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Exhibit 10.12
ALIGNMENT OF INTERESTS AGREEMENT
THIS ALIGNMENT OF INTERESTS AGREEMENT (the "Agreement"), dated
______________, 1996, is among Xxxxxx Lodging Company, an Ohio corporation
(the "Company"), Xxxxxx Hotel Properties, L.P., an Ohio limited partnership (the
"Partnership"), Xxxxxx Management Company Limited Liability Company, an Ohio
limited liability company (the "Initial Lessee"), The Xxxxxx Group, Inc., an
Ohio corporation ("TBG"), Purchasing Concepts, Inc., an Ohio corporation
("PCI"), and Xxxxxx X. Xxxxxx and Xxxx X. Xxxxxx (together, the "Principals").
RECITALS
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A. The Company intends to close an initial public offering
(the "Offering") of its common shares (the "Common Shares") on or about the date
of this Agreement, as a result of which the Company is expected to have a large
number of shareholders who are not affiliated with or related to any of the
parties to this Agreement.
B. On the closing of the Offering, the Company will own
approximately 85.7% of the Partnership, the Partnership will acquire nine hotel
properties (the "Properties") owned by entities in which the Principals and
their affiliates have interests, and the Initial Lessee will lease the
Properties from the Partnership. The Principals will own of record and
beneficially certain equity interests in the Partnership and in the Company, and
will also beneficially own initially, through TBG and PCI, all of the equity
interests in the Initial Lessee. The Principals will derive personal benefits
from the consummation of the Offering and the other transactions described in
this recital.
C. In order to minimize the conflicts of interest inherent in
the relationships described in the immediately preceding recital and to align
further the interests of the Initial Lessee and the Principals with the
interests of the Company, and to induce the Company to proceed with the
Offering, the parties hereto have agreed to enter into this Agreement.
AGREEMENT
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The parties hereto agree as follows:
1. EMPLOYMENT RELATIONSHIPS. Neither Principal will hold any
office (other than a directorship) in the Initial Lessee during any period in
which he holds an office (other than a directorship) in the Company, nor will
either Principal hold any office (other than a directorship) in the Company
during any period in which he holds an office (other than a directorship) in the
Initial Lessee.
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2. RETENTION OF EARNINGS. The Initial Lessee, either itself or
together with its subsidiaries, shall retain at least 50% of the Initial
Lessee's cumulative After Tax Earnings until the Initial Lessee's Consolidated
Net Worth is at least equal to 25% of the aggregate annual rental payments
required to be made under the leases between the Initial Lessee and the
Partnership during the Initial Lessee's most recently completed full fiscal year
(those aggregate payments for any such year, the "Rental Amount"). The Initial
Lessee, either itself or together with its subsidiaries, shall thereafter retain
such portion of the Initial Lessee's After Tax Earnings as is necessary to cause
its Consolidated Net Worth to remain at least equal to 25% of the Rental Amount,
except that the Initial Lessee is not required to retain more than 50% of the
Initial Lessee's After Tax Earnings for any period to maintain the required
amount of Consolidated Net Worth.
"After Tax Earnings," for any period, means the consolidated
net income of the Initial Lessee and its subsidiaries (determined in accordance
with Generally Accepted Accounting Principles ("GAAP") for that period, less the
Tax Distribution Amount for that period. The parties acknowledge that the
determination of consolidated net income for any period, in accordance with
GAAP, will be made without regard to any prior period losses.
The "Tax Distribution Amount," for any period, means the
hypothetical combined incremental federal, state and local business, income
tax liabilities of the Initial Lessee's members and their shareholders
(without duplication of amounts) for that period, as reasonably computed by the
Initial Lessee by using the maximum statutory rates applicable to and computed
solely upon the taxable income, gain, loss, deductions and credits of the
Initial Lessee for that period, but no liability so computed may be less than
zero.
The "Initial Lessee's Consolidated Net Worth," at any time,
means the consolidated members' equity in the Initial Lessee at that time,
determined in accordance with GAAP.
