Exhibit 2.7
FORM OF
TAX PROTECTION AGREEMENT
THIS TAX PROTECTION AGREEMENT (this "Agreement") is dated as of
___________, 2003, by and among Pennsylvania Real Estate Investment Trust, a
Pennsylvania business trust ("PREIT"), PREIT Associates, L.P., a Delaware
limