MICROTEL - FDD UFOC ITEM 3 Detail

ITEM 3 LITIGATION

Pending Franchisor Initiated Actions⁵⁹⁶

Microtel Inns and Suites Franchising. Inc. v. The Floridian Hotel & Residences. LLC. Marcell Felipe and Pelavo Mendez. Civil'' Action'' No. 07-CV1387-7, Superior Court of DeKalb County, Georgia^⁵⁹⁷, filed January 17,J_Qf___⁵⁹⁸ In January 2007, we filed suit against the defendants which afe⁵⁹⁹wjej__ our licensee and two guarantors under the license agreement for our licensee. We fttiege⁶⁰¹ alleged⁶⁰² claims for breach, of contract, trademark infringement, unfair competition and trade dress infringement. We seek⁶⁰³sj�igl-t^6t)4 to recover damages and attorneys'' fees and costs related to the defendants'' wrongful termination of their license agreement. Defendants filed an answer_J=wJuch penerally denied liability,⁶⁰⁵ and_a⁶⁰⁶ counterclaim alleging claims for fraudulent inducement, breach of contract, declaratory judgment, unjust enrichment, violation of Georgia''s Uniform Deceptive Trade Practices Act, and common law unfair competition. The defendants seek sought general damages in an unspecified amount, attorneys'' fees and costs, and punitive damages. The discovery phase will start Stettin August of 2007, the parties entered into a settlement agreement pursuant to which defendants will pay Microtel S310.000 ("Settlement AmounO on or before the earlier of fi> August 31_T 2008, (in the sale of the Hotel, or (i\t\ any refinancing of the Hotel. In addition, defendants agreed to pav Microtel an additional $2,583.30 per month from September 2007 until the Settlement Amount is paid in full. If defendants breach the settlement agreement, Microtel is permitted to submit a consent judgment to the court for entry, which grants Judgment in favor of

Microtel in the amount of $435,398.38. As part nf the settlement agreement, the parlies g ranted each other mutual releases, and agreed to the final date of the termination of the license agreement. The lawsuit will not he dismissed unto the defendants fully comply with the settlement agreement

Microtel Inns and Suites Franchising,, Inc. and U.S. Franchise Capital, Inc. v. Venture Hotel Prnnerties. LLC. Venture Hotel Management, LLC, Richard Knlk and Patrick Dougherty. Civil Action No. 07-CV-4S92-9, Superior Court of DeKalh County. Georgia, fded April 20, 2007. In April of 2007, we filed suit against Venture Hotel, our licensee, and two guarantors under the license apreement with our licensee, Richard Knlk and Patrick Dougherty. We allege claims for breach of contract and attorneys'' fees and costs related to those defendants'' failure to pay all of the monthly fees owed pursuant to the license agreement. As part of the same lawsuit, U.S. Franchise Capital sued Venture Hotel and Venture Management for breaching a promissory note, and Richard Kolk and Patrick Dougherty for breaching a guaranty apreement related to the promissory note. U.S. Franchise Capital later filed, an amended complaint to add a claim against Harry Knlk for breach of a piiaranty agreement related to the promissory note. Patrick Dougherty filed an answer which generally denied liability. None of the other defendants have responded to the complaint or the amended complaint as of the date of this Disclosure Document..

Microtel Inns and Suites Franchising, Inc. v. Shree Narayan, Inc., Case No. 07-CV-5189-10. Superior Court of DeKalh County , Georpia, filed May 8, 2007, which was later removed on July 5. 2007 to the U.S. District Court for the Northern District of Georpia, Atlanta Division, Case No. I-07-CV-1559. ^m

In May of 2007, we filed suit against our licensee allepinp that it hreached the licen.se agreement by failing to pay all of the monthly fees owed and hy purporting to terminate the license agreement. We allege claims for fa) breach of contract; (b\ trademark infringement: (cl unfair competition: and (d) attorneys'' fees and costs. The defendant removed the case to federal court on July 5, 2007, and filed an answer generally denying liability. The defendant filed a motion for summary judgment on December 21, 2007 alleging that it was permitted to terminate the license agreement. As of the date of this Disclosure Document, Microtel has opposed the motion, and the motion for summary judpment is currently pendinp before the court.

Microtel Inns and Suites Franchising, Inc. v. Wm. Dean Clinkenheard. Civil Action No. 07-CV-6145-5. Superior Court of DeKalh County. Georgia, filed on June 4. 2007. In June of 2007. we filed suit against the defendant, our licensee, for failing to pay all of the monthly fees owed pursuant to the license apreement and failing to comply with the requirement to give Microtel a right-of-first-refusal to purchase the defendant''s hotel- We allepe claims for breach of contract and attorneys'' fees and costs. The defendant filed an answer which penerally denied liability, and alleged that it complied with the right of first refusal. Discovery is ongoing as of the date of this Disclosure Document.

Microtel Inns and Suites Franchising. Inc. v. Macro II. LLC, Ma\ Lopez and Dr. Tracey Smith. Civil Action No. 07-CV-6144-4. Sunerior Court of DeKalh County. Georgia, filed June 4. 2007. In June nf 2007, we filed suit against the defendants, which were our licensee and two puarantors under the license agreement with our licensee. We allege claims for breach of contract and attorneys'' fees and costs related to defendants failure to pay all nf the monthly fees owed pursuant to the license agreement. We later amended the complaint to include an additional claim for hreach of contract related to defendants failure to comply with Micrntel''s right-of-first refusal to purchase the licensed hotel. Defendants Macro II, LLC and Dr. Tracey Smith filed an answer. which generally denied liability, and a counterclaim alleging that we breached the license agreement by failing to provide operational and marketing support. In response to Microtel''s discovery requests, defendants Macro II and Dr. Tracey Smith were unahle to identify a provision in the license agreement that thev allege was breached and did not Specify anv damages. Defendant Max Lopez has not responded to the lawsuit. Discovery is ongoing as of the date of this Disclosure Document.

Microtel Inns and Suites Franchising. Inc. v. Tropics Hotel Ltd. and James R. Stiles, Civil Action No. 07-CV-7197-2. Sunerior Court of DeKalh County. Georgia, filed on July 16. 2007. In July nf 2007_T we fded suit against the defendants which are our licensee and guarantor under the license apreement for our licensee. We allege claims for breach of contract and attorneys'' fees and costs related to defendants failure to pav all of the monthly fees owed pursuant to the license apreement. As of the date of this Disclosure Document, the defendants have heen served, hut have not responded to the complaint.

Microtel Inns and Suites Franchising- Inc. v. Treas Investment Corp. and Donald Franklin Treas, Civil Action No. 07-12163-8. Superior Court nf DeKalh County, Georgia, fded on November 14, 2007. In November of 2007_r we fded suit against the defendants which are our licensee and the guarantor under the license agreement for our licensee. We allege claims for breach of contract and attorneys'' fees and costs related to defendants failure to nay the monthly fees owed pursuant to the license agreement. On December 13, 2007_T defendants filed a pro se answer and counterclaim in which they generally denied MicrntePs allegations and claimed that Microtel had violated unspecified franchisinp laws and committed common law fraud by (i) failing to have the defendants conduct a market study hefore constructing this hotel, (ii) representing the hotel would have adequate demand, and (iii) failing to provide advertising and other marketing services to assist the defendants. The defendants seek actual damages in the amount of $1.300.000 and punitive damages of $1,000.000. Discovery is ongoing as of the date of this Disclosure Document.

