EXHIBIT 10.9
TAX INDEMNITY AGREEMENT
BY AND AMONG
XXXX X. XXXXXXX HOTELS TWO, L.P.,
XXXX X. XXXXXXX HOTELS, INC.
XXXX X. HAMMONS,
HAMMONS, INC.
REVOCABLE TRUST OF XXXX X. XXXXXXX,
AND
[XXXX X. XXXXXXX HOTELS, L.P.]
Dated as of ______________, 2005
TAX INDEMNITY AGREEMENT
THIS TAX INDEMNITY AGREEMENT ("Agreement") is made as of , 2005, among
Xxxx X. Xxxxxxx ("JQH"), in his individual capacity, Xxxxxxx, Inc., a Missouri
corporation, the Revocable Trust of Xxxx X. Xxxxxxx, dated December 28, 1989, as
amended and restated ("JQH Trust"), which is treated as owned by JQH for income
tax purposes ("JQH Trust" together with Xxxxxxx, Inc. and JQH, the
"Beneficiaries"), Xxxx X. Xxxxxxx Hotels, Inc., a Delaware corporation, and
[XXXX X. XXXXXXX HOTELS, L.P.], a Delaware limited partnership ("Hotels LP") and
Xxxx X. Xxxxxxx Hotels Two, L.P., a Delaware limited partnership (together with
Hotels LP, the "Hotel Partnerships").
WHEREAS, the Hotel Partnerships own certain properties listed on Exhibit A
(the "Protected Properties") attached hereto;
WHEREAS, the income tax burden from a sale of the Protected Properties
during JHQ's lifetime will fall disproportionately on JQH; and
WHEREAS, Hotels LP has agreed to hold the Beneficiaries harmless from the
assumed tax burden deemed to arise from a sale of the Protected Properties
during JHQ's lifetime and to refrain from any sale of the Protected Properties
unless its net worth after any payment mandated under this Agreement will be
more than $425 million.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, the parties
hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following capitalized
terms shall have the meanings set forth below:
"Beneficiaries" are defined in the preamble to mean JQH, JQH Xxxxxxx,
Inc., and JQH Trust.
"Code Section" refers to a section of the Internal Revenue Code of 1986,
as amended.
"Grossed Up" refers to the way the Tax Burden is adjusted to derive an
amount that leaves the recipient with the amount of the Tax Burden after paying
income taxes on the receipt of that amount and means divided by one minus the
Tax Rate.
"Hotel Partnerships" is defined in the recitals.
"Hotels LP" is, collectively, defined in the recitals.
"Indemnity Payment" is defined in Section 3 as an amount payable to a
Beneficiary equal to the Grossed Up Tax Burden on the Beneficiary.
"JQH Trust" is defined in the preamble and means the Revocable Trust of
Xxxx X. Xxxxxxx, dated December 28, 1989, as amended and restated. During the
lifetime of JQH, the property and income of JQH Trust are treated as belonging
to JQH for Federal income tax purposes.
"JQH" is defined in the preamble and means Xxxx X. Xxxxxxx, in his
individual capacity.
"JQH Hotels" shall mean Xxxx X. Xxxxxxx Hotels, Inc., a Delaware
corporation.
"Liquidation Notice" has the meaning set forth in the Partnership
Agreement.
"Partnership Agreement" means the Fourth Amended and Restated Agreement of
Limited Partnership of [XXXX X. XXXXXXX HOTELS, L.P.,] dated as of the date
hereof, by and among JQH Hotels, JQH Trust and Xxxxxxx, Inc., a Missouri
corporation, as the same may be amended, restated, supplemented, replaced or
otherwise modified from time to time.
"Protected Properties" are defined in the recitals as the properties
listed on Exhibit A attached hereto, but may be augmented from time to time as
provided in Section 7.
"Subsidiaries" means corporations, partnerships, limited liability
companies, and other entities in which JQH Hotels or a Subsidiary of JQH Hotels
owns more than 50 percent of either the profits or the capital interests.
"Tax Burden" means the income tax assumed imposed on a Beneficiary as a
result of an event giving rise to an Indemnity Payment as computed in accordance
with Section 5.
"Tax Rate" means the rate of income tax assumed borne by a Beneficiary as
determined pursuant to Section 4.