3. PURCHASE OF INTERESTS. (A) Each of TBG and PCI shall use
or the Principals shall use, and shall cause any other beneficial owner or
beneficial owners of TBG or PCI (each such other owner, a "Distributee") to
use, any dividend or other distribution of funds to TBG or PCI (as applicable)
from the Initial Lessee, less an amount equal to the Tax Distribution Amount
for the period with respect to which that distribution is made, only to
purchase Common Shares or units of interest in the Partnership ("Units"). Each
of TBG and PCI also shall use, or the Principals shall use or shall cause the
Distributees to use, any Net Cash Proceeds received by TBG or PCI (as
applicable), or shall cause the Initial Lessee to use any Net Cash Proceeds
received by the Initial Lessee, only to purchase Common Shares or Units.
Notwithstanding the two immediately preceding sentences, none of TBG, PCI, any
Principal or Distributee or the Initial Lessee is required to make a purchase
of Common Shares or Units to the extent that (i) that purchase would cause the
Company to fail either the ownership limitations set forth in the Company's
Articles of Incorporation or the REIT qualification tests under the Internal
Revenue Code of 1986, as
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amended (the "Code"), (ii) that purchase would cause revenues from the leases
between the Initial Lessee and the Partnership to fail to qualify as "rents from
real property" for purposes of the Company's REIT status under the Code, or
(iii) sufficient Common Shares or Units are not available to purchase for any
reason.
"Net Cash Proceeds" means the principal amount of the proceeds
from (i) a sale or other exchange of all or substantially all of the assets of
the Initial Lessee, or (ii) a direct or indirect sale or exchange of ownership
interests in the Initial Lessee, but in each case only to the extent actually
received (either at the transaction closing date or at a later date in the case
of a note or installment sale) in the form of cash, but "Net Cash Proceeds" does
not include (i) interest, dividends, or any noncash consideration (but "Net
Cash Proceeds" does include the principal amount of proceeds from the
subsequent conversion or liquidation of that noncash consideration), (ii) any
amount fairly allocable to any entity other than the Initial Lessee and its
subsidiaries, or (iii) proceeds received directly or indirectly by the estate of
either Principal or after the death of either Principal by a trust or other
entity established for estate planning purposes.
Each purchase made pursuant to this Section 3 shall be made
within 90 days after TBG's or PCI's (as applicable) receipt of the distribution
or proceeds required to be used for that purchase (but shall be made within 90
days after the Initial Lessee's receipt of Net Cash Proceeds, in connection with
any sale or exchange of all or substantially all of the assets of the Initial
Lessee), and may be made from any available source considered appropriate by the
purchaser.
(B) Each of TBG, PCI, any Distributee and the Initial Lessee
shall hold each Common Share or Unit purchased by it pursuant to this Section 3
for at least two years from the date on which it was purchased, except that any
such entity may (i) sell or otherwise convey Common Shares or Units to any
employee or group of employees of the Initial Lessee, and contribute Common
Shares or Units to the Initial Lessee or to any plan, fund or account, in each
case (A) for purposes of compensating one or more Initial Lessee employees, (B)
on terms considered appropriate by the conveying or contributing entity and by
the recipient of those Common Shares or Units, and (C) subject to all
applicable laws, rules and regulations; (ii) dispose of Common Shares or Units
at any time by gift to a spouse or a lineal descendant for estate tax planning
purposes, or by bequest; (iii) pledge Common Shares or Units as collateral for
any obligation, including any margin loan; (iv) exchange Common Shares or Units
under any plan of merger or reorganization of the Company or the Partnership,
as applicable; and (v) sell Common Shares or Units to the extent reasonably
necessary to raise funds to pay estate taxes payable by the estate of a
Principal (subject to the prior approval of the Company's Board of Directors
for any such sale that would cause the number of Units or Common Shares sold in
any 12-month period to exceed five percent of the Units or Common Shares (as
applicable) outstanding at the beginning of
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that 12-month period). Common Shares and Units subject to this Section 3 may be
held by the purchaser thereof in street name, through a broker, through a trust
or custodial arrangement, through entities such as corporations and limited
liability companies, and with respect to individual purchasers, through family
partnerships or jointly with a spouse, in each case so long as the purchaser
remains a beneficial owner of those Common Shares or Units in accordance with,
and disposes of those Common Shares or Units only in accordance with, this
Section 3.
