Form of Tax Indemnity Agreement

EXHIBIT 10.9


TAX INDEMNITY AGREEMENT


BY AND AMONG


JOHN Q. HAMMONS HOTELS TWO, L.P.,


JOHN Q. HAMMONS HOTELS, INC.


JOHN Q. HAMMONS,


HAMMONS, INC.


REVOCABLE TRUST OF JOHN Q. HAMMONS,


AND


[JOHN Q. HAMMONS HOTELS, L.P.]


Dated as of ______________, 2005


TAX INDEMNITY AGREEMENT


THIS TAX INDEMNITY AGREEMENT ("Agreement") is made as of , 2005, among John Q. Hammons ("JQH"), in his individual capacity, Hammons, Inc., a Missouri corporation, the Revocable Trust of John Q. Hammons, 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 Hammons, Inc. and JQH, the "Beneficiaries"), John Q. Hammons Hotels, Inc., a Delaware corporation, and [JOHN Q. HAMMONS HOTELS, L.P.], a Delaware limited partnership ("Hotels LP") and John Q. Hammons 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 Hammons, 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 John Q. Hammons, 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 John Q. Hammons, in his individual capacity.


"JQH Hotels" shall mean John Q. Hammons 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 [JOHN Q. HAMMONS HOTELS, L.P.,] dated as of the date hereof, by and among JQH Hotels, JQH Trust and Hammons, 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 John Q. Hammons 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 ...