"2012 Notes" means the $510 million of Xxxx X. Xxxxxxx Hotels, L.P. 8 7/8%
First Mortgage Notes due 2012.
2. Beneficiaries' Tax Bases. The parties hereto acknowledge that
Beneficiaries are the partners under the Partnership Agreement, with shares of
liabilities (for purposes of Code Section 752) which include $195 million of the
2012 Notes and approximately $250 million of other debt (collectively, the
"Existing Guaranteed Debt") as more specifically identified on Exhibit B hereto.
Hotels LP or JQH Hotels shall give Beneficiaries thirty days advance notice of
any contemplated or possible refinancing of any Existing Guaranteed Debt to
enable Beneficiaries to determine whether they desire, in their sole and
absolute discretion, to continue, reduce or eliminate their guarantee of or any
contributory obligation with respect to any debt refinancing of such Existing
Guaranteed Debt. The terms and any change in the terms of such guarantee shall
be in a form and substance satisfactory to Beneficiaries' counsel. Hotels LP
shall, upon written request of the Beneficiaries or any of them, permit any
requesting Beneficiary to take any action not adverse to Hotels LP, JQH Hotels
or any successor general partner of Hotels
LP necessary to increase the tax basis of the Beneficiary for Federal income tax
purposes in the Beneficiary's interest in Hotels LP, including, but not limited
to, direct or indirect guarantees or assumptions of liabilities of the Hotel
Partnerships or any of the Subsidiaries. Any such action which requires Hotels
LP, JQH Hotels, the holders of equity interests in JQH Hotels or any successor
general partner of Hotels LP to incur out-of-pocket expenses shall not be
treated as adverse for this purpose if such reasonable expenses are reimbursed
by the Beneficiaries. Any such action which maintains, as of any future date,
the Beneficiaries' absolute dollar amount of Existing Guaranteed Debt as of the
date of this Agreement under arrangements that are not materially different than
the arrangements that exist as of the date of this Agreement shall not be deemed
adverse to Hotels LP, JQH Hotels, the holders of equity interests in any of such
entities or any successor general partner of Hotels LP. For this purpose,
Beneficiaries shall be entitled to guarantee, directly or indirectly, any debt
refinancing Existing Guaranteed Debt previously directly to or indirectly
guaranteed by Beneficiaries or any one of them. The mere reduction in the tax
basis of an interest that does not cause a recognition of gain or a foreseeable
disallowance of a loss deduction shall not be deemed adverse to JQH Hotels,
Hotels LP, or the holders of any equity interests in those entities.
3. Indemnity. Hotels LP will indemnify the Beneficiaries and hold them
harmless from the Tax Burden resulting from any violation of Hotels LP's
obligations under Section 2 of the Agreement. In addition, Hotels LP will
indemnify the Beneficiaries and hold them harmless from any Tax Burden resulting
from the voluntary disposition of any of the Protected Properties by Hotels LP
or any other entity controlled by JQH Hotels. The amount of this indemnity (the
"Indemnity Payment") will be determined from the formula described in Section 4
and Section 5 of the Agreement for determining the Tax Burden rather than by the
actual taxes paid by any Beneficiaries; the Tax Burden will be Grossed Up by
dividing it by the excess of one over the Tax Rate (i.e. Tax Burden/ 1 - Tax
Rate) to calculate the Indemnity Payment. For purposes of this Agreement, a
"voluntary disposition" means any disposition except (a) a transfer pursuant to
a foreclosure action, provided that Hotels LP use commercially reasonable
efforts to avoid any such action, or a bankruptcy proceeding or (b) a compulsory
or involuntary conversion as such terms are used in Code Section 1033, provided
that in the event of any such compulsory or involuntary conversion, Hotels LP
shall use commercially reasonable efforts to reinvest the proceeds of such
disposition to avoid gain recognition in accordance with Code Section 1033.
Hotels LP will give the Beneficiaries notice of any pending foreclosure promptly
upon becoming aware of it. JQH shall have the right, in his sole and absolute
discretion to receive a distribution of any property being foreclosed upon (with
no net value being ascribed to it) within sufficient time to cure the defaults
giving rise to the foreclosure, provided that such distribution would not
violate the terms of any credit or similar agreement to which Hotels LP is a
party.