Concluded

Best Franchising. Inc. and Hawthorn Suites Franchising. Inc. v. Terry P. Wynia. Jean K. Wynia. et al. v. Best Franchising. Inc.. Hawthorn Suites Franchising. Inc.. U.S. Franchise Systems. Inc.. Microtel Inns and Suites Franchising; Inc.. Mike Leven. Steve Romaniello and Mike Muir; Civil Action File No. CS-02-0175-EFS, U.S. District Court, Eastern District of Washington, transferred on May 1, 2002 from U.S. District Court, Northern District of Georgia, Atlanta, Division, Civil Action File No. Ol-CV-0805, removed on March 29, 2001 from Superior Court of DeKalb County, Georgia,. Civil Action File No. 01-CV-2491-1, originally fded February 16, 2001 (the "Wynia Litigation"). BFI and HFI made claims against Terry P. Wynia, Jean K. Wynia and 27 associated entities, most of which were former licensees of BFI (the "BFI Licensees") and/or former licensees of HFI (the "Hawthorn Licensees"). BFI and HFI alleged that the BFI Licensees were indebted to BFI in the aggregate amount of at least $3,600,000 as of the time of the fding of the amended complaint. BFI sought judgment against each of the BFI Licensees for its respective share of that aggregate liability. BFI also alleged that Mr. Wynia guaranteed the obligations of each of the BFI Licensees and was jointly and severally liable with them for all sums owed by them and that Mrs: Wynia guaranteed the obligations of one particular BFI Licensee and was jointly and severally liable with it for all sums owed by it. BFI and HFI also alleged that the Hawthorn Licensees were indebted to HFI in an amount of at least $7,500,000 as of the time of the filing of the amended complaint. HFI sought judgment against each of the Hawthorn Licensees for its respective share of that aggregate liability. HFI also alleged that Mr. Wynia guaranteed the obligations of certain of the Hawthorn Licensees and was jointly and severally liable with them for all sums owed by them and that another defendant, 4WK Family Limited Partnership, guaranteed the- obligations of two of the Hawthorn Licensees and was jointly and severally liable with them for all sums owed by them. BFI and

HFI also sought to recover interest and attorneys'' fees in addition to actual damages. The defendants denied any liability to BFI and HFI and raised a number of affirmative defenses and asserted counterclaims alleging that BFI and HFI (a) breached the BFI and HFI license agreements, (b) committed fraud with respect to the BFI and HFI license agreements, (c) violated the Franchise Investment Protection Act and Consumer Protection Act of the State of Washington, and (d) breached a letter agreement with the plaintiffs. The defendants sought to recover damages on their counterclaims as follows: (a) $37 million dollars for their rescission claims; (b) $31 million dollars for their breach of contract claims; and (c) no less than $10 million dollars for punitive damages. On January 4, 2002, Terry P. Wynia, Jean K. Wynia and 33 entities associated with them filed a complaint against BFI, HFI, U.S. Franchise Systems, Inc. ("USFS"), Mike Leven, Steve Romaniello and Mike Muir, seeking rescission of certain license agreements, restitution, damages and penalties for violations of the Franchise Investment Protection Act and Consumer Protection Act in the State of Washington and for certain material breaches by certain defendants of other agreements ("Second-Filed Lawsuit"). On May 22, 2002, the plaintiffs filed an amended complaint which added Microtel Inns and Suites Franchising, Inc. ("MISF") as a defendant in the Second-Filed Lawsuit. The Second-Filed Lawsuit was entitled: Terrv P. Wynia. Jean K. Wynia. et al. v. Best Franchising. Inc.. Hawthorn Suites Franchising. Inc.. U.S. Franchise Systems. Inc.. Microtel Inns and Suites Franchising. Inc.. Mike Leven. Steve Romaniello and Mike Muir: CS-02-0011-FVS. HFI and BFI moved to consolidate the Second-Filed Lawsuit with the Wynia Litigation, and on July 31, 2002, the Eastern District of Washington granted the motion to consolidate and ordered that HFI and BFI proceed as plaintiffs in the consolidated action. In an Order dated February 3, 2004, the Court granted summary judgment in favor of BFI and HFI with respect to defendants'' promissory estoppel claim, and defendants'' claim for breach of contract with respect to any alleged oral agreements. In an Order dated March 4, 2004, the Court dismissed the defendants'' Washington Consumer Protection Act claim. On or about August 3, 2004, Terry P. Wynia, Jean K. Wynia and all of their affiliated entities (the "Wynia Entities") entered into a Settlement and Release Agreement with Mike Leven, Steve Romaniello, and Mike Muir,. the purpose of which was to voluntarily dismiss with prejudice all claims they had against the three individuals. No monies were paid by and between the parties and none of the parties admitted any liability or fault to the other parties. Mutual releases were issued by all parties to the Settlement and Release Agreement. On or about August 3, 2004, the Wynia Entities and USFS, HFI, MISF and BFI entered into a Settlement and Release Agreement under which the Wynia Entities agreed to voluntarily dismiss with prejudice all claims it had against USFS, BFI, HFI and MISF under Washington State''s Franchise Investment Protection Act which included all fraud claims made by the Wynia Entities. No monies were paid in connection with this dismissal. Additionally, the parties agreed to dismiss with prejudice all remaining contract claims between them which constituted the only remaining claims in the litigation. In exchange for dismissing these remaining claims, USFS, BFI, HFI and MISF agree collectively to pay $3,900,000 to the Wynia Entities. None of the parties admitted any liability or fault to the other parties and mutual releases were issued by all parties to the Settlement and Release Agreement.

