the partnership's
property improvement fund and the partnership's unrestricted cash reserves.
The Restructuring Plan would provide the additional funds for capital
improvements through the New Loan and, through the change in manager and other
financial concessions, may increase revenues and cash flow from operations, thus
providing additional funding for the capital expenditure shortfall.
Potential Loss of Brand Affiliation
The management agreement provides that the manager may terminate the
management agreement and the partnership's right to operate using the Fairfield
Inn by Marriott brand with respect to any Inns which it determines do not meet
brand standards due to insufficient capital improvements. The partnership
recently received a notice from the manager stating its belief that the
partnership's failure to fund its capital shortfall constitutes a default under
the management agreement, which would give the manager the right to terminate
the management agreement if the partnership does not cure the shortfall. The
partnership notified the manager that it disagrees with the determination that
there is a default under
2
the management agreement giving rise to a right of termination because the
manager did not send a notice of the alleged default within the required time
period. If the Restructuring Plan is not approved and these issues are not
satisfactorily resolved, however, the manager may have the right to terminate
the management agreement and the partnership's right to use the Fairfield Inn by
Marriott brand and the Marriott International reservation system as early as the
first quarter of 2002.
The general partner believes that the loss of brand affiliation with
respect to some or all of the Inns would likely significantly impair the
partnership's revenues and cash flow and, consequently, the aggregate value of
the Inns. Moreover, to the extent that the partnership is unable to meet its
debt service and other obligations, the impairment of revenues and cash flows
could lead to a default under the partnership's mortgage debt. The failure to
remedy a default under the mortgage debt could result in a foreclosure
proceeding by the mortgage lender which, if successful, could lead to the loss
of title to the Inns.
Debt Service Shortfall; Downgrade of Debt Rating; Appointment of Special
Servicer
The current manager of the Inns has provided forecasts which indicate that
the partnership's operating cash flow will be insufficient to cover the
partnership's debt service obligations to its mortgage lender during 2001, as
was the case in 2000. If the Restructuring Plan described below is not
implemented, the partnership will be forced to fund the debt service shortfall
from unrestricted partnership cash, amounts currently being held in various cash
reserve accounts and the deferral of a portion of the partnership's ground rent.
If operating results fail to improve, debt service shortfalls will continue and,
notwithstanding the ability to defer a portion of ground rent, reserve accounts
and available cash will be depleted.
If cash flows from operations continue to be less than scheduled debt
service and, as a result, the partnership's cash reserves are depleted, the
partnership may be forced to default under its mortgage loan. Failure to remedy
any loan default could result in a foreclosure proceeding by the mortgage lender
which, if successful, could lead to the loss of title to the Inns and the
elimination of the partners' economic interests in the Inns.
The partnership's mortgage lender securitized the partnership's mortgage
loan through the issuance and sale of commercial mortgage backed securities
backed by mortgages on a total of 71 properties. The Inns represent 50 of the
71 properties and approximately thirty-three percent of the principal amount of
the securities. As a result of the continued decline in the partnership's
operating performance, Fitch IBCA, a major credit rating agency, downgraded the
two lowest classes of the securities on September 2, 1999 and further downgraded
those two classes on May 23, 2000. While the downgrade of these securities has
no effect on the current terms of the partnership's mortgage loan, it impairs
the partnership's ability to obtain new financing from other sources.
In November 2000, the partnership's mortgage lender notified it that the
mortgage loan has been declared a "specially serviced mortgage loan" to be
managed by a special servicer appointed by the lender. In connection with the
Restructuring Plan, the general partner is currently in negotiations with the
special servicer to secure the mortgage lender's consent to the Restructuring
Plan. The partnership has agreed to pay the special servicer specified fees and
to reimburse the special servicer for expenses incurred in connection with its
review of the Restructuring Plan.
3
RESTRUCTURING PLAN
The Restructuring Plan involves the following elements, each of which is
described in greater detail below:
(1) Reorganization of Inn and Partnership Management
. substitution of a new general partner, the principals of which
have extensive experience in partnership, asset and property
management;
. substitution of a new manager for the Inns with extensive
experience in hotel management, particularly with respect to the
type of lodging facilities owned by the partnership; and
. as a result of the decision to change management of the Inns
while maintaining brand affiliation, the execution of a franchise
agreement with Marriott International that would permit the
partnership to continue to use the Fairfield Inn by Marriott
brand following the replacement of the current manager.
(2) New Loan
. up to $23 million of new unsecured financing to be used for
capital expenditures and to provide working capital;
. an opportunity for all limited partners to participate in the New
Loan to the partnership; and
. a commitment by an affiliate of the new general partner to
provide any funds not otherwise provided by the limited partners.
(3) Financial Concessions and Other Benefits Relating to the Restructuring
Plan
Ground Lease:
. a ground lease modification agreement providing for a reduction
of the ground rent payable by the partnership following the
implementation of the Restructuring Plan and substantially more
favorable terms under which the partnership may purchase the land
underlying 32 of the Inns.
. cancellation of the partnership's obligation to pay all deferred
ground rent accrued in 2000 and in 2001, currently estimated at
$2.3 million.
Franchise:
. the sale of up to five Inns without payment by the partnership of
termination fees estimated at $2.5 million;
. a royalty fee equal to 4% of gross room revenues, which is less
than the standard franchise fee; and
. credit enhancement, as required by the franchisor, from an
affiliate of the new general partner in the form of a guaranty of
up to $25 million ($10 million under
4
certain circumstances) of certain obligations of the partnership
under the franchise agreement.
Lender:
. the flexibility to sell a limited number of Inns and apply the
proceeds of any such sale to repayment of the existing mortgage
debt without satisfying the collateral substitution requirements
discussed below.
Pursuant to the General Partner Substitution Agreement dated as of April
16, 2001, as described under "Description of Related Agreements," AP-Fairfield
GP, LLC, the proposed new general partner, has agreed to use commercially
reasonable efforts to negotiate the new management agreement, the franchise
agreement and the ground lease modification agreement referred to above on the
terms described in this consent solicitation statement and to implement the New
Loan to the partnership if such agreements are finalized and all required
approvals are obtained. AP-Fairfield has informed the general partner that it
has reached agreements in principle on most of the principal terms of these
agreements. AP-Fairfield will enter into such agreements on behalf of the
partnership if (a) the limited partners approve the amendments to the
partnership agreement, (b) the Restructuring Plan is approved by the
partnership's mortgage lender and (c) satisfactory final terms are agreed upon.
There can be no assurance, however, that the new general partner will be
successful in finalizing these agreements or, if these agreements are finalized,
that they will contain substantially the same terms described in this consent
solicitation.
As of March 23, 2001, the partnership had approximately $5.6 million of
cash not held in lender or manager reserve accounts. If both amendments are
approved and the Restructuring Plan is implemented, thereby facilitating the
partnership's ability to obtain the New Loan, the partnership intends to make a
distribution to limited partners of approximately $25 per unit. The distribution
is intended to give existing limited partners the benefit of a portion of the
net unrestricted cash of the partnership. The partnership expects to be able to
make this distribution upon consummating the Restructuring Plan because of the
investment of new capital into the partnership at that time. The distribution
will be made concurrently with the offer to limited partners to participate in
the New Loan in proportion to their respective percentage interests in the
partnership. Limited partners will be given the option of retaining the
distribution or applying it towards their participation in the New Loan.
Reorganization of Inn and Partnership Management
Substitution of General Partner
The initial step of the Restructuring Plan is the withdrawal of the
existing general partner and substitution of a new general partner. If the
general partner substitution is approved by the limited partners and the
requisite lender approval is obtained, FIBM One LLC will voluntarily withdraw as
general partner of the partnership and AP-Fairfield GP will be substituted as
the new general partner of the partnership. The New Loan, the retention of the
new manager for the Inns and the financial concessions relating to Inn
operations contemplated by the Restructuring Plan are conditioned upon the
substitution of AP-Fairfield GP for the existing general partner. The
replacement of the general partner, however, is not dependent on approval by the
limited partners of the New Loan.
AP-Fairfield GP is a Delaware limited liability company that is affiliated
with Apollo Real Estate Advisors, L.P. and Winthrop Financial Associates.
Apollo is an investment advisor that oversees in excess of $20 billion of
investments in real estate assets, joint ventures and operating companies.
Winthrop Financial Associates is a Boston-based full-service real estate firm
that provides asset management services, investor relation services and property
management services to over 350 limited partnerships which own commercial
property and other assets and also makes investments in real estate.
5
The officers of the manager of AP-Fairfield are Michael L. Ashner, Chief
Executive Officer; Peter Braverman, Executive Vice President; Carolyn Tiffany,
Vice President and Treasurer; and Lara Sweeney, Vice President and Secretary.
The principal occupations and relevant affiliations of the officers of the
manager of AP-Fairfield are as follows:
Michael L. Ashner. Mr. Ashner serves as the Chief Executive Officer of
Winthrop Financial Associates and its affiliates, a position he has held since
January 15, 1996, as well as the Chief Executive Officer of The Newkirk Group.
Mr. Ashner is also President and a Director of Shelbourne Properties I, Inc.,
Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc., each of
which is a real estate investment trust whose shares were recently listed for
trading on the American Stock Exchange. From June 1994 until January 1996, Mr.
Ashner was a Director, President and Co-chairman of National Property Investors,
Inc., a real estate investment company. Mr. Ashner was also a Director and
executive officer of NPI Property Management Corporation from April 1984 until
January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter
Capital Corporation, a firm which has organized and administered real estate
limited partnerships. Mr. Ashner also currently serves on the Board of
Directors of the following publicly traded companies: Nexthealth Corp., a
provider of alternative health care services, Great Bay Hotel and Casino Inc., a
hotel and casino company, Burnham Pacific Properties, Inc., a real estate
investment trust, and NBTY Inc., a manufacturer, marketer and retailer of
nutritional supplements.
Peter Braverman. Mr. Braverman has served as the Executive Vice President
of Winthrop Financial Associates and its affiliates since January 1996. Mr.
Braverman is also a Vice President of Shelbourne Properties I, Inc., Shelbourne
Properties II, Inc. and Shelbourne Properties III, Inc. Mr. Braverman also
serves as the Executive Vice President of The Newkirk Group. From June 1995
until January 1996, Mr. Braverman was a Vice President of National Property
Investors, Inc. and NPI Property Management Corporation. From June 1991 until
March 1994, Mr. Braverman was President of the Braverman Group, a firm
specializing in management consulting for the real estate and construction
industries.
Carolyn Tiffany. Ms. Tiffany has been with Winthrop Financial Associates
since January 1993. Ms. Tiffany is also a Vice President of Shelbourne
Properties I, Inc., Shelbourne Properties II, Inc. and Shelbourne Properties
III, Inc. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and
Associate in Winthrop Financial Associates' accounting and asset management
departments. Ms. Tiffany was a Vice President in the asset management and
investor relations departments of Winthrop Financial Associates from October
1995 to December 1997, at which time she became the Chief Operating Officer of
Winthrop Financial Associates. In addition, Ms. Tiffany is the Chief Operating
Officer of The Newkirk Group.
Lara Sweeney. Ms. Sweeney has been a Senior Vice President of Winthrop
Financial Associates since 1996. Ms. Sweeney is also a Vice President and
Secretary of Shelbourne Properties I, Inc., Shelbourne Properties II, Inc. and
Shelbourne Properties III, Inc. Ms. Sweeney was Director of Investor Relations
for National Property Investors, Inc. from 1994 until 1996.
Franchise Agreement
As part of the Restructuring Plan, the new general partner intends to cause
the partnership to enter into a franchise agreement with Marriott International
which will permit the partnership to continue to use the Fairfield Inn by
Marriott brand following the termination of the existing management agreement
with Fairfield FMC Corporation.
6
The new general partner believes that the terms of the franchise agreement
with Marriott International contain the most favorable terms currently offered
by Marriott International to its franchisees. In addition, the total fees and
expenses payable by the partnership under the franchise agreement and the new
management agreement described below, exclusive of the incentive management fee
payable to the new manager, do not exceed the amount currently paid by the
partnership to Fairfield FMC Corporation under the existing management
agreement.
Under the franchise agreement, the partnership will pay the following fees
for each Inn:
(i) a $10,000 non-refundable application fee per Inn to cover
transaction expenses of Marriott International and property
improvement plan reviews for each Inn;
(ii) a royalty fee of 4% of gross room revenue, which is less than the
standard franchise fee;
(iii) a marketing fund contribution of 2.5% of gross room revenue;
(iv) a reservation system fee equal to 1% of gross room revenue, plus
$3.50 for each reservation confirmed and a communication support fee
of $379 per month for each Inn;
(v) a property management system fee equal to $323 per month for each
Inn plus an additional $30 per month for each Inn to access the
Marriott intranet site; and
(vi) training and software charges.
In addition, the partnership will be required to deposit seven percent of each
Inn's gross monthly revenues into an escrow account to be applied towards
capital improvements. The franchise agreement includes a fee payable by the
partnership to the franchisor if the franchise for a particular Inn is
terminated. To facilitate a potential sale, the termination fee is not payable
with respect to five specified Inns if the Inns are sold within 18 months of the
commencement date of the franchise agreement. The franchise agreement will have
a 10-year term. The partnership will have the option to renew the agreement for
two additional five-year periods subject to its successful maintenance of brand
standards.
As a condition for entering into franchise arrangements for the Inns,
Marriott International has required that the partnership obtain a guaranty from
a creditworthy party of the partnership's obligations to pay termination fees
and other amounts that may come due under the franchise agreement. An affiliate
of the new general partner has agreed to provide the guaranty. The guaranty
would cover the payment of certain termination fees payable by the partnership
under the franchise agreement, up to a maximum of $25 million, and a guaranty of
all other obligations of the partnership under the franchise agreement, subject
to a maximum of $10 million.
New Manager for the Inns
As part of the Restructuring Plan, the new general partner intends to
terminate the partnership's existing management agreement with Fairfield FMC
Corporation and retain Sage Hospitality Resources, LLC to manage the Inns. The
general partner believes that Sage has the expertise and managerial skills
required to address the operating performance and capital improvement issues
faced by the Inns. Sage is a privately held, nationally recognized hospitality
company not affiliated with the current or new general partner. Sage currently
manages 25 Fairfield Inn by Marriott hotels and 36 Marriott International brand
franchise hotels. Including its experience in the management of the Fairfield
Inn by Marriott brand, Sage:
. has managed over 225 hotels, many in turn-around situations;
7
. has significant experience as a work-out manager;
. manages 43 limited service hotels; and
. manages 36 Marriott International franchise hotels.
The new management agreement with Sage will provide that the Inns will be
operated as part of the Fairfield Inn by Marriott franchise system, and that
Sage will be generally responsible for the day to day operations of the Inns.
The management agreement will have a five-year term, subject to the
partnership's right to terminate the agreement under certain circumstances,
including cause, change in control of Sage or if certain performance levels are
not achieved by the fourth anniversary of the commencement date of the
management agreement. Sage will receive a base management fee equal to three
percent of the partnership's adjusted gross revenue, and an incentive management
fee generally equal to ten percent of the excess of "EBITDA" (earnings before
interest, taxes, depreciation and amortization of all the Inns during the
applicable fiscal year) over (i) $25,000,000 (during the first three years of
the term of the management agreement) and (ii) the greater of (a) $26,875,000 or
(b) 107.5% of the prior year's EBITDA (during the last two years of the term of
the management agreement).
New Loan
As part of the Restructuring Plan, the new general partner will provide
limited partners, including an affiliate of the new general partner that owns a
22% limited partner interest, the opportunity to participate in a New Loan of up
to $23 million to the partnership. The New Loan will be unsecured and
subordinate to the partnership's existing mortgage loan and will otherwise be on
terms determined by the new general partner and acceptable to the partnership's
mortgage lender. Limited partners will be entitled to participate in the New
Loan in proportion to their percentage interests in the partnership. Any
portion of New Loan not provided by limited partners will be provided by an
affiliate of the new general partner. The new general partner has informed the
general partner that the economic terms of the New Loan have not been finally
determined and are, in part, contingent on approval of the partnership's
mortgage lender. Nevertheless, the general partner expects that the overall
rate of return on the New Loan will be in excess of 20% per annum.
Consequently, it is unlikely that limited partners who do not participate in the
New Loan will receive any future distributions from the partnership after the
distribution expected to be made concurrently with the funding of the New Loan,
unless the partnership experiences an improvement in operating results
in excess of what the current general partner believes is likely to occur. See
"Risk Factors and Possible Effects of the Restructuring Plan."
The New Loan is intended to provide the partnership with the capital
necessary to:
. make necessary capital improvements to the Inns;
. fund the property improvement programs under the proposed franchise
agreement with Marriott International;
. furnish working capital to the partnership;
. fund prepayment shortfalls under the mortgage debt if Inns are sold
but proceeds from sale are insufficient to satisfy prepayment minimums
(prepayments will reduce the outstanding balance and the amount of
debt service if the mortgage lender approves); and
. stabilize the financial position of the partnership.
8
Financial Concessions and Other Concessions Related to Restructuring Plan
Ground Lease Modifications
Financial concessions continue to be negotiated in connection with the
ground lease arrangements relating to the Inns. As part of the Restructuring
Plan, the partnership's existing ground leases for the land on which 32 Inns are
located are expected to be modified to:
(i) reduce the annual ground rent for all of the Inns. While the ground
lessor has agreed in principle to a reduction in the ground rent to
$1.0 million per year for 24 months and thereafter to $3.0 million a
year, and to eliminate the requirement to pay a percentage rent
based on the gross revenues of the Inns, the new general partner is
seeking significantly more favorable ground rent reductions;
(ii) cancel the partnership's obligation to pay all deferred ground rent
accrued in 2000 and in 2001, which is currently estimated to be $2.3
million;
(iii) grant the partnership an option, exercisable at any time after 10
years, to purchase the land underlying any or all of the Inns at an
aggregate purchase price of $43,000,000, less the aggregate amount,
as of the time the option is exercised, of all quarterly option
payments of $187,500 that the partnership will be required to make
in accordance with the ground lease modifications;
(iv) grant the partnership the right to assign at any time the foregoing
option to purchase the land underlying any of the Inns; and
(v) grant the partnership the option to purchase during the first 18
months the land underlying five of six specified Inns for the
allocable portion of the $43,000,000 purchase price referred to
above reduced by an allocable portion of the option payments made
through the date of the acquisition.
The new general partner is continuing to negotiate with the ground lessor with
respect to the ground lease modification and there can be no assurance that the
new general partner will be successful in obtaining acceptable terms for the
ground lease modification, including the more favorable ground rent reductions
discussed above.
Franchisor Concessions
As described above, Marriott International made certain concessions in
connection with negotiating the terms of the franchise agreement for the Inns.
These included a lower than standard royalty fee and the right of the
partnership to sell a limited number of Inns without paying termination fees.
Under the franchise agreement described above, no termination fees are payable
by the partnership in connection with the sale of up to five Inns if the sales
occur within 18 months of the commencement of the franchise agreement.
Possible Sale of Certain Inns
The new general partner has identified eight Inns for potential sale and
may attempt to sell such Inns subject to approval of the amendments to the
partnership agreement by the limited partners and the approval of the mortgage
lender to the terms and conditions of sale. The new general partner does not
believe that funding the anticipated capital improvements to these Inns will
improve their performance sufficiently to justify such investment.
9
The partnership's current mortgage loan permits sales of Inns only if U.S.
government securities in specified amounts are substituted as collateral for the
benefit of the lender. The new general partner is attempting to obtain a waiver
of this provision in order to allow proceeds from the sale of the Inns to be
applied to reduce the outstanding balance on the mortgage loan which, if
approved and subsequently undertaken, will reduce debt service commensurately.
If such a waiver is obtained, the proceeds of sales may not be sufficient to
satisfy required prepayment minimums. In that event, the partnership may
supplement sales proceeds with proceeds from the New Loan in order to satisfy
the required prepayment minimums.
There can be no assurance that any waiver will be obtained from the lender
or, if obtained, that the partnership will have sufficient cash to fully fund
the required minimum prepayment amounts.
RISK FACTORS
AND
POSSIBLE EFFECTS OF THE RESTRUCTURING PLAN
Limited partners should consider the following risks in evaluating whether
to consent to the amendments, which are a prerequisite to implementing the
Restructuring Plan.
The failure to implement the Restructuring Plan increases the likelihood of
a default under the partnership's mortgage loan and its management agreement.
In order to permit the partnership to obtain the benefits of the Restructuring
Plan, both the consent of the limited partners to the amendments to the
partnership agreement and the consent of the mortgage lender to the
Restructuring Plan must be obtained. If for any reason the requisite consent is
not obtained, the general partner may fund anticipated partnership debt service
shortfalls using unrestricted partnership cash, amounts held in reserve accounts
and the deferral of ground rent. The partnership continues to experience a
decline in revenues and operating cash flow is insufficient to fund debt
service. In the first quarter of 2001, Inn revenues declined over $1.0 million,
or 6.6%, as compared to the first quarter of 2000. Under these circumstances,
the partnership will defer discretionary expenditures for capital improvements
that cost more than the amount available in the partnership's property
improvement fund and the partnership's unrestricted cash reserves.
The general partner will continue its efforts to develop alternative
solutions to rectify the decline in Inn operating results. As described in the
following section, there is a significant risk, however, that the general
partner will be unable to develop an alternative means of reversing the
partnership's deteriorating financial condition or access additional capital, in
which event the partnership would ultimately be unable to meet its obligations
under its debt agreements and under its management agreement and the Inns may
lose their brand affiliation, in which case the partnership may ultimately lose
its ownership of the Inns.
In the event the partnership were to lose its ownership of the Inns as a
result of foreclosure or other action taken by the mortgage lender, such event
would constitute a taxable disposition of the Inns by the partnership and, under
the terms of the partnership agreement, would cause the partnership to dissolve
and wind up its affairs. Each limited partner would be allocated by the
partnership his share of the aggregate taxable income and gain resulting from
the disposition of the Inns and repayment of debt, measured by the difference
between the amount realized by the partnership and the partnership's adjusted
tax bases in the Inns. The amount realized by the partnership would generally
equal the amount of liabilities encumbering the Inns or to which the Inns were
subject at the time of disposition. Although a limited partner would be
allocated taxable income or gain as a result of the disposition of the Inns,
such limited partner would not receive any cash from the partnership except in
the very unlikely event that proceeds from the disposition of the Inns exceeded
the partnership's liabilities at the time of the disposition. If a limited
partner's basis in his partnership interest is less than his or her share of the
partnership's basis in its assets, the amount of any income or gain recognized
by
10
the limited partner would be increased by this difference. If, at the time
the partnership is dissolved and its affairs wound up, a limited partner has a
tax basis in his partnership interest that exceeds zero (taking into account the
allocations to such partner of income and gain resulting from the disposition of
the Inns and repayment of the debt), the limited partner would have a capital
loss (assuming such limited partner held his partnership interest as a capital
asset) that could be applied to offset allocations of capital gain by the
partnership to the limited partner during the taxable year. There can be no
assurance that implementation of the Restructuring Plan would avoid the
consequences described herein.
There are various alternatives to the Restructuring Plan that could be
pursued but the General Partner believes that they either are not likely to be
successfully implemented or would not likely provide better prospects for future
returns to limited partners than the Restructuring Plan. Before deciding to
pursue the Restructuring Plan, the general partner sought to identify and
evaluate various alternatives that might be available to the partnership to
address its deteriorating financial condition, including, but not limited to:
(1) a sale of Inns or partnership interests, (2) a change in the brand under
which the Inns operate, and (3) a change of management while continuing to
operate under the Fairfield Inn by Marriott brand without additional capital
investment. As described in the following paragraphs, the general partner
believes either that the partnership would not likely be successful in
implementing these alternatives or that these alternatives would not likely
provide better prospects of future distributions to limited partners from the
partnership.
(1) Sale of Inns or Partnership Interests. In mid-1998, the
partnership engaged an investment banking firm to assist in selling the Inns or
finding a buyer for your limited partnership interests. At that time, the
partnership received only a few indications of interest, none of which was on
terms that would have resulted in proceeds to the limited partners. Based on
this prior experience, the significant decline in operating results and
deteriorating financial condition of the partnership and the need for
approximately $36 million in capital expenditures over the next two years to
maintain brand standards, the general partner does not believe that it is
currently feasible to sell the Inns for a price that would result in net
proceeds to the limited partners.
(2) Change of Brand Affiliation. The general partner has also
considered whether a change of brand might improve the operating results of the
Inns by reducing the capital expenditure requirements needed to maintain brand
standards. The general partner believes that maintaining the Fairfield Inn by
Marriott brand for the Inns is in the best interests of the partnership. The
general partner has considered various matters in this connection, including the
following:
. The Inns have been operated under the Fairfield Inn by Marriott brand
for 10 to 14 years and thus, the general partner believes, have the
benefit of brand and customer loyalty.
. The general partner believes that the Inns benefit from the Marriott
International affiliation, its reservation system and the "Marriott
Rewards" frequent traveler program, each of which would be lost if the
partnership were to switch brands, and that the inclusion of the Inns
within the nationwide Fairfield Inn by Marriott hotel system provides
advantages of name, recognition, centralized reservations and
advertising, system-wide marketing and promotion, centralized
purchasing and training and support services.
. If the partnership were to change brands, the general partner believes
it is unlikely that it would be able to obtain its first or second
alternate choice of a new brand for each of its Inns since most brands
are already represented in many of the markets in which the Inns are
located.
. While other brands may have lower capital expenditure requirements,
the general partner believes the revenues generated by operating under
another brand, particularly brands that are not a first or second
alternate choice, likely would not be sufficient to yield a net
increase in cash flow after capital expenditures to the partnership.
11
(3) Maintain Current Brand with New Manager Without Additional
Capital Investment Believing that retaining the Fairfield Inn by Marriott brand
affiliation is in the partnership's best interests, the general partner has
considered whether a change of Inn management might help to improve the
partnership's operating results. The general partner believes that Sage
Management Resources III, LLC has the expertise and managerial skills required
to address the operating performance and capital improvement issues faced by the
Inns. Sage currently manages 25 Fairfield Inn by Marriott hotels and 36 Marriott
International brand franchise hotels and has significant experience managing
hotels in work-out situations.
In order to retain Sage or any other third-party as the new manager for the
Inns and to continue to operate the Inns using the Fairfield Inn by Marriott
brand, the partnership must enter into a franchise arrangement with Marriott
International and obtain additional financing to meet the requirements for a
franchise agreement, which include making approximately $36 million of capital
expenditures necessary for the Inns to meet brand standards. In addition, as a
condition for a franchise agreement, Marriott International has stated that it
requires a guaranty of certain of the partnership's obligations under any
franchise agreement. In light of the deteriorating financial condition of the
partnership, the partnership does not have sufficient resources to make the
additional capital expenditures required for a franchise agreement or sufficient
credit capacity necessary to provide the guaranty required by Marriott
International. As a result, the partnership is pursuing the Restructuring Plan
to permit it to satisfy the requirements for a franchise agreement and enable it
to retain Sage as the new manager for the Inns.
(4) Other Alternatives The general partner has also considered
various other alternatives, including the feasibility of restructuring the
partnership's mortgage debt without bringing in a new financing source and
whether a reorganization under bankruptcy laws would be in the best interests of
partners. The general partner does not believe that any of these other
alternatives would satisfactorily address the partnership's need for additional
capital, which, in the general partner's opinion, is the principal issue facing
the partnership. Without additional capital, the general partner does not
believe that there is a reasonable prospect for a viable long-term
reorganization of the partnership's business.
On May 18, 2001, a limited partner of the partnership sent a
letter to the general partner expressing its interest in becoming the
replacement general partner. This limited partner indicated that it did not
contemplate investing additional capital into the partnership. The general
partner is precluded from discussing such a proposal pursuant to the terms of
the General Partner Substitution Agreement, dated as of April 16, 2001, to which
it is a party with AP-Fairfield GP and which is described under "Description of
Related Agreements."
If the Restructuring Plan is implemented, limited partners should not
expect to receive cash distributions in their capacity as limited partners other
than the distribution to be made in connection with the New Loan. As part of the
Restructuring Plan, an affiliate of the proposed new general partner together
with participating limited partners will provide a New Loan of up to $23 million
to the partnership. The new general partner has informed the general partner
that the terms of the New Loan have not been finalized. You should be aware,
however, that because of the financial condition of the partnership the interest
rate and the other terms of the New Loan are likely to be favorable to the debt-
holders. Accordingly, if the financing amendment is approved and the New Loan
advanced, limited partners should not expect any additional economic benefits in
their capacity as limited partners other than the distribution to be made in
connection with the New Loan, unless the partnership experiences an improvement
in operating results in excess of what the current general partner believes is
likely to occur.
Implementation of the Restructuring Plan may not reverse the partnership's
decline in operating results. The Restructuring Plan is intended to address the
partnership's continued decline in operating results which, among other things,
has resulted in debt service and capital expenditure shortfalls for the
partnership. There can be no assurance, however, that the implementation of the
actions contemplated by the Restructuring Plan will be successful in reversing
the decline in the partnership's operating results or,
12
if successful, will be sufficient to remedy the partnership's debt service and
capital expenditure shortfalls.
The partnership's operating results may be negatively affected by external
factors despite the implementation of the Restructuring Plan. Following
implementation of the Restructuring Plan, the partnership will continue to be
subject to a number of factors, many of which are beyond the partnership's
control, which may have a negative effect on the partnership's operating
results. These factors include:
. increased competition in the markets where the Inns are located;
. increases in operating costs at the Inns;
. seasonal variances in room occupancy rates;
. operational challenges encountered in the transition period during
which a new general partner and a new manager assume control of
partnership operations and hotel operations, respectively;
. national and local economic and business conditions;
. changes in laws or regulations applicable to the Inns; and
. future changes in valuation methodologies applied to hotel assets such
as those owned by the partnership.
In addition, future operating results could be affected by factors such as a
decision by Marriott International to increase brand standards which would
require additional capital expenditures by the partnership to the extent that
the partnership desires to maintain the Fairfield Inn by Marriott brand
affiliation. Accordingly, even if the Restructuring Plan is implemented as
contemplated in this consent solicitation statement, there can be no assurance
that the operating results of the partnership will improve.
The proposed New Loan may create conflicts of interest between the new
general partner and the limited partners of the partnership. If an affiliate of
the new general partner participates in the New Loan as contemplated by the
Restructuring Plan, certain decisions concerning the operations or financial
structure of the partnership may present conflicts of interest between the new
general partner and the limited partners of the partnership, other than in their
capacity as participants in the New Loan.
The interests of the existing general partner in the implementation of the
Restructuring Plan are different from the interests of the limited partners of
the partnership. If the general partner substitution is approved by the limited
partners and the requisite lender consent is obtained, FIBM One LLC will
voluntarily withdraw as general partner of the partnership and AP-Fairfield GP
will be substituted as the new general partner of the partnership. FIBM One LLC
will not receive any payment for its general partnership interest, nor will it
have liability with respect to the ongoing operations of the partnership and its
$1.4 million of capital will no longer be exposed to potential claims of
creditors of the partnership. In addition, in connection with the Restructuring
Plan, FIBM One LLC has sold its limited partnership interests in the partnership
to an affiliate of the new general partner and, following its withdrawal as
general partner, will no longer have any economic interest in the partnership.
The terms of the agreements needed to implement the Restructuring Plan have
not been finalized. Pursuant to the General Partner Substitution Agreement
dated as of April 16, 2001 as described under "Description of Related
Agreements," the general partner has obtained the agreement of AP-Fairfield GP,
the proposed new general partner, to use commercially reasonable efforts to
negotiate the agreements required to implement the Restructuring Plan. AP-
Fairfield GP has informed the general partner that it has reached agreements in
principle on most of the principal terms of these agreements. AP-Fairfield will
enter into such agreements on behalf of the partnership as the new general
partner if satisfactory final terms are agreed upon, the limited partners
approve the amendments to the partnership
13
agreement and the Restructuring Plan is approved by the partnership's mortgage
lender. There can be no assurance, however, that AP-Fairfield will be successful
in finalizing these agreements or, if these agreements are finalized, that they
will contain substantially all of the terms described in this consent
solicitation statement.
The age of the Inns owned by the partnership suggest that further capital
will be required in the future. Significant capital expenditures are currently
required in order for the Inns to remain competitive and to satisfy brand
standards required by the partnership's management agreement with Fairfield FMC
Corporation. The age and physical condition of the partnership's Inns, which
range from 11 to 14 years, make it likely that further and, perhaps, more
substantial capital expenditures will be required in the future. There can be
no assurance that the New Loan contemplated by the Restructuring Plan will be
sufficient to fund any future capital shortfalls that may arise and, given
current operating levels, there can be no assurances that cash from operations
in the future will be sufficient to fund these expenditures.
Lender consent may not be obtained. Even if the limited partners approve
the amendments, there can be no assurance that the general partner substitution
will occur or that the New Loan will be obtained because the consent of the
partnership's mortgage lender is required to implement various aspects of the
Restructuring Plan. Lender consent or approval must be obtained with regard to
the following:
(i) the substitution of a new general partner;
(ii) the appointment of Sage as manager;
(iii) the modification of the ground leases;
(iv) entering into the franchise agreement;
(v) obtaining the New Loan; and
(vi) the proposed application of Inn sale proceeds to repay existing
mortgage debt.
There can be no assurance that the lender will consent to or approve any of
the aspects of the Restructuring Plan as to which its consent, approval or
waiver is being sought.
The proposed New Loan may result in the allocation of additional taxable
income to the limited partners of the partnership who do not participate in the
New Loan. If the partnership obtains the New Loan as contemplated by the
Restructuring Plan and the New Loan is respected as a loan for federal income
tax purposes, it is likely that, over time, depreciation deductions (in a
maximum aggregate amount equal to the principal amount of the New Loan) and
deductions attributable to accrued interest on the New Loan that otherwise would
have been allocable to the limited partners will be allocated solely to the
holders of the New Loan (including those limited partners who participate in the
New Loan). Because operating income of the partnership will continue to be
allocated to the limited partners as provided under the partnership agreement,
the decrease in depreciation and accrued interest deductions allocable to those
limited partners who do not participate in the New Loan would cause a
commensurate increase in the taxable income of such limited partners. It is
impossible to predict with certainty when, or to what extent, this increase in
taxable income will occur. As the New Loan is repaid, the holders of the New
Loan will be allocated income and gain that will offset the depreciation and
accrued interest deductions allocated to them in previous years as a result of
the New Loan (and, accordingly, the taxable income of the partners who do not
participate in the New Loan will decrease at that time as a result of such
allocations).
The limited partners could suffer adverse consequences if the terms of the
Restructuring Plan were not respected for federal income tax purposes. If the
New Loan is not respected as indebtedness of the partnership for federal income
tax purposes, then limited partners who do not participate in the New Loan could
suffer adverse tax consequences. The nature and extent of any such adverse tax
consequences could depend to some extent upon the circumstances of the
individual limited partner. Whether the New Loan will be respected as
indebtedness for federal income tax purposes ultimately will depend on a number
of factors, including a finding that the partnership has retained the burdens
and benefits of ownership of the Inns. No legal opinion will be provided to the
partnership concerning this issue.
14
DESCRIPTION OF RELATED AGREEMENTS
In connection with the Restructuring Plan, the general partner entered into
certain agreements with the new general partner and its affiliates. The
principal agreements provided for the withdrawal and substitution of the general
partner and the sale of the general partner's limited partner interests, each of
which are described below.
General Partner Substitution Agreement
On April 16, 2001, the general partner and its affiliate, Host Marriott,
L.P., entered into an agreement with the new general partner and its affiliate,
Apollo Real Estate Advisors, L.P. The agreement provides for FIBM One LLC to
voluntarily withdraw, and for AP-Fairfield GP to be substituted, as the general
partner of the partnership, subject to receipt of the approval of the limited
partners and the lender and other customary closing conditions. The general
partner will not receive any payment for its general partnership interest. The
new general partner has agreed to use commercially reasonable efforts to
negotiate the new management agreement, the franchise agreement and the ground
lease modification agreement on the terms described in this consent solicitation
statement and to implement the New Loan if required approvals are obtained. The
general partner has agreed to cooperate with the new general partner in
connection with this consent solicitation.
The agreement prohibits the general partner, until the agreement
terminates, from, directly or indirectly soliciting, initiating, or encouraging
any inquiries or proposals from, discussing or negotiating with, providing any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any person (other than the new general partner) relating to
any transaction involving (i) the sale of the business or assets of the
partnership, (ii) any merger, consolidation, business combination, or similar
transaction involving the partnership, (iii) the sale, transfer or assignment of
the general partner interest in the partnership or (iv) the election or
substitution of anyone other than the new general partner as general partner of
the partnership. The foregoing restriction has not precluded the general
partner from complying with requests of a limited partner for information
regarding the partnership's business affairs to the extent required by the
partnership agreement and applicable law, which limited partner has indicated
its interest in becoming the replacement general partner of the partnership.
15
The agreement may be terminated by either party if, among other reasons,
limited partners do not approve the replacement of the general partner pursuant
to this consent solicitation.
In the event that the agreement is terminated by either party by reason of
the other party's material breach of its obligations, the defaulting party (that
is, the existing general partner and Host, on the one hand, or the new general
partner or Apollo, on the other hand, and in neither case the partnership) will
be required to pay a $500,000 termination fee to the non-defaulting party. The
failure of limited partners or the partnership's lender to provide necessary
approvals will not give rise to payment of a termination fee.
Sale of Limited Partnership Interests
Pursuant to an agreement with the general partner entered into on April 16,
2001, an affiliate of the new general partner purchased 8,379 units of limited
partnership interest from the general partner for $10,000. That affiliate has
agreed to transfer these units to a charitable organization if the limited
partners fail to approve the general partner substitution amendment or if the
new general partner is not substituted on a timely basis following the approval
of the limited partners and the mortgage lender. The affiliate of the new
general partner has advised the partnership that it will vote its limited
partner interests in favor of the proposed amendments.
THE AMENDMENTS AND GENERAL PARTNER RECOMMENDATION
Amendment No. 1: Approval of Withdrawal and Substitution of General Partner
The general partner submits for your consideration and approval the
proposed amendment to the partnership agreement to facilitate its voluntary
withdrawal and the substitution of AP-Fairfield GP as the sole general partner
of the partnership. The following summary is qualified in its entirety by
reference to the full text of the proposed general partner substitution
amendment, which is attached as Exhibit A-1 to this consent solicitation
statement, as well as to the text of the partnership agreement, as currently in
effect.
Section 5.02B(vii) of the partnership agreement requires that the general
partner must obtain the consent of the limited partners in order to voluntarily
withdraw as a general partner of the partnership. By consenting to the general
partner substitution amendment, you thereby consent to the voluntary withdrawal
of FIBM One LLC as a general partner of the partnership.
The general partner substitution amendment replaces all references in the
partnership agreement to "FIBM One LLC, a Delaware limited liability company"
with "AP-Fairfield GP, LLC, a Delaware limited liability company."
Section 5.03D of the partnership agreement requires the general partner to
use its reasonable best efforts to maintain at all times a net worth at an
amount equal to at least $8,417,878 in excess of its investment in the
partnership. To facilitate the substitution of AP- Fairfield as the new general
partner of the partnership, the general partner substitution amendment amends
Section 5.03D of the partnership agreement to provide that the general partner
of the partnership will be required to use its reasonable best efforts to
maintain at all times a net worth at an amount equal to at least $1,385,000
which represents the estimated amount of the current net worth of the
withdrawing general partner.
Section 6.01 of the partnership agreement currently provides that the
general partner must give at least 90 days' prior notice before withdrawing as
the general partner of the partnership. In addition, Section 6.03 of the
partnership agreement provides that the partnership has the right to purchase
the interest of a withdrawing general partner within 60 days following the
withdrawal at the "present fair market value" of such interest as determined by
agreement between the partnership and the withdrawing
16
general partner or, in the absence of such an agreement, as determined by
arbitration under the rules of the American Arbitration Association. By
consenting to the general partner substitution amendment, you agree to waive the
prior notice requirement of Section 6.01 of the partnership agreement and the
partnership's right to purchase the interest of the withdrawing general partner
under Section 6.03 of the partnership agreement. FIBM One LLC is waiving its
right to receive any payment from the partnership for its general partnership
interest.
Under the partnership agreement, approval of the general partner
substitution amendment requires the affirmative consent of limited partners
holding a majority of the issued and outstanding units of limited partnership
interest, excluding any units held by the general partner or any of its
affiliates. As of the record date for the determination of limited partners
entitled to notice of and to vote upon this amendment, neither the general
partner nor any of its affiliates owned any units.
Amendment No. 2: Amendment to Permit New Loan
The general partner submits for your consideration and approval the
proposed amendment to the partnership agreement to facilitate an unsecured debt
financing of up to $23 million for the partnership. The following summary is
qualified in its entirety by reference to the full text of the proposed
financing amendment, which is attached as Exhibit A-2 to this consent
solicitation statement, as well as to the text of the partnership agreement, as
currently in effect.
The financing amendment adds a new section to the partnership agreement
which provides that notwithstanding anything to the contrary that may be set
forth in the partnership agreement, an affiliate of the new general partner may
loan the partnership up to $23 million on terms to be determined by the new
general partner so long as the limited partners are offered the right to
participate in providing such financing in proportion to their respective
interests in the partnership.
Section 5.01E(vi) of the partnership agreement provides that (i) any
agreement, contract, or arrangement which relates to or secures any funds
advanced or loaned to the partnership by the general partner or any of its
affiliates must reflect commercially reasonable terms and (ii) any such loan or
advance must not be subject to any prepayment charge or penalty and must
otherwise be on terms and conditions that, in the reasonable judgment of the
general partner, are as favorable to the partnership as those the partnership
could obtain from unaffiliated third parties or banks for the same purpose in
the geographic location where the property securing such loan is located (in the
case of loans made in connection with a single property or several properties in
a single geographic location) or, in all other cases, where the general partner
has its principal place of business (without reference to the financial
abilities or guarantees of the general partner or any of its affiliates).
Section 5.06C of the partnership agreement provides, among other things,
that any advances made by the general partner to meet any liabilities or
obligations of the partnership shall (i) be deemed loans to the partnership by
the general partner and shall accrue interest per annum at one percentage point
in excess of the prime rate announced from time to time by The First National
Bank of Chicago (or the highest lawful rate under the laws of the State of
Delaware, whichever is less) payable in arrears on the first day of each fiscal
quarter of the partnership and (ii) be due and payable upon the fifth
anniversary of the date on which the advance was made. In addition, Section
5.06C of the partnership agreement provides that, upon the liquidation or
dissolution of the partnership or the distribution to the partners of any
proceeds from the sale of an Inn, all such advances shall be paid prior to
distributions to the partners out of any "cash available for distribution" to
the partners, except for distributions with respect to "partners' preferred
distributions" (i.e., an annual non-cumulative amount equal to 10% of the
average daily outstanding net invested capital of the partnership). Section
5.08(xvii) makes the provisions of Section 5.06C applicable to advances made by
affiliates of the general partner.
17
Section 5.08(xvi) of the partnership agreement provides that the
partnership shall not borrow any money from the general partner or any of its
affiliates, if the principal amount of the loan is scheduled to be paid over a
period of 48 months or longer or if not less than 50% of the principal amount of
the loan is scheduled to be paid during the first 24 months, subject to certain
exceptions made with respect to loans made to the partnership by the general
partner.
The effect of the financing amendment is to make the provisions of Sections
5.01E(vi), 5.06C and 5.08(xvi) (and any other provisions of the partnership
agreement that may directly or indirectly impede the ability of the partnership
to borrow from an affiliate of the new general partner) inapplicable to the New
Loan proposed by the partnership so long as limited partners are offered the
right to participate in the New Loan in proportion to their respective
percentage interests in the partnership and the affiliate of the new general
partner provides the amount not subscribed for by the limited partners.
Section 5.02B(vii) of the partnership agreement provides that, without the
consent of the limited partners, the general partner shall not have authority on
behalf of the partnership to permit or cause the partnership to incur any debt
in excess of $250,000 (other than certain permitted debt described therein) that
is otherwise permitted to be incurred pursuant to the terms of the partnership
agreement if such debt would not constitute in its entirety "qualified
nonrecourse financing" within the meaning of section 465(b)(6)(B) of the
Internal Revenue Code and the applicable Treasury Regulations and a "Nonrecourse
Liability" (as defined in the partnership agreement) unless the general partner,
in accordance with its fiduciary duties as a general partner and taking into
consideration both the reasonably foreseeable tax consequences to the limited
partners as a group and the alternatives that the general partner believes are
reasonably available to the partnership, determines that such action is not
detrimental to the best interests of the limited partners (and in making such
determination, the general partner may rely upon an opinion of independent
counsel as to the tax consequences to the limited partners as a group). If the
limited partners approve the amendment permitting the New Loan to the
partnership, it will not be necessary under the terms of the partnership
agreement for the general partner to make the determination described in Section
5.02B(vii). For a description of the potential material tax consequences to the
limited partners resulting from the Restructuring Plan, see "Risk Factors and
Possible Effects of the Restructuring Plan -- The failure to implement the
Restructuring Plan increases the likelihood of a default under the partnership's
mortgage loan and its management agreement," "-- The proposed New Loan may
result in the allocation of additional taxable income to the limited partners of
the partnership who do not participate in the New Loan" and "-- The limited
partners could suffer adverse consequences if the terms of the Restructuring
Plan were not respected for federal income tax purposes," above.
While the terms of the New Loan have not been finalized, limited partners
will have not less than 30 days notice with regard to the option to participate
in, and fund, the New Loan.
Under the partnership agreement, approval of the financing amendment
requires the affirmative consent of limited partners holding a majority of the
issued and outstanding units, excluding any units held by the general partner or
any of its affiliates. As of the record date for the determination of limited
partners entitled to notice of and to vote upon this amendment, neither the
general partner nor any of its affiliates owned any units.
General Partner Recommendation
For the reasons set forth elsewhere in this consent solicitation statement,
and because approval of both Amendments is necessary to realize the benefits of
the Restructuring Plan, the general partner recommends that you vote "YES" in
favor of both amendments.
The general partner encourages you to review the information contained in
this consent solicitation statement and make your own determination. In making
your decision, you should carefully review and consider the information set
forth under "Risk Factors and Possible Effects of the
18
Restructuring Plan" in the consent solicitation statement. In particular, you
should consider both the possible consequences of approving the Restructuring
Plan and of failing to approve the Restructuring Plan, including the discussion
of the alternatives to the Restructuring Plan described in that section. You
also should take into account the differing interests of the general partner in
connection with implementation of the Restructuring Plan, which are discussed in
that section.
VOTING RIGHTS AND INFORMATION
Record Date
The general partner has set the close of business on June 18, 2001 as the
record date for the determination of limited partners entitled to notice of and
to vote upon the amendments. Only limited partners of record as of the record
date will be entitled to vote upon the amendments. On the record date, there
were 83,337 units issued and outstanding, held of record by 2,720 limited
partners. The partnership has no other class of securities.
Required Vote
Under the terms of the partnership agreement, approval of each amendment
requires the affirmative consent of limited partners holding a majority of the
issued and outstanding units, excluding units held by the general partner and
its affiliates. As of the record date, neither the general partner nor any of
its affiliates owned any units. Abstention or failure to return the enclosed
consent form will have the same effect as a vote against the amendments. Each
limited partner who has been admitted to the partnership is entitled to cast one
vote for each unit held of record on each of the amendments. Holders of half-
units are entitled to cast half a vote for each half-unit held of record.
Each of the amendments will be considered and voted on separately by
limited partners. You may vote "YES" or "NO" or abstain on either of the two
amendments.
Solicitation Period
The solicitation period is the time during which limited partners may vote
for or against the amendments. The solicitation period will commence upon
delivery of this consent solicitation statement and the consent form and will
continue until August __, 2001. The general partner may, in its sole
discretion, elect to extend the solicitation period.
Consents
A consent form is included with this consent solicitation statement. All
consent forms that are properly executed and returned to the partnership's
information agent, MacKenzie Partners, Inc., prior to the expiration of the
solicitation period will be voted in accordance with the instructions contained
therein. All properly executed consent forms that contain no voting
instructions will be deemed to have voted in favor of each of the amendments.
Consent forms will be effective only when actually received by the partnership's
information agent. Consent forms may be withdrawn at any time prior to the
expiration of the solicitation period. In addition, following the submission of
a consent form, but before the expiration of the solicitation period, limited
partners may change their vote. For a withdrawal or change of vote to be
effective, you must execute and deliver, prior to the expiration of the
solicitation period, a subsequently dated consent form or a written notice
stating that the consent is revoked to MacKenzie Partners, Inc., 156 Fifth
Avenue, New York, New York 10010. Consent forms and notices of withdrawal or
change of vote dated after the expiration of the solicitation period will not be
valid. If you
19
have any questions about (i) how to complete the consent form, (ii) where to
send the consent form and (iii) how to obtain additional consent forms, please
contact MacKenzie Partners, Inc. at (800) 322-2885.
Effective Time of Amendments
If approved by the limited partners, an amendment will become effective
when the withdrawing general partner and the new general partner, as the case
may be, execute and deliver the amendment in the form attached to this consent
solicitation statement. Assuming an amendment is approved, the withdrawing
general partner and the new general partner will execute and deliver the
amendment as soon as practicable following the expiration date of the
solicitation period and receipt of lender consent. If for any reason the
substitution amendment is not approved by the limited partners, then neither of
the proposed amendments will be adopted.
Each amendment will apply prospectively from and after the date it becomes
effective. All limited partners will be bound by each amendment, if it becomes
effective, whether or not they vote in favor of that amendment. You do not have
a statutory or contractual right to be paid the fair value of your units in
connection with the proposals described in this consent solicitation statement.
Cost of Solicitation
The partnership will bear the costs of preparing and mailing this consent
solicitation statement, including up to $150,000 of legal expenses, in addition
to the fees and reasonable out-of-pocket expenses of the information agent.
To assist in the solicitation of consents, the partnership has engaged
MacKenzie Partners, Inc. to act as information agent for a fee of $____________,
plus reasonable out-of-pocket expenses. In addition to solicitations by mail,
consents may be solicited by the general partner's executive officers and
managers and by officers of the new general partner. These managers and
officers will not be additionally compensated, but may be reimbursed for out-of-
pocket expenses incurred in connection with the solicitation. Arrangements also
will be made to furnish copies of solicitation materials to custodians,
nominees, fiduciaries and brokerage houses for forwarding to beneficial owners
of units. Such persons will be paid for reasonable expenses incurred in
connection therewith.
20
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person that, to our knowledge,
beneficially owned more than 5% of the total number of limited partner units as
of June __, 2001. No units are owned by executive officers or managers of the
general partner.
- ----------------------------------------------------------------------------------------------------------
Name and address of
beneficial owner Number of units Percent of total units
- --------------- --------------- ----------------------
- ---------------------------------------------------------------------------------------------------------
AP-Fairfield LP, LLC 18,379 22%
5 Cambridge Center
9/th/ Floor
Cambridge, MA 02142
- ---------------------------------------------------------------------------------------------------------
Pursuant to the General Partner Substitution Agreement dated as of April
16, 2001, as described under "Description of Related Agreements," a change of
control of the partnership will occur if the withdrawal of the general partner
and substitution of AP-Fairfield GP as the new general partner is approved as
described in this consent solicitation statement.
Date: June __, 2001 FIBM ONE LLC,
GENERAL PARTNER
21
EXHIBIT A-1
FORM OF SUBSTITUTION AMENDMENT
EXHIBIT A-1
THIRD AMENDMENT TO AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
THIS THIRD AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP (this "Third
Amendment"), dated as of _____________ ___, 2001, is entered into by FIBM One
LLC, a Delaware limited liability company (the "Withdrawing General Partner"),
as general partner of Fairfield Inn by Marriott Limited Partnership (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership (the "Limited Partners"), and AP-Fairfield GP, LLC, a Delaware
limited liability company (the "Substitute General Partner"), with principal
executive offices at 5 Cambridge Center, 9/th/ Floor, Cambridge, MA 02142.