4. Tax Rate. The "Tax Rate" used to determine the Tax Burden, the
Indemnity Payment and the Refund Payment will be determined as the highest
combined marginal Federal, State and local income tax rate applicable to an
individual who is a resident of jurisdiction in which JQH resides on the
relevant date or dates (provided that if the jurisdiction to which the relevant
taxable income or gain is allocated or apportioned imposes income tax on a
nonresident individual at a higher combined State and local tax
rate than the jurisdiction in which JQH resides, such higher combined State and
local tax rate shall be used), making proper allowance for the deductibility of
State and local income taxes for Federal income tax purposes (if then
applicable) but increasing the Federal rate for the effect of any deduction
disallowance applied to incomes above a threshold and ignoring the effects of
the Federal alternative minimum tax. Where different rates are prescribed for
different categories of income these rates shall be applied separately to the
separate categories of income.
5. Tax Burden. The "Tax Burden" on a Beneficiary will be determined by
multiplying the Tax Rate by the amount of taxable income or gain (including
Section 704(c) gain or Reverse Section 704(c) gain, but excluding taxable income
or gain allocated in respect of the Preferred Allocations Percentage (as such
terms are defined in the Partnership Agreement), recognized by such Beneficiary
solely and directly from the occurrence of an event described in the first or
second sentence of Section 3 with no consideration being given in such
computation to any other tax attributes of the Beneficiaries including, without
limitation, any other deductions, losses, net operating loss carryforwards or
carrybacks, personal exemptions or other attributes that could reduce the
maximum marginal tax rate assumed applicable in this Section 5 (less the amount
of any taxable losses recognized by such Beneficiary solely and directly from
the disposition during the same taxable year of properties by Hotels LP or any
other entity controlled by Newco that would not be limited by the absence of
capital gains or other specially treated items if the Beneficiary's income
derived solely from Hotels LP) and adding together the products of different Tax
Rates and categories of taxable income pertaining to the indemnified
Beneficiary.
6. Procedure.
(a) Hotels LP or JQH Hotels shall inform the Beneficiaries of any
event that may give rise to a right to an Indemnity Payment at least thirty (30)
days before such event. Not less than 30 days before such event, JQH Hotels or
Hotels LP shall provide the Beneficiaries with information reasonably necessary
to estimate the income arising from the event, including without limitation
estimates of the consideration to be paid for the property, the basis and
allocated price, the portion of the gain which is subject to Code Section 704(c)
or Sections 1.704-1(b)(2)(iv)(f) and 1.704-1(b)(4)(i) of the Income Tax
Regulations for each element giving rise to a different type of income
attributable either to the 1994 formation of Xxxx X. Xxxxxxx Hotels, L.P. or as
a result of adjustments made in connection with the Partnership Agreement or
this Agreement, and any other information relevant to computation of the
Indemnity Payment requested by the Beneficiaries. Within ten (10) business days
of being notified by Hotels LP or JQH Hotels or otherwise becoming aware of an
event giving rise to a right to an Indemnity Payment, a Beneficiary will submit
to Hotels LP its calculation of the Indemnity Payment, including details of the
determination of the Tax Rate, the various categories of taxable income
applicable, and the Tax Burden. Within ten (10) business days of receiving a
calculation of an Indemnity Payment from a Beneficiary, Hotels LP shall respond
by either accepting the Beneficiary's calculation of the Indemnity Payment or
disputing the calculation. If there is a dispute about the calculation of an
Indemnity Payment the parties to the dispute shall designate an independent
third person
knowledgeable in the field of taxation to determine the proper Indemnity
Payment. If the parties cannot agree on the person to determine the Indemnity
Payment they shall submit the issue to an arbitrator pursuant to the rules of
the American Arbitration Association as in effect at that time, who shall be
authorized to retain an expert. Expenses incurred in resolving a dispute about
an Indemnity Payment will be shared equally by the parties to the dispute.
(b) Hotels LP shall pay the Indemnity Payment to the Beneficiaries
simultaneously with the event giving rise to a right to the Indemnity Payment,
provided that if the amount of an Indemnity Payment has not been determined
pursuant to Section 6(a) as of such date, any portion of the Indemnity Payment
that is not the subject of a dispute shall be paid at that time and any
additional Indemnity Payment that is determined to be owed shall be paid within
five (5) business days after such determination.
