EXHIBIT 4.5
[Beaverton, Oregon]
COMFORT LETTER
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June 15, 2001
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Apple Suites, Inc.
9 North Third Street
Richmond, Virginia 23219
Attention: Mr. Gus G. Remppies
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Re: Homewood Suites(R) by Hilton hotel located at Beaverton, Oregon
(the "Hotel")
Gentlemen:
Promus Hotels, Inc. ("Promus") is about to execute with respect to the
Hotel (i) a License Agreement and the Rider, Attachment and Exhibits referenced
therein (the "License Agreement"), dated the date hereof, pertaining to the
licensing of Apple Suites Management, Inc., a Virginia corporation ("Lessee"),
to operate the Hotel as a Homewood Suites(R) by Hilton hotel, and (ii) a
management agreement of even date herewith (the "Management Agreement") with
respect to the operation of the Hotel by Promus, as Manager. In addition, Promus
has loaned to Apple Suites, Inc. ("Fee Owner") and Apple Suites-Mo, LLC, a
Virginia limited liability company (a wholly-owned subsidiary of Apple Suites,
Inc.), the sum of $16,500,000 (the "Acquisition Loan") as purchase money
financing for the acquisition of certain properties (the "Properties") conveyed
pursuant to that certain Agreement of Sale dated June 7, 2001, by and among
Hilton Hospitality, Inc. and Chesterfield Village Hotel, LLC, as sellers, and
Fee Owner, as buyer, as the same has been amended (the "Purchase Agreement"),
which is evidenced by (i) a note of Fee Owner dated June 15, 2001, in the amount
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of $7,875,000 and (ii) a note of Fee Owner and Apple Suites-Mo, LLC, of even
date herewith in the amount of $8,625,000 and is secured by, among other things,
mortgage(s), deed(s) of trust or deed(s) to secure debt dated June 15, 2001, or
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of even date herewith from Fee Owner and Apple Suites-Mo, LLC, which encumbers
some or all of the Properties, which may include the Hotel (the documents
evidencing and securing the Acquisition Loan herein referred to as the
"Acquisition Mortgage Documents"). Lessee is the owner of a leasehold estate in
the Hotel pursuant to a Lease Agreement dated the date hereof (the "Percentage
Lease") with Fee Owner. Although the License Agreement is non-assignable, and is
not subject to any collateral assignment, Lessee and Fee Owner have requested
that Promus enter
into this letter agreement with Fee Owner with respect to, among other things,
Fee Owner's rights with regard to the License Agreement, and Promus has
requested that Fee Owner enter into this letter agreement with Promus with
respect to, among other things, the Management Agreement and its continuing
rights to operate the Hotel for the term of the Management Agreement, subject to
the terms thereof and hereof, and to confirm certain understandings with respect
to the Acquisition Loan. No third party beneficiaries (other than Fee Owner) are
intended or implied. Fee Owner has requested that Promus inform you of the
procedures Promus agrees to follow in the event Lessee commits a breach under
the provisions of the License Agreement.
So long as Fee Owner is the owner of the Hotel, and the License
Agreement is in effect, Promus will notify Fee Owner by certified mail at the
above address (or such other address as you may specify in a written notice to
Promus pursuant hereto) of any default as a result of any breach of the License
Agreement or Management Agreement by Lessee, provided, however, that to the
extent the default is a default under, or termination of, the Percentage Lease
or a default under the Acquisition Loan, Promus shall have no obligation to
notify Fee Owner as contemplated above. This notice will be in the form of a
copy of the notice of such default that is sent to Lessee. In the notice, Promus
will give Fee Owner (i) ten (10) days to cure or cause to be cured monetary
defaults identified in Promus's default notice and (ii) thirty (30) days to cure
or cause to be cured the non-monetary breach(es) identified in Promus's default
notice, provided, however, that to the extent the default identified in Promus's
default notice is not capable of being cured by Fee Owner (i.e., the bankruptcy
of Lessee or a transfer in violation of the License Agreement), Fee Owner will
not be afforded an opportunity to cure such incurable defaults. If a breach
identified in the notice is of a curable non-monetary nature which is not
reasonably capable of being cured within such thirty (30) day period, Promus
shall extend the cure period for such length of time as Promus in its sole
discretion reasonably determines is necessary for such breach to be cured (not
to exceed in any event an additional period of ninety (90) days).