WHEREAS, in accordance with Section 5.02B(vii) and Section 6.01 of the
Amended and Restated Agreement of Limited Partnership of Fairfield Inn by
Marriott Limited Partnership, as heretofore amended (the "Partnership
Agreement"), the Withdrawing General Partner desires to voluntarily withdraw as
the general partner of the Partnership and the Substitute General Partner
desires to become the substitute general partner of the Partnership.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Withdrawing General Partner hereby amends the Partnership
Agreement as follows, and the Substitute General Partner accepts and agrees to
be bound by the Partnership Agreement as so amended:
1. All references in the Partnership Agreement to the phrase "FIBM One
LLC, a Delaware limited liability company" are hereby replaced with the phrase
"AP-Fairfield GP, LLC, a Delaware limited liability company."
2. Section 5.03D of the Partnership Agreement is hereby amended and
restated in its entirety to read as follows:
D. The General Partner shall use its reasonable best efforts to
maintain at all times a net worth at an amount equal to at least
$1,385,000.
3. The Substitute General Partner shall be deemed to be admitted to the
Partnership on the same day as and immediately prior to the withdrawal of the
Withdrawing General Partner and the Withdrawing General Partner shall be deemed
to have withdrawn as general partner of the Partnership on the same day as and
immediately following the effectiveness of this Third Amendment.
All defined terms contained in this Third Amendment, unless otherwise defined
herein, shall have the meaning contained in the Partnership Agreement. Except
as modified herein, all terms and conditions of the Partnership Agreement shall
remain in full force and effect.
EXHIBIT A-1
IN WITNESS WHEREOF, the undersigned has executed this Third Amendment, and
this Third Amendment shall be effective, as of the date first set forth above.
FIBM ONE LLC, as Withdrawing General Partner
and on behalf of existing Limited Partners
By: Host Marriott, L.P., its managing member
By: Host Marriott Corporation, its general
partner
By: ___________________________
Name: _________________________
Title: ________________________
AP-FAIRFIELD LP LLC, as Substitute General Partner
By: ___________________________
Name: _________________________
Title: ________________________
EXHIBIT A-2
FORM OF FINANCING AMENDMENT
EXHIBIT A-2
FOURTH AMENDMENT TO AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP (this "Fourth
Amendment"), dated as of ___________, 2001, is entered into by AP-Fairfield GP,
LLC, a Delaware limited liability company, as general partner (the "General
Partner"), of Fairfield Inn By Marriott Limited Partnership (the "Partnership"),
for itself and on behalf of the limited partners of the Partnership (the
"Limited Partners").
WHEREAS, pursuant to the Third Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership, dated as of the date hereof, the
General Partner was elected General Partner of the Partnership and replaced FIBM
One LLC, a Delaware limited liability company, in that capacity;
WHEREAS, Section 11.02B of the Amended and Restated Agreement of Limited
Partnership of the Partnership, as amended (the "Partnership Agreement"),
permits the amendment of the Partnership Agreement upon the Consent (as defined
in the Partnership Agreement) of the Limited Partners, subject to certain
exception set forth therein;
WHEREAS, the General Partner, being the sole general partner of the
Partnership and Limited Partners holding, in their capacity as Limited Partners
and not as assignees, a majority of the outstanding Units (as defined in the
Partnership Agreement), desire to further amend the Partnership Agreement as set
forth below.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
SECTION 1. A new Section 5.09 is hereby added to read as follows:
SECTION 5.09. New Financing. Notwithstanding the provisions of this
-------------
Agreement, the Partnership may borrow up to $23,000,000 from an Affiliate
of the General Partner, upon terms proposed by the General Partner,
provided that Limited Partners are offered the right to participate in such
financing on a pro rata basis in accordance with their Interest in the
Partnership.
All defined terms contained in this Fourth Amendment, unless otherwise
defined herein, shall have the meaning contained in the Partnership Agreement.
Except as modified herein, all terms and conditions of the Partnership Agreement
shall remain in full force and effect, which terms and conditions the General
Partner hereby ratifies and affirms.
EXHIBIT A-2
IN WITNESS WHEREOF, this Fourth Amendment has been duly executed by the
General Partner as of the date first written above.
AP-FAIRFIELD GP, LLC
By:______________________________
Name:
Title:
CONSENT FORM
THIS WRITTEN CONSENT IS SOLICITED BY THE GENERAL PARTNER OF FAIRFIELD
INN BY MARRIOTT LIMITED PARTNERSHIP FOR ACTION BY WRITTEN CONSENT OF
LIMITED PARTNERS TO BE EFFECTIVE AS SET FORTH IN THE CONSENT
SOLICITATION ACCOMPANYING THIS CONSENT FORM.
This Consent Form ("Consent Form") must be completed and returned by
every limited partner who wishes to vote for or against the proposals (the
"Proposals") to amend the Amended and Restated Agreement of Limited Partnership,
as amended from time-to-time (the "Partnership Agreement"), of Fairfield Inn by
Marriott Limited Partnership (the "Partnership") that are described in the
Consent Solicitation Statement accompanying this Consent Form.
This Consent Form must be returned to and received by:
MacKenzie Partners, Inc.
Attention: Proxy Department
156 Fifth Avenue
New York, New York 10010
prior to 5:00 p.m., New York City time, on [weekday], [month] [day], 2001, or
such later date as may be designated in a mailing to all limited partners (the
"Expiration Date"). The Consent Form will be effective only when it is actually
received by MacKenzie Partners, Inc. A self-addressed return envelope has been
provided for your convenience, and it is recommended that you use certified or
registered mail, return receipt requested.
All Consent Forms that are properly executed and returned to MacKenzie
Partners, Inc. prior to the Expiration Date will be voted in accordance with the
elections set forth therein. Any limited partner who abstains or fails to return
a signed Consent Form will be deemed to have voted AGAINST the Proposals.
Properly executed Consent Forms that are not marked as to a particular Proposal
will be deemed to be voted FOR the Proposal.
Before completing this Consent Form, you and your advisor, if any,
should carefully review the Consent Solicitation Statement. Each of the proposed
amendments to the Partnership Agreement, including the text of such amendments,
is set forth in detail in the Consent Solicitation Statement.
If you have any questions regarding the Proposals or if you would like
assistance in completing this Consent Form, please contact MacKenzie Partners,
Inc. at (800) 322-2885.
Consent Forms may be withdrawn at any time prior to the Expiration
Date. In addition, you may change your vote subsequent to the submission of a
Consent Form, but prior to the Expiration Date. For a withdrawal or change of
vote to be effective, you must execute and deliver, prior to the Expiration
Date, a subsequently dated Consent Form or a written notice stating that the
consent is revoked to MacKenzie Partners, Inc. at the address set forth above.
Consent Forms and notices of withdrawal or change of vote dated after the
Expiration Date will not be valid.
CONSENT
The undersigned, with respect to each Unit in Fairfield Inn by Marriott Limited
Partnership held of record by the undersigned on June 18, 2001, hereby sets
forth his, her or its vote in connection with the written consent solicited by
the general partner of the Partnership as described in the Consent Solicitation
accompanying this Consent Form. You may vote for, against, or abstain from
voting on the Proposals by marking the appropriate boxes set forth in the items
below. In order to effect the Proposals, they must be approved by limited
partners holding a majority of the outstanding Units, excluding Units held by
the general partner and its affiliates. Accordingly, abstentions on the
Proposals will have the same effect as voting AGAINST the Proposals.
Amendment No.1: Approval of Amendment to Permit the Withdrawal and Substitution
of the General Partner
FOR AGAINST ABSTAIN
Amendment No.2: Approval of Amendment to Permit New Unsecured Debt Financing
FOR AGAINST ABSTAIN
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement, dated June __, 2001. If Units are owned jointly, all joint owners
must sign below.
Date: ______________________________________
Signature of Owner: ________________________
Signature of Joint Owner: __________________