MicrotelTnns and Suites Franchising. Inc. v. Kama I HaiarK Civil Action No. 0204-03320, Circuit Court of the State of Oregon, Multonomah County, filed April 5, 2002. We filed suit against our licensee seeking to recover unpaid fees due under his license agreement and to force him to comply with other obligations owed to us. On June 14, 2002, the defendant filed an answer, which generally denied our allegations, and a counterclaim which alleged that we (a) breached our obligations under the license agreement and (b) made intentional misrepresentations in order to induce the defendant to enter into the license agreement. The defendant sought unspecified damages and costs incurred and other relief the Court may deem appropriate. The parties entered into a settlement agreement in which the defendant paid us $25,000 and the lawsuit was dismissed.

Forrest P. Gunter: on behalf of himself and all others^- similarly situated v. U.S. Franchise Systems. Inc.. MichaelA. Leven. Neal K. Aronson and Richard D. Goldstein. Civil Action No. 100-CV�1244-RLV, U.S. District Court for the Northern District of Georgia, Atlanta.Division, filed May 17, 2000. A purported class action lawsuit was brought against USFS and certain of its present and former officers and directors. The plaintiff claimed to represent all purchasers of USFS'' common stock during the period from May 6, 1999 through October 29, 1999 and sought unspecified damages on their behalf. The plaintiff alleged that USFS and the individual defendants violated federal securities laws by concealing adverse material information about the business, business practices, performance, operations and future prospects of USFS. As of April 15, 2002, this case was dismissed with prejudice by the plaintiff pursuant to a court approved settlement between the parties. Under the settlement, and without admitting liability, USFS paid $3.75 million of insurance proceeds to the plaintiffs in exchange for the dismissal of the case. None of the individual defendants admitted any liability in connection with the settlement.

Annie Roth v. Michael A. Leven: Steven Romaniello. Neal K. Aronson. Dean S. Adler. Irwin Chafetz. Douglas G. Geoga. Richard D. Goldstein. David T. Hamamoto. Jeffrey A. Sonnenfeld. Barry S. Sternlicht and U.S. Franchise Systems. Inc.. Civil Action No. 1833 INC, Court of Chancery of the State of Delaware in and for New Castle County, filed September 20^ 2000.

Yamil Hernandez v. Michael A. Leven: Steven Romaniello. Neal K. Aronson. Dean S. Adler. Irwin Chafetz. Douglas G. Geoga. Richard D. Goldstein. David T. Hamamoto. Jeffrey A. Sonnenfeld. Barry S. Sternlicht and U.S. Franchise Systems. Inc.. Civil''Action No. 18332NC, Court of Chancery of the State of Delaware in and for New Castle County, filed September 20,2000.