In the event a default occurs under the Percentage Lease (other than a
default under the Acquisition Loan) and, as a consequence thereof, Fee Owner
elects to terminate the Percentage Lease, or remove Lessee from possession of
the Hotel without terminating the Percentage Lease or if Lessee does not elect
to extend the Percentage Lease term through the full term of the License
Agreement (any such event being referred to herein as a "Triggering Event")
while the License Agreement and/or the Management Agreement are in effect, Fee
Owner shall give Promus written notice of such termination ("Triggering Event
Notice"). Fee Owner shall have a ninety (90) day period from the date such
Triggering Event Notice is given to elect to enter into a lease agreement with a
substitute lessee of the Hotel satisfying the conditions set forth in Paragraph
1 below (a "Successor Lessee") and to obtain a new license agreement for such
Hotel in the name of such Successor Lessee, for a term equal to the balance of
the original term of the License Agreement and otherwise on the terms and
conditions set forth in the License Agreement, except that it shall be issued to
Successor Lessee without the payment of any application fee or transfer fee.
Promus's obligations to issue a new license agreement pursuant to this paragraph
are subject to and conditioned upon the satisfaction of the following:
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1. Successor Lessee shall (i) be a "Permitted Transferee" (as
hereinafter defined) and (ii) either (y) be (1) at least fifty percent (50%)
owned by Fee Owner or persons that are its "Affiliates" (as hereinafter defined)
and (2) controlled by Fee Owner or its Affiliates or (z) have complied with the
requirements of Section 11 of the applicable License Agreement.
For purposes of this letter agreement the following terms shall have
the respective meanings assigned thereto:
(a) The term "Permitted Transferee" means a person or entity that (i)
has adequate financial resources to perform all of Lessee's obligations
under and in accordance with the terms of the License Agreement, the
Percentage Lease, and/or the Management Agreement, (ii) is not the
franchisor or an operator of a chain of hotels (i.e., a group of hotels
marketed under the same brand name) which competes with the Homewood
Suites(R)by Hilton system of hotels, and (iii) enjoys a favorable
reputation for integrity in his or its community; provided, however, that
an entity the stock of which is not traded on a national stock exchange
shall not qualify as a "Permitted Transferee" unless (A) all officers,
directors, managing members and general partners of such entity and all
persons having, directly or indirectly, a ten percent (10%) or more equity
or profit-sharing interest in such entity would qualify as Permitted
Transferees under clauses (ii) and (iii) of this sentence, and (B) all
officers, directors, managing members and general partners of any entity
having, directly or indirectly, a ten percent (10%) or more equity or
profit-sharing interest in such entity, the stock of which is not traded on
a national stock exchange, would qualify as Permitted Transferees under
clauses (ii) and (iii) of this sentence. For purposes of the foregoing, it
is agreed that any person or entity who or which, because of reputation or
past conduct, has been denied or would be likely to be denied a gaming
license by any governmental authority shall not qualify as a "Permitted
Transferee".
(b) The term "Affiliate" means, with respect to any person or entity,
any other person or entity which, directly or indirectly, controls, is
controlled by, or is under common control with, such first person or
entity. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), shall mean the possession, directly or indirectly, of the power (i)
to vote more than fifty percent (50%) of the securities having ordinary
voting power for the election of directors of the controlled person, or
(ii) to direct or cause the direction of the management and policies of the
controlled person, whether through the ownership of voting shares or by
contract or otherwise, and shall be deemed to include the directors and
executive officers of Fee Owner.
2. Successor Lessee shall also enter into a management agreement with
Promus covering the Hotel for a term equal to the balance of the original term
of the Management Agreement covering the Hotel and otherwise on the terms and
conditions set forth in such Management Agreement.
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If Fee Owner fails to provide a written notice to Promus of Successor
Lessee's intention to obtain a new license within such ninety (90) day period,
the License Agreement shall, at Promus's option, terminate upon the date of
expiration of such ninety (90) day period, in which event Fee Owner shall pay to
Promus an amount, as liquidated damages, equal to the aggregate amount owed
under the License Agreement (including liquidated damages attributable to such
termination as provided in Paragraph 13 of the License Agreement) and the
Management Agreement.
If Fee Owner enters into a new lease with a Successor Lessee who
intends to obtain a new license, all existing breaches under the License
Agreement and the Management Agreement (collectively, the "Hotel Agreements") of
which Promus notifies Fee Owner must be cured on or before the final day of the
ninety (90) day period, provided, however, if such breach(es) are of the type
set forth in paragraph 14.b.(2)(b) and (d) of the License Agreement or Section
9.01 of the Management Agreement and are not capable of being cured by Fee Owner
or a Successor Lessee within such ninety (90) day period, such breach(es) need
not be cured if Fee Owner or a Successor Lessee cures all other breaches of the
Hotel Agreements. With regard to any breaches of a non-monetary nature which are
not reasonably capable of being cured within said ninety (90) day period, Promus
shall extend the cure period for such period of time as Promus in its sole
discretion reasonably determines is necessary for such breaches to be cured.
In the event Fee Owner exercises its rights under the terms of this
letter agreement to enable a Successor Lessee to obtain a new license agreement,
Lessee shall not be released from its obligations under the applicable Hotel
Agreements accruing prior to the date such Successor Lessee obtains a new
license and enters into a new management agreement with Promus.
In addition, in the event the provisions of Internal Revenue Code, as
amended, applicable to real estate investment trusts ("REIT") are amended to
permit REITs, such as Fee Owner, to operate hotels or otherwise render the
structure embodied by the Percentage Lease to be obsolete as economically
unnecessary, Fee Owner may give Promus written notice thereof (the "Tax Event
Notice") and of Fee Owner's election to terminate the Percentage Lease and of
its desire to obtain a new license agreement for the Hotel in Fee Owner's name
for a term equal to the balance of the original term of the License Agreement
and otherwise on the terms and conditions set forth in the License Agreement,
except that it shall be issued to Fee Owner without the payment of any
application fee or transfer fee. The Tax Event Notice shall, in addition,
contain Lessee's consent to the termination of the Management Agreement and the
License Agreement and acknowledgment of the provisions of the immediately
succeeding paragraph. Promus's obligations to issue a new license agreement
pursuant to this paragraph are subject to and conditioned upon the satisfaction
of the following:
1. Fee Owner shall be a "Permitted Transferee", except that clause (i)
thereof shall be amended to read "(i) has adequate financial resources to
perform all of owner's obligations under and in accordance with the terms of the
License Agreement and/or the Management Agreement".
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2. Fee Owner shall also enter into a management agreement with Promus
covering the Hotel for a term equal to the balance of the original term of the
Management Agreement covering the Hotel and otherwise on the terms and
conditions set forth in the Management Agreement.
In the event Fee Owner exercises its right under the terms of the
immediately preceding paragraph of this letter agreement to enable it to obtain
a new license agreement, Lessee shall not be released from its obligations under
the applicable Hotel Agreements accruing prior to the date Fee Owner obtains a
new license and enters into a new management agreement with Promus.
In connection with Lessee's execution and delivery of the License
Agreement, Apple Suites, Inc. has executed and delivered for the benefit of
Promus that certain Guaranty of even date herewith with respect to the License
Agreement (the "Guaranty"). Promus acknowledges that, in the event of actual
conflict, the terms and provisions of this letter agreement shall control over
the terms and provisions of the Guaranty. Without limiting the generality of the
foregoing, and in order to provide Apple Suites, Inc. with the full benefits
intended by the provisions of the immediately preceding sentence, Promus shall
notify Apple Suites, Inc. by certified mail not less than ten (10) days prior to
Promus's execution and delivery of any amendment or modification of the License
Agreement or of its acceptance of any voluntary surrender or termination by
Lessee of the License Agreement, other than amendments or modifications or
surrender or termination which has been requested by Fee Owner or Apple Suites,
Inc. or to which Fee Owner is a party. Nothing in the foregoing sentence shall
be deemed or construed to limit or restrict Promus's rights to terminate or
exercise any other remedy under the License Agreement in the event of a default
by Lessee thereunder, subject to the other terms and provisions of this letter
agreement.
Promus acknowledges that the Percentage Lease is for a base term of
less than twenty (20) years and that only upon exercising all extension options
available to Licensee, including certain options requiring negotiation of fair
market rental, will the term of the Percentage Lease extend to the full twenty
(20) years of the term of the License Agreement. Fee Owner and Lessee
acknowledge that the failure for any reason to exercise the extension options
will result in the application of the liquidated damages provisions of Paragraph
14.c. of the License Agreement if, upon the termination of the Percentage Lease,
Fee Owner or a Successor Lessee does not obtain a new license agreement for the
Hotel for a term equal to the balance of the original term of the License
Agreement, as contemplated herein.
Promus hereby confirms for the benefit of Fee Owner and Lessee that
the License Agreement shall be read with the following clarifications:
(i) with respect to the provisions of Paragraph 6.a.(6) of the License
Agreement relating to the requirement to use particular Supplies or that
particular Supplies be purchased from Promus or a source designated by
Promus, such requirements shall only be imposed on the licensee under the
License Agreement to the extent Promus is imposing such requirements on
substantially all of its licensees of the System, but that with respect to
other Supplies if Lessee
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determines that it can purchase Supplies of a quality at least equal to
that which Promus is requiring at a price lower than the price then being
charged by Promus or its designated supplier, Lessee may purchase such
Supplies from its vendor;
(ii) with respect to the provisions of Paragraph 6.a.(23) of the
License Agreement, such provisions are not intended to preclude Lessee or
any member of an affiliated group from owning licensed hotels of other,
even competing, brands, but from owning a hotel brand, tradename, system or
chain;
(iii) with respect to the provisions of Paragraph 11 of the License
Agreement relating to change in ownership or a transfer of the hotel, the
provisions are intended to apply only to Lessee's beneficial or equity
interests or its interest in the hotel; and
(iv) with respect to the provisions of Paragraph 14.c. of the License
Agreement regarding liquidated damages, liquidated damages shall not be
payable if the License Agreement is terminated as a result of Promus's
default under the License Agreement.
Promus acknowledges that, in the event of actual conflict between this
letter agreement and the License Agreement, the terms and provisions of this
letter agreement shall control over the terms and provisions of the License
Agreement. Without limiting the generality of the foregoing, (i) no transfer of
any interest in Fee Owner, or of fee ownership of the Hotel to an affiliate of
Fee Owner, shall constitute a prohibited change of ownership under the License
Agreement, subject, however, to the penultimate paragraph of this letter
agreement, (ii) no transfer of the leasehold interest of Lessee in the Hotel to
a Successor Lessee shall constitute a prohibited change of ownership under the
License Agreement, and (iii) in no event shall the initial Licensee be liable
for liquidated damages as the result of termination of the Percentage Lease or
default under the License Agreement if a Successor Lessee is supplied by Fee
Owner or Fee Owner enters into a new License Agreement following a Tax Event
Notice, and all prior curable defaults under the License Agreement are cured by
Fee Owner, as contemplated herein.
