Tax Indemnity and Debt Maintenance Agreement - Ashford Hospitality Trust Inc., Ashford Hospitality LP and Remington Suites Austin LP, Remington Suites Dallas LP, Remington Suites Dulles LP, Remington Suites Las Vegas LP and Chicago Illinois Hotel LP
TAX INDEMNITY AND DEBT MAINTENANCE AGREEMENT
This TAX INDEMNITY AND DEBT MAINTENANCE AGREEMENT (this "Agreement"),
dated as of_______, 2003, is entered into by and among Ashford Hospitality
Trust, Inc. (the "REIT"), Ashford Hospitality Limited Partnership (the
"Operating Partnership") and Remington Suites Austin, L.P., Remington Suites
Dallas, L.P., Remington Suites Dulles, L.P., Remington Suites Las Vegas, L.P.and
Chicago Illinois Hotel Limited Partnership.
RECITALS
A. In connection with the execution and delivery of the Omnibus
Agreement, as defined below, the Contributors have agreed to contribute the
Initial Properties to the Operating Partnership in exchange for Units in the
Operating Partnership.
B. The REIT and the Operating Partnership desire to evidence their
agreement regarding amounts that may be payable as a result of certain actions
being taken by the Operating Partnership regarding its debt and assets.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions.
"Applicable Tax Rate" means, as to any given Taxable Event, the Tax
Rate applicable to income having the same character as that arising from such
Taxable Event, for example, by way of illustration and not limitation, (i) the
Tax Rate applicable to ordinary income, if the Taxable Event gave rise to
ordinary income, or (ii) the Tax Rate applicable to long term capital gain, if
the Taxable Event gave rise to long term capital gain.
"Agreement" has the meaning specified in the Preamble.
"Code" means the Internal Revenue Code of 1986, as amended, and any
replacement to such provisions.
"Contributor" means one of the limited partnerships identified on
Exhibit A hereto and each successor or assign whose acquisition of Units was
pursuant to a Permitted Disposition.
"Current Tax Excess" means with respect to each Taxable Period and each
Taxable Event, an amount equal to the product of (i) the taxable income or gain
allocable to or otherwise reportable by a Contributor during such Taxable Period
resulting from the
<PAGE>
occurrence of the Taxable Event and (ii) the Applicable Tax Rate. For purposes
of the foregoing calculation, the taxable income or gain on a taxable sale or
taxable disposition of assets of the Operating Partnership will be limited to
the amount of any gain or income allocated to a Contributor pursuant to Section
704(c) of the Code (as reduced by any applicable adjustment to the tax basis of
the assets of the Operating Partnership with respect to such Contributor
pursuant to Section 754 of the Code).
"Damages" means with respect to each calendar year and each Contributor
an amount equal to the sum for each Current Tax Excess during such calendar year
of the Current Tax Excess divided by the difference of: one minus the related
Applicable Tax Rate.
"Disposition" means any sale, assignment, pledge, encumbrance,
hypothecation, mortgage, exchange, or any swap agreement or other arrangement
that transfers all or a portion of the economic consequences associated with the
Units of the Contributor, provided that the following shall not constitute
Dispositions: (i) a pledge of all or a portion of the Units of the Contributor
to secure bona fide indebtedness that does not exceed sixty percent (60%) of the
value of the pledged Units of the Contributor at the time such indebtedness is
incurred so long as no foreclosure has occurred; (ii) any pledge of Units to the
Operating Partnership; and (iii) a Permitted Disposition.
"Federal Rate" means, with respect to a Taxable Event, the highest
marginal federal income tax rate applicable to income having the same character
(e.g., ordinary income or long term capital gain) as that arising from such
Taxable Event applicable to the Contributor in effect for the Taxable Period in
issue, taking into account the deductibility of state income taxes payable at
the related State Tax Rate by the affected Contributor, without regard to any
limitations on such deduction applicable solely to such Contributor or its
owners.
"Initial Properties" means all properties, whether real or personal,
whether tangible or intangible, contributed by Contributors to the Operating
Partnership pursuant to the Omnibus Option Agreement.