(c) If Hotels LP or a Beneficiary determines in good faith that the
amount or category of taxable income resulting from the event described in the
first two sentences of Section 3 was different than was first assumed in
calculating the Tax Burden, such party shall promptly submit to the other party
a revised calculation of the Indemnity Payment, including details of the
determination of the Tax Rate, the various categories of taxable income
applicable, and the Tax Burden. Within ten (10) business days of receiving such
recalculation, the other party shall respond by either accepting the
recalculation of the Indemnity Payment or disputing the recalculation. If there
is a dispute about the recalculation of an Indemnity Payment the parties to the
dispute shall designate an independent third person knowledgeable in the field
of taxation to determine the proper Indemnity Payment. If the parties cannot
agree on the person to determine the Indemnity Payment they shall submit the
issue to an arbitrator pursuant to the rules of the American Arbitration
Association as in effect at that time, who shall be authorized to retain an
expert. Expenses incurred in resolving a dispute about a recalculated Indemnity
Payment will be shared equally by the parties to the dispute. If the
recalculated Indemnity Payment is greater than the Indemnity Payment as
originally determined, Hotels LP, shall, within five (5) business days after the
recalculated Indemnity Payment is finally determined, pay an amount equal to the
difference to the Beneficiaries. If the recalculated Indemnity Payment is less
than the Indemnity Payment as originally determined, the Beneficiaries shall,
within five (5) business days after the recalculated Indemnity Payment is
finally determined, pay an amount equal to the difference to Hotels LP.
(d) All Indemnity Payments shall be expenses of Hotels LP for all
purposes under the Partnership Agreement.
7. Protected Properties. If Hotels LP, or any of the Subsidiaries disposes
of any Protected Properties in a transaction or subsequent transactions in which
the basis for Federal income tax purposes either (i) carries over to the
transferred property or (ii) is used to determine the basis of any property
received in exchange or acquired as replacement property pursuant to Code
Xxxxxxx 0000, xx (xxx) both, the properties described in (i) or (ii) or both
shall be Protected Properties thereafter.
8. Waiver and Amendment. Any party hereto may waive its rights under the
Agreement at any time, and no such waiver shall operate to waive any party's
rights under the Agreement with respect to any subsequent event. Any agreement
on the part of any such party to any such waiver shall be valid only if set
forth in an instrument in writing signed by such party. The Agreement may be
amended only by a written instrument signed by the parties hereto.
9. Term. This Agreement shall not apply to any event described in the
second sentence of Section 3 that occurs after either (i) the demise of JQH or
(ii) the delivery of the Liquidation Notice pursuant to the Partnership
Agreement.
10. Invalid Provision. The invalidity or unenforceability of any
particular provision of the Agreement shall not affect the other provisions
hereof, and the Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
11. Notices and Addresses. Notices and other communications to be given
under the terms of the Agreement shall be in writing and shall be either (i)
delivered by hand against receipt, (ii) sent by certified or registered mail,
postage prepaid, return receipt requested, or (iii) sent by a nationally
recognized commercial delivery service or by facsimile (provided that, in either
case, a confirmatory copy is thereafter sent by certified or registered mail):
If to JQH Hotels or Hotels LP:
JQH Acquisition LLC
Carnegie Hall Tower
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxx Xxxxxxx LLP
Three First National Plaza
Suite 4100
00 X. Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Beneficiaries:
Xxxx X. Xxxxxxx
300 Xxxx X. Xxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxxxxx Xxxxxxx Xxxxx Xxxxxx LLP
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq. and Xxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
12. Governing Law. This Agreement will be governed by the laws of the
State of Delaware, without regard to conflicts of laws principles.
13. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS
VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.
14. Jurisdiction; Service of Process. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
shall be
brought against any of the parties only in the Courts of the State of Delaware
or, if it has or can acquire jurisdiction, in the United States District Court
for the District of Delaware, and each of the parties consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
15. Binding Effect. This Agreement shall be binding upon the heirs,
personal representatives, successors and assigns of the parties hereto. If JQH
Hotels transfers or assigns its interest as a general partner in Hotels, L.P. to
another person subsequent to the effective time of this Agreement, JQH Hotels
specifically agrees as a condition of any such transfer or assignment that such
entity shall agree to fulfill any and all obligations of JQH Hotels under this
Agreement.
