EXHIBIT 10.16
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT is made as of ___________, 1998, by and
between Hospitality Marketing Concepts Inc., a Delaware corporation ("HMC")
and Mokhtar Ramadan, Xxxxxx Xxxxxxx, Xxxx Xxxxxxx, and Xxxxxx Xxxx
("Members"), with reference to the following facts:
A. Hospitality Marketing Consultants, LLC, a California limited liability
company ("HMC LLC") was organized on or about February 27, 1996.
B. Since its organization, the Members have been all of the members of
HMC LLC.
C. HMC LLC has elected to be taxed as a partnership for U.S. federal
income tax and applicable state income tax purposes.
D. The Members have also been beneficial equity owners in the foreign
business entities listed on Schedule 1 hereto (the "Foreign Entities"). Some
of the Foreign Entities have been taxed as partnerships for foreign, U.S.
Federal and State income tax purposes.
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E. Pursuant to that certain Contribution Agreement, dated as of May
29, 1998, the Members have agreed to contribute all of their equity interests
in all such Foreign Entities to HMC LLC.
F. Further pursuant to the Contribution Agreement, the Members have
agreed to cause HMC LLC to be merged with and into HMC, effective immediately
prior to the closing of an initial public offering of common stock of HMC.
G. Because HMC LLC and some of the Foreign Entities have been taxed as
partnerships in various jurisdictions, the Members, and not HMC LLC and the
various Foreign Entities themselves, are liable for tax on the taxable income
of HMC LLC and such Foreign Entities.
H. It is possible that HMC LLC and/or the Foreign Entities will be
subject to audit by U.S. Federal, State or foreign tax authorities, and that
as a result of such audit, the taxable income of HMC LLC or such Foreign
Entities will be adjusted, and tax deficiencies will be assessed against the
Members.
I. HMC desires to indemnify the Members against any such liability for
taxes on account of the income of HMC LLC or any of the Foreign Entities.
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NOW, THEREFORE, in consideration for the mutual promises, covenants and
conditions herein contained, and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. For purposes of this Agreement:
a. "Tax Assessment" means the amount of any deficiency in tax,
including interest and applicable penalties, assessed or proposed to be
assessed against each of the Members on account of their allocable shares of
the income, gain or other tax items of HMC LLC or any of the Foreign Entities
for any tax period in the United States, any State or any foreign
jurisdiction, less the amount by which a Member's income tax liability in any
jurisdiction is reduced (after taking into account all other credits and
deductions available to such Member) by credits or deductions for the current
year or as a carryback to any prior year for any tax payable to a foreign
country arising from a Tax Assessment.
b. "Gross Up Amount" means for each Member, an amount equal to
the product of the Tax Assessment and the Rate Gross-Up.
c. "Rate Gross Up" is a fraction, the numerator of which is one
(1), and the denominator of which is one (1), minus
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(i) in the case of a Member who is a U.S. citizen or resident for income tax
purposes the maximum combined income tax rates of the United States and the
U.S. State of residence of a Member for the tax year in question (with
allowance for the deductibility of State income taxes for United States
federal income tax purposes), and (ii) in the case of a Member who is a
non-resident alien for U.S. tax purposes, the maximum income tax rate of such
Member's country of residence.
2. Subject to the Members' reasonable compliance with their
obligations hereunder, not later than thirty (30) days after the date on
which the Members deliver to HMC a written demand for payment, HMC shall pay
to each Member in cash an amount equal to such Member's Gross Up Amount.
Such demand shall be accompanied by a computation of the Member's reduction
in income tax, if any, referred to in Section 1(a) hereof.
3. HMC shall have the obligation, at its own expense, to respond to
any tax examination or audit and to contest or defend any asserted tax
deficiency against any of the Members related to the income of HMC LLC or any
of the Foreign Entities, and to keep each of the Members informed of the
progress of any such examination, audit, contest or defense. The Members
agree to cooperate with any such audit, contest or defense. HMC agrees to
reimburse each of the Members for any costs or expenses incurred
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by any of them related to any such examination, audit, or the contest or
defense of any such asserted tax deficiencies.
4. Each of the Members shall promptly notify HMC in the event he or
she learns of any examination, audit or other tax proceeding that has been
commenced related to HMC LLC or any of the Foreign Entities in any taxing
jurisdiction. Each of the Members shall promptly provide to HMC copies of all
correspondence and other documentation relating to any such audit or
proceeding which comes into his or her possession.
5. In the event the Company is subject to income tax on any income of
HMC LLC or any of the Foreign Entities with respect to which any of the
Members have previously paid income tax, and if any of the Members receives a
refund of such previously-paid tax, such Members shall promptly notify the
Company of the refund and remit an amount equal to the amount of such refund
to the Company.
6. This Agreement shall be governed by the internal laws of the State
of California and of the United States of America.
7. This Agreement may be executed in two or more counterparts, each of
which shall be deemed as an original, but all of which shall constitute one
and the same instrument.
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8. All notices or other correspondence required in connection with
this Agreement must be in writing (which may include facsimile) and will be
deemed to have been given and received when delivered as follows:
If to the Members: 00000 Xxxxxxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
If to the Company: Hospitality Marketing Concepts Inc.
00000 Xxxxxxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Any party may, at any time, by giving five (5) days prior written notice to
the other party, designate any other address in substitution of the foregoing
address to which such notice may be given.
IN WITNESS WHEREOF, the parties have executed this Tax Indemnification
Agreement as of the date first written above.
"HMC"
Hospitality Marketing Concepts Inc.,
a Delaware corporation
By:
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Title:
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"MEMBERS"
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Mokhtar Ramadan
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Xxxxxx Xxxxxxx
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Xxxx Xxxxxxx
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Xxxxxx Xxxx
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