"Omnibus Agreement" means the Omnibus Option Agreement between Ashford
Hospitality Limited Partnership, Remington Suites Austin, L.P., Remington Suites
Dallas, L.P., Remington Suites Dulles, L.P., Remington Suites Las Vegas, L.P.,
Chicago Illinois Hotel Limited Partnership and Remington Long Island Hotel,
L.P., dated as of May 15, 2003.
"Original Contributor" means one of the partnership Contributors
identified on Exhibit A.
"Permitted Disposition" means a disposition to (i) a member of the
immediate family or an affiliate of the applicable Contributor, (ii) a
charitable organization a contribution to which would be deductible pursuant to
Section 170 of the Code, (iii) any partnership, limited liability company or
trust, the partners, members or beneficiaries, as applicable, of which are
exclusively one or more of the Contributor or members of the
-2-
<PAGE>
immediate family or affiliates of the Contributor and/or a charitable
organization a contribution to which would be deductible pursuant to Section 170
of the Code, or (iv) a beneficiary, partner, member or shareholder by the trust,
partnership, limited liability company or corporation in which such person owns
an interest, provided that any such disposition shall not involve a disposition
for value (other than the issuance or redemption of an interest in the
transferor or a reduction in the transferor's share of liabilities of the
Operating Partnership).
"Permitted Transferee" means any Person who acquires Units pursuant to
a Permitted Disposition.
"Person" means and includes an individual, a general partnership,
limited partnership, a joint venture, a corporation (including a business
trust), limited liability company, joint stock company, trust, joint venture or
other entity, unincorporated association or a governmental authority.
"Protected Period" means, as to each Original Contributor and its
Permitted Transferees the period commencing on the closing date (or the first
closing date, if there is more than one closing date) of the contributions of
the Initial Properties pursuant to the Omnibus Agreement and ending on the
earlier of (i) the tenth anniversary of the closing date (or final closing, if
there is more than one closing date) of the contributions pursuant to the
Omnibus Agreement or (ii) as to such Original Contributor and its Permitted
Transferees, the first date that the Unit Sales Restriction is not satisfied.
"State Tax Rate" means with respect to each Taxable Event the highest
marginal state tax rate applicable to income having the same character (e.g.,
ordinary income or long-term capital gain) as that arising from such Taxable
Event applicable to the Contributor in effect for the Taxable Period in issue;
and shall be determined with respect to the state in which such income is
taxable to the Contributor or its owners having the highest marginal state tax
rate, whether such state is the one in which the applicable property is located
or the state of residence of the Contributor or its owners subject to the
provisions of Section 2.1(g)(iii). Appropriate adjustments shall be made if more
than one non-federal income tax applies within a state.
"Taxable Period" means with respect to a Taxable Event the calendar
year in which such Taxable Event occurs but if during such calendar year the
State Tax Rate or Federal Tax Rate changes, each portion of the calendar year
having a different Applicable Tax Rate shall be considered a separate Taxable
Period.
"Tax Rate" means with respect to a Taxable Event the sum of (i) the
State Tax Rate plus (ii) the Federal Rate.
"Taxable Event" means, with respect to each Contributor, an event
described in Section 2.1(a) giving rise to the requirement of the REIT or the
Operating Partnership to pay Damages, subject to the provisions of Section
2.1(g).
"Units" has the meaning ascribed to it in the Omnibus Agreement.
-3-
<PAGE>
"Units Sale Restriction" means as to any Original Contributor or any of
its Permitted Transferees, that the Original Contributor and each of its
Permitted Transferees shall have satisfied this requirement with respect to a
period if at the end of such period, aggregate Dispositions by the Original
Contributor and its Permitted Transferees of Units received pursuant to the
Omnibus Agreement have not caused the aggregate Units then owned by the Original
Contributor and its Permitted Transferees to be less than twenty-five percent
(25%) of the aggregate Units issued to the Original Contributor pursuant to the
Omnibus Agreement.
Section 1.2 Additional Definitions. Capitalized terms used in this
Agreement and not defined in Section 1.1 or elsewhere in this Agreement shall
have the respective meanings ascribed to such terms in the Omnibus Agreement.
Section 1.3 Section References. The Article and Section headings herein
are for reference only and shall not affect the construction hereof.
Section 1.4 Interpretation. No provisions of this Agreement shall be
interpreted or construed against any person solely because that Person or its
legal representative drafted such provision.