16. Entire Agreement. This Agreement together with the Partnership
Agreement constitutes the complete agreement of the parties regarding the
subject matter hereof and supersedes any prior agreements or understandings with
respect thereto.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and which shall
together constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, each of the undersigned has executed, or caused the
Agreement to be duly executed on its behalf, as of the date first written above.
XXXX X. XXXXXXX HOTELS TWO, L.P.
a Delaware limited partnership
By: ____________________________________
Name: __________________________________
Title: _________________________________
XXXX X. XXXXXXX HOTELS, INC.
a Delaware corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
XXXX X. XXXXXXX
________________________________________
Xxxx X. Xxxxxxx
XXXXXXX, INC.,
a Missouri corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
THE REVOCABLE TRUST OF XXXX X. XXXXXXX,
DATED DECEMBER 28, 1989, AS AMENDED AND
RESTATED
By: ____________________________________
Name: Xxxx X. Xxxxxxx
Title: Trustee
[XXXX X. XXXXXXX HOTELS, L.P.],
a Delaware limited partnership
By: ____________________________________
Name: __________________________________
Title: _________________________________
EXHIBIT A
PROTECTED PROPERTIES
UNDER TAX INDEMNITY AGREEMENT
XXXX X. XXXXXXX HOTELS, L.P., XXXX X. XXXXXXX HOTELS TWO, L.P.,
A DELAWARE LIMITED PARTNERSHIP, d/b/a: A DELAWARE LIMITED PARTNERSHIP, d/b/a:
-------------------------------------- --------------------------------------
1. Embassy Suites Xxxxxxxxxx 1. Embassy Suites Little Rock
Montgomery, AL Little Rock, AR
2. Holiday Inn Sacramento Capital Plaza 2. Hampton Inn & Suites
Sacramento, CA Springdale, AR
3. Holiday Inn Denver International Airport 3. Marriott University Park
Denver, CO Tucson, AZ
4. Holiday Inn Fort Xxxxxxx 4. Embassy Suites on Xxxxxxxx Xxx
Xxxx Xxxxxxx, XX Xxxxxxx, XX
5. Coral Springs Marriott Hotel Golf C&CC 5. The Renaissance Resort at WGV
Coral Springs, FL St. Augustine, FL
6. Cedar Rapids Marriott 6. Embassy Suites Tampa
Cedar Rapids, IA Tampa, FL
7. Embassy Suites on the River 7. Radisson Quad City Plaza
Des Moines, IA Davenport, IA
8. Holiday Inn University Park West 8. Capital Plaza Hotel
Des Moines, IA Topeka, KS
9. Capitol Plaza Hotel 9. Holiday Inn University Plaza
Jefferson City, MO Bowling Green, KY
10. Embassy Suites Kansas City Airport 10. Embassy Suites Raleigh-Durham
Kansas City, MO Cary, NC
11. Homewood Suites Kansas City 11. Renaissance Oklahoma City Hotel
Kansas City, MO Oklahoma City, OK
12. Renaissance Charlotte Suites 12. Embassy Suites Portland Airport
Charlotte, NC Portland, OR
11
XXXX X. XXXXXXX HOTELS, L.P., XXXX X. XXXXXXX HOTELS TWO, L.P.,
A DELAWARE LIMITED PARTNERSHIP, d/b/a: A DELAWARE LIMITED PARTNERSHIP, d/b/a:
-------------------------------------- --------------------------------------
13. Embassy Suites Greensboro 13. Embassy Suites Charleston
Greensboro, NC Charleston, WV
14. Homewood Suites Greensboro
Greensboro, NC
15. Embassy Suites Downtown/Old Market
Omaha, NE
16. Albuquerque Marriott Pyramid North
Albuquerque, NM
17. Embassy Suites Columbia
Columbia, SC
18. Embassy Suites Greenville
Greenville, SC
19. Embassy Suites Airport/Conv. Ctr.
North Charleston, SC
20. Embassy Suites
Grapevine, TX
21. Houston Hobby Airport Marriott
Houston, TX
22. Hampton Inn & Suites at Rodeo Center
Mesquite, TX
23. Marriott Madison West
Middleton, WI
12
EXHIBIT B
EXISTING GUARANTEED DEBT
To await updated (month-end) debt list
13