4. DURATION OF OBLIGATIONS. The obligations set forth in
Section 2 expire on the earlier of (i) the 10th anniversary of the completion of
the Offering, (ii) the date on which the Initial Lessee sells all or
substantially all of its assets and business (which the Initial Lessee may not
do without the Partnership's consent), and (iii) the date on which the last
remaining lease between the Initial Lessee and the Partnership expires in
accordance with its terms or is otherwise terminated by agreement between the
parties thereto. The obligations set forth in Section 3 expire on the earlier of
the events described in clause (i) and clause (iii) of the immediately preceding
sentence.
5. CURING OF DEFAULTS. If the Initial Lessee at any time fails
to maintain the Consolidated Net Worth required by Section 2, TBG, PCI or either
Principal may, but is not required to, cure that failure within 45 days after it
occurs by making a capital contribution to the Initial Lessee in an amount equal
to the amount by which the Initial Lessee's Consolidated Net Worth is less than
the amount so required. If any of the Principals, any Distributee, TBG, PCI or
the Initial Lessee fails to make (or to cause to be made) any purchase required
to be made under Section 3, or fails to hold (or to cause a Distributee to
hold) Common Shares or Units for the period required under Section 3, any other
entity required to make purchases under Section 3 may (but is not required to)
cure that failure within 45 days after it occurs by purchasing that number of
Common Shares or Units that is equal to the number of Common Shares or Units
with respect to which that failure occurred and holding those Common Shares or
Units in accordance with Section 3. The parties acknowledge that the Company
may seek specific performance, damages or any other remedy available at law or
otherwise for any uncured default by the Initial Lessee, TBG, PCI or either
Principal under this Agreement.
6. SEVERABILITY. The provisions of this Agreement are
severable and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision, to the extent enforceable in any jurisdiction,
nevertheless shall be binding and enforceable.
7. BINDING EFFECT. The rights and obligations of each party
under this Agreement shall inure to the benefit of, and shall be binding on,
that party and its successors and assigns. Notwithstanding anything to the
contrary in this Agreement, no person who succeeds to either Principal's
interest
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in TBG or PCI following the death of that Principal may be required, following
that death, to purchase or hold Common Shares or Units if that person holds no
position as a director, officer or employee of the Company or of Initial Lessee
or of any of its affiliates. No party to this Agreement may assign this
Agreement or any of its rights or obligations under it without the prior written
consent of the other parties.
8. NOTICES. Any notice to be given under this Agreement shall
be in writing, and if directed to any party other than either Principal, shall
be addressed to it at Terminal Tower, Suite 1500, 50 Public Square, Xxxxxxxxx,
Xxxx 00000, Attention: Chief Executive Officer, and if directed to either
Principal, shall be addressed to him as follows:_______________
_______________________________, or, with respect to any party, to such other
address or addresses as that party may hereafter designate in a notice sent in
accordance with this Section 8.
9. WAIVER. The failure of any party to enforce any provision
of this Agreement shall not be construed as a waiver of that provision as to any
future violation thereof, or prevent that party thereafter from enforcing any
other provision of this Agreement. The rights granted the parties herein are
cumulative and the waiver of any remedy shall not constitute a waiver of that
party's right to assert all other legal remedies available to it under the
circumstances.
10. AMENDMENTS. This Agreement supersedes all prior agreements
and understandings between the parties concerning the subject matter of this
Agreement and may not be modified or terminated orally. No modification,
termination or waiver of any provision of this Agreement shall be valid unless
in writing and signed by the party against whom it is sought to be enforced.
11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
12. PRONOUNS; GENDER. Where necessary or appropriate to the
meaning hereof, the singular and plural shall be deemed to include each other,
and the masculine, feminine and neuter shall be deemed to include each other.
The parties hereto have caused this Agreement to be executed
as of the date first above written.
Xxxxxx Lodging Company
By: ________________________
[Signatures continued on the next page.]
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Xxxxxx Hotel Properties, L.P.
By: Xxxxxx Lodging Company
its General Partner
By: __________________________
Xxxxxx Management Company
Limited Liability Company
By: __________________________
The Xxxxxx Group, Inc.
By: __________________________
Purchasing Concepts, Inc.
By: __________________________
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Xxxxxx X. Xxxxxx
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Xxxx X. Xxxxxx
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