ARTICLE II
DAMAGES
Section 2.1 Damages.
(a) The REIT and the Operating Partnership, jointly and severally,
agree to pay to a Contributor, in accordance with Section 2.1(b) below, an
amount equal to the Damages incurred by a Contributor as a result of the
occurrence of the following events:
(i) If, during the Protected Period, there occurs a taxable
sale or other taxable disposition of assets of the Operating
Partnership or its subsidiaries resulting in the allocation of income
or gain to such Contributor under Section 704(c) of the Code; and
(ii) If, during the Protected Period, the Operating
Partnership fails to maintain indebtedness, constituting non-recourse
indebtedness for purposes of Treas. Reg. Section 1.752-3, in an amount
of at least $16.0 million and such Contributor is allocated or
otherwise required to recognize taxable income or gain as a result of
such failure.
(b) Within 90 days after the occurrence of any event specified in
Section 2.1(a), the REIT or the Operating Partnership will (i) pay all Damages
then due to the Contributor and (ii) provide sufficient documentation to support
the calculation of the amounts paid.
-4-
<PAGE>
(c) The making of a payment by the REIT or the Operating Partnership
under this Section 2.1 shall be the sole and exclusive remedy of the Contributor
with respect to any tax liability incurred in connection with this Agreement or
the transactions contemplated hereby or thereby.
(d) Contributor shall have the right to review or audit (i) records of
asset sales and disposition by the Operating Partnership and its subsidiaries,
and (ii) the calculation of Damages pursuant to this Agreement.
(e) During the Protected Period, the Operating Partnership will use
commercially reasonable efforts to maintain nonrecourse indebtedness in the
amount of at least $16 million.
(f) Nothing contained in this Agreement shall be construed to permit a
party to receive a double benefit or compensation with respect to Damages.
(g) For purposes of determining any Damages under this agreement the
following will apply:
(i) Each Taxable Event will be determined solely with respect
to a single Taxable Period. If a Taxable Event would otherwise result
in taxable income or gain allocable to more than one Taxable Period,
the taxable income or gain allocable to each Taxable Period will be
treated as arising from a separate Taxable Period and as constituting a
separate Taxable Event.
(ii) The use of the term "allocation" in Section 2.1 shall not
be limiting, thus if a Contributor recognizes taxable income or gain
with respect to an event described in Section 2.1(a), such event will
be a Taxable Event notwithstanding that some portion of such taxable
income or gain is not subject to the profit and loss allocation
provisions of any partnership agreement applicable to the Operating
Partnership or is not reported or not required to be reported on any
Schedule K-1 to U.S. Form 1065 or any other federal or state tax report
or return required to be filed by the Operating Partnership.
(iii) For purposes of determining an Applicable Tax Rate for a
Contributor, if the Contributor is a partnership under local law or is
otherwise not taxable as an individual for either federal or state tax
purposes, (A) the Federal Tax Rate shall be the tax rate which is the
greater of any tax rate applicable to individuals or to the type of
entity that such Contributor is treated as for federal income tax
purposes, and (B) the State Tax Rate shall be the tax rate which is the
greater of any tax rate applicable to individuals or to the type of
entity that such Contributor is treated as by such taxing jurisdiction,
and (C) no other adjustment shall be made if any income or gain arising
from a Taxable Event is taxable to both the Contributor and its owners.
If a Contributor is not an individual, any
-5-
<PAGE>
State Tax Rate required to be determined with respect to the residence
of the individuals that own such Contributor shall be determined with
respect to the state having those individuals as residents that have
the greatest total percentage ownership interest in such Contributor.
Solely for purposes of determining an Applicable Tax Rate, any
Permitted Disposition, other than to the owners of the Contributor,
shall be ignored.
(iv) Each Taxable Event will be determined solely with respect
to a single character of income or gain. If a Taxable Event would
otherwise result in items of taxable income or gain having more than
one character, each item of taxable income or gain having the same
character shall be treated as a separate Taxable Event.