Michael Allentoff v. Michael A. Leven: Steven Romaniello. Neal K. Aronson. Dean S. Adler. Irwin Chafetz. Douglas G. Geoga. Richard P.. Goldstein. David J. Hamamoto. Jeffrey A. Sonnenfeld. Barry S. Sternlicht and U.S. Franchise Systems. Inc., Civil Action No. 18333NC, Court of Chancery of the State of Delaware in and for New Castle County, filed September 20, 2000.

Three individual shareholders of USFS each filed a purported class action lawsuit against USFS and certain of its present and former officers and directors. The plaintiffs claimed to represent all holders of USFS Class A common stock, excluding the defendants. The plaintiffs alleged that USFS and the individual defendants breached fiduciary and common law duties owed to the plaintiffs by approving an acquisition agreement among USFS and business interests of the Pritzker family and by terminating a recapitalization agreement previously entered into by USFS and business interests of the Pritzker family on June 2, 2000. The plaintiffs sought money damages and/or injunctive relief. The plaintiffs also sought an accounting and an award of costs and disbursements. All three of these actions were dismissed without prejudice and without payment of damages on March 7, 2001.

Microtel Inns and Suites Franchising, Inc. v. Eagle Finance I.LC and Ricky Hleap, Civil Action No. 07-CV-4894-2. Superior Court of DeKalh County. Georgia, filed on April 27. 2007. In April of 2007_T we filed suit against the defendants which were pur licensee and guarantor under the license apreement for our licensee. We alleged claims for breach of contract and attorneys'' fees and costs related to defendants failure to pay all of the monthly fees owed pursuant to the license agreement. Eagle Finance filed for bankruptcy protection, and we received a distribution of �20,137.51 from the bankruptcy which naid all of the past-due fees. We dismissed our claim apainst Fagle Finance in June of 2007 as a result of the bankruptcy filing, and our claim against Mr. Hleap in July nf 2007 as a result of receiving the bankruptcy distribution.

Hudson Hotols Corporation fkn Miorotol Franohiso & Development Corporation v. Country bin Hotol. Inc.. ct al.. Civil Action No. 95-CV 6108L (W.D.N.Y.). Hudaon is the plaintiff and eountordofondant in this case, and Country Inn Hotel Ino., the defendant and oountorolaimant, is a formor franohisoo of Hudson.�After tho franchisee removed several "Microtol" signs from his property, and ooasod operating under tho Miorotol''Franchise System and tho franohiso agreement, which, Hudson

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discontinued.

K Partners Laredo, L.P.. K Partners Aransas Pass II. L.P. and K Partners Lafayette, L.L.C. v. Microtel Inns & Suites Franchising, Inc. and Hawthorn Suites Franchising, lnc._t Civil Action No. 2007-C113991. District Court of Bexar County. Texas, filed on September 13. 2007. On August 29_r 2007, Hawthorn Suites Franchising, Inc. ("Hawthorn") filed a lawsuit against one of its licensees, K Partners Laredo, L.P._T in the Superior Court of DeKalh County. Georgia, Case No. 07-CV-9174-2 ("Georgia Lawsuit"). In response, K Partners Aransas Pass II. L.P. and K Partners Lafavette, L.L.C. Microtel licensees, and K Partners Laredo, I .P. filed this lawsuit in Texas State court alleging that Hawthorn and ourselves breached an agreement to pay certain amounts tP-the plaintiffs with respect to the construction costs for a Microtel hotel in Aransas Pass, Texas. In November 2007, the parties entered into a settlement agreement pursuant to which the plaintiffs paid Hawthorn $205,000, the Hawthorn license agreement with K. Partners Laredo, L.P. was terminated, and this lawsuit as well as the Georgia Lawsuit were dismissed with prejudice.

Other than these eight⁶²³listed⁶²⁴ actions,, no other litigation is required to be disclosed in this offering oircular⁶²⁵Bisclosure Document⁶²⁶.

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