Fee Owner and Lessee agree with Promus as follows with respect to the
relationship of Promus and Lessee under the Management Agreement:
(a) Pursuant to the terms of the Percentage Lease, Fee Owner has
agreed to pay, among other things, (i) land, building and personal property
taxes and assessments applicable to the Hotel, (ii) premiums and charges
for property casualty insurance coverages specified in Exhibit "D" to the
Management Agreement, (iii) expenditures for capital replacements, (iv)
expenditures for maintenance and repair of underground utilities and
structural elements of the Hotel and (v) the payments of principal,
interest and other sums payable under the Acquisition Loan (collectively,
"Fee Owner Costs"). To the extent the Management Agreement obligates or
authorizes Promus to pay any Fee Owner Costs, Promus shall pay such Fee
Owner Costs on behalf of Lessee to the extent of funds in the Hotel's bank
account(s) (collectively, the "Hotel Accounts"),
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including, without limitation, the Bank Account(s) and the Reserve Fund (as
such terms are defined in the Management Agreement) subject to any
limitations contained in the Management Agreement and Fee Owner and Lessee
shall make such adjustments and payments to each other as may be necessary
from time to time to take into account any such payments. Promus shall have
no duty, obligation or liability to Fee Owner (x) to make any determination
as to whether any expense required to be paid by Promus under the
Management Agreement is a Fee Owner Cost or a cost of Lessee, or (y) to
make any determination as to whether funds in the Hotel Accounts belong to
Fee Owner or Lessee, or (z) to require that Fee Owner Costs be paid from
funds which can be identified as belonging to Fee Owner, or other costs and
expenses required to be paid by Lessee be paid from funds which can be
identified as belonging to Lessee; it being the intent of this provision
that (i) Fee Owner and Lessee shall look only to each other and not to
Promus with respect to moneys that may be owed one to the other as
consequence of Promus's performance of the Management Agreement and (ii)
Promus need only look to Lessee to pay operating costs, including, without
limitation, those designated herein as Fee Owner Costs.
(b) Promus shall be permitted (and is hereby authorized) to set off
against any amounts owed to Promus by Lessee under the Management Agreement
and the License Agreement any funds held by Promus pursuant to the
Management Agreement, including amounts in the Hotel Accounts, whether or
not amounts are due to Fee Owner by Lessee under the Percentage Lease.
(c) Fee Owner has approved the form of the Management Agreement and
License Agreement and agrees that Fee Owner's consent or approval is not
required with respect to the performance of any of its rights, duties or
obligations under the Management Agreement or the License Agreement.
(d) Fee Owner hereby approves the deposit of funds into the Reserve
Account and the expenditure of funds from the Reserve Account by Promus in
accordance with the terms of the Management Agreement.
(e) To the extent required by applicable laws, Fee Owner shall obtain
and maintain (or cooperate in obtaining and maintaining) any licenses,
permits or approvals of any governmental authority necessary to operate and
manage the Hotel in accordance with the Management Agreement.
(f) Fee Owner acknowledges and agrees that, unless it enters into a
license agreement pursuant to a Tax Event Notice, it has no right to use
the Homewood Suites(R) by Hilton "System" except as expressly set forth in
the License Agreement nor any right to use the name "Homewood Suites" or
the Homewood Suites(R) by Hilton "System" as a result of Lessee entering
into the Hotel Agreements.
(g) Fee Owner acknowledges and agrees that any amounts owed to Promus
under the License Agreement and the Management Agreement are superior to
any amounts owed by Lessee to Fee Owner under the Percentage
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Lease, other than amounts owed in respect of the Subordinated Management
Fee, as defined in the Management Agreement, to the extent Lessee applies
amounts received in respect of Owner's Basic Return, as defined in the
Management Agreement, in respect of amounts owed by Lessee to Fee Owner
under the Percentage Lease.
(h) Fee Owner agrees not to amend or modify the Percentage Lease in
any manner that would (i) reduce the term of the Percentage Lease, (ii)
increase the amount of rent payable by Lessee thereunder (except as
contemplated by the provisions of the Percentage Lease), or (iii) have a
material adverse effect on any of the rights, duties and privileges of
Promus under the Management Agreement. Nothing in this paragraph (h) shall
be deemed or construed to limit or restrict Fee Owner's rights to terminate
or exercise any other remedy under the Percentage Lease in the event of a
default by Lessee thereunder.
(i) Fee Owner acknowledges and agrees that Promus has no duty or
obligation to comply with any of the terms of the Percentage Lease and that
Fee Owner will look solely to Lessee with respect to such matters.
(j) Fee Owner acknowledges and agrees that (i) no sale, transfer or
conveyance of Fee Owner's fee estate in the Hotel shall terminate the
Management Agreement, (ii) except as provided below, neither the
termination of the Percentage Lease nor the assignment of Lessee's interest
therein shall terminate the Management Agreement, and (iii) no merger of
the leasehold and fee simple estates of the Hotel shall terminate the
Management Agreement; it being the intent of Fee Owner and Promus that the
Management Agreement shall continue in effect for the term of the
Management Agreement so long as the Hotel is operating as a Homewood
Suites(R)by Hilton hotel pursuant to a license agreement and Manager is not
in default of its obligations under the Management Agreement (subject,
however, to any express rights of termination contained in the Management
Agreement).
(k) Fee Owner acknowledges and agrees that Manager shall have a right
to file a separate claim in any condemnation case in accordance with
Article 8 of the Management Agreement.
(l) Fee Owner agrees that so long as the License Agreement is in
effect the casualty insurance proceeds will be applied in the manner
provided in the License Agreement.
(m) In the event that Fee Owner terminates the Percentage Lease and as
a consequence thereof Promus terminates the License Agreement and does not
enter into a new license agreement with any successor operator of the
Hotel, Promus and Fee Owner, subject to the payment of all amounts owed
under the Management Agreement and all amounts owed under the Acquisition
Loan, shall have the right to terminate the Management Agreement covering
the Hotel. Otherwise, the successor operator shall assume in writing the
remaining term of such Management Agreement.
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Fee Owner and Lessee further agree with Promus with respect to the
Acquisition Loan that the Percentage Lease shall be subject and subordinate to
the lien of the Acquisition Mortgage Documents and to all of the terms,
conditions and provisions thereof, to all advances made or to be made
thereunder, and to any renewals, extensions, modifications or replacements
thereof, including any increases therein or supplements thereto. The foregoing
provisions shall be self-operative. However, Fee Owner and Lessee agree to
execute and deliver to Promus such other instrument as Promus shall request in
order to effectuate said provisions.
It is acknowledged and agreed that (i) Promus shall be entitled to
rely upon any written notice or request by Fee Owner made pursuant to the
provisions hereof without requirement of investigating the accuracy or
authenticity of such written notice or any facts or allegations contained
therein, and (ii) Fee Owner shall be entitled to rely upon any written notice or
request by Promus made pursuant to the provisions hereof without requirement of
investigating the accuracy or authenticity of such written notice or any facts
or allegations contained therein.
You agree to notify Promus by certified mail at 755 Crossover Lane,
Memphis, Tennessee 38117-4900, Attention: General Counsel (or such other address
as Promus may specify in a written notice to you) of any action regarding the
Hotel to: (a) terminate the Percentage Lease; (b) petition for appointment of a
Receiver or Trustee for Lessee to take any action under Federal Bankruptcy law
or similar state laws; or (c) take possession of the Hotel, through a Successor
Lessee or otherwise, without termination of the Percentage Lease.
The rights, powers and interests of Promus hereunder may be
transferred and assigned by Promus, without the prior written consent of Fee
Owner, Lessee and, if applicable, any Successor Lessee, to any person to whom
the License Agreement and Management Agreement may be assigned. The rights and
obligations of Fee Owner, Lessee and, if applicable, Successor Lessee hereunder
are not transferable without the written consent of Promus.
Subject to the foregoing limitations, this letter agreement shall
extend to, and shall bind, the respective successors and assigns of Promus, Fee
Owner, Lessee and, if applicable, any Successor Lessee, provided, however, that
in the case of Fee Owner, this letter agreement shall not extend to any
transferee of Fee Owner's fee interest in the Hotel nor to Fee Owner if Apple
Suites, Inc. is not a publicly held REIT.
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Please indicate your agreement with the terms of this letter agreement
by signing and returning four executed copies to Promus. This letter may be
executed by original signature or by signature received by telecopy in any
number of counterparts, each of which shall be original and all of which
together shall constitute and be construed as one and the same instrument.
Very truly yours,
PROMUS HOTELS, INC.
By /s/ Mariel C. Albrecht
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Mariel C. Albrecht
Senior Vice President
cc: Franchise Administration
Accepted and Agreed:
APPLE SUITES, INC.
By /s/ Glade M. Knight
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Glade M. Knight, President
Acknowledged and Agreed:
APPLE SUITES MANAGEMENT, INC.
By /s/ Glade M. Knight
-------------------------------
Glade M. Knight, President