ARTICLE III
CONDUCT OF AUDITS, LITIGATION
Section 3.1 No Contributor shall have any right to participate in (i)
any audit, conference or other proceeding with the Internal Revenue Service or
the relevant state or local authorities, or any judicial proceedings concerning
the determination of the tax liability of the REIT, the Operating Partnership or
any of their subsidiaries, (ii) any administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of any such
proceeding or (iii) any compromise or settlement of any adjustment or deficiency
proposed, asserted or assessed as a result of any such proceeding.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Amendment and Waivers. Any provision of this Agreement may
be amended or waived by a Contributor, but only as to itself or himself and not
any other Contributor, if, but only if, such amendment or waiver is in writing
and is signed by the REIT, the Operating Partnership and the relevant
Contributor.
Section 4.2 Successors and Assigns. This Agreement shall be binding the
REIT, the Operating Partnership, the Contributors and their respective
successors and assigns. If any Contributor constituting a partnership under
local law distributes one or more Units to one or more of its partners, each
such partner shall be a "Contributor" for purposes of this Agreement without the
necessity of any amendment of this Agreement and no consent or waiver of the
REIT, the Operating Partnership or any other Contributor shall be required.
Section 4.3 Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by: (a)
regular, overnight, registered or certified mail (return receipt requested),
with first class postage prepaid; (b) hand delivery; (c) facsimile transmission;
or (d) overnight courier service,
If to the REIT, at the following address or facsimile number for the
REIT:
-6-
<PAGE>
14180 Dallas Parkway, 9th Floor
Dallas, Texas 75254
Attention:
---------------------------------
Facsimile No.:
-----------------------------
If to the Operating Partnership, at the following address or facsimile
number for the Operating Partnership:
14180 Dallas Parkway, 9th Floor
Dallas, Texas 75254
Attention:
---------------------------------
Facsimile No.:
-----------------------------
If to a Contributor, at the address or facsimile number for the
relevant Contributor set forth on Exhibit A:
or at such other address or number as shall be designated by the REIT,
the Operating Partnership or a Contributor in a notice to other parties to this
Agreement. All such communications shall be deemed to have been duly given: (A)
in the case of a notice sent by regular mail, on the date actually received by
the addressee; (B) in the case of a notice sent by registered or certified mail,
on the date receipted for (or refused) on the return receipt; (C) in the case of
a notice delivered by hand, when personally delivered; (D) in the case of a
notice sent by facsimile, upon transmission subject to telephone confirmation of
receipt; and (E) in the case of a notice sent by overnight mail or overnight
courier service, the date delivered at the designated address, in each case
given or addressed as aforesaid.
Section 4.4 Separability. Should any clause, sentence, paragraph,
subsection or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the part or parts of this Agreement
so held to be invalid, unenforceable or void will be deemed to have been
stricken herefrom, and the remainder will have the same force and effectiveness
as if such stricken part or parts had never been included herein.
Section 4.5 Entire Agreement. This Agreement sets forth all of the
covenants, agreements, conditions, understandings, warranties and
representations of the REIT, the Operating Partnership and the Contributors
relative to the subject matter hereof, and any previous agreement among such
parties with respect to the subject matter hereof is superseded by this
Agreement.
Section 4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement to be duly executed and delivered by
the general partner or duly authorized officer of each of the parties hereto, to
be effective as of the date first above written.
ASHFORD HOSPITALITY TRUST,
INC., A MARYLAND CORPORATION
By:
-----------------------------------------
Name:
---------------------------------------
Title: Vice President
ASHFORD HOSPITALITY LIMITED
PARTNERSHIP, A DELAWARE LIMITED
PARTNERSHIP
By: Ashford OP General Partner L.L.C.,
its General Partner
By:
-----------------------------------------
Name:
---------------------------------------
Title: Vice President
CONTRIBUTORS
REMINGTON SUITES AUSTIN, L.P.
By: Remington Suites Austin, Inc.,
as general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Exhibit A - Contributors
<PAGE>
REMINGTON SUITES DALLAS, L.P.
By: Remington Suites Dallas, Inc.,
as general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
REMINGTON SUITES DULLES, L.P.
By: Remington Suites Dulles, Inc.,
as general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
REMINGTON SUITES LAS VEGAS, L.P.
By: Remington Suites Las Vegas, Inc.,
as general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
CHICAGO ILLINOIS HOTEL LIMITED PARTNERSHIP
By: Illinois Hotel II Corp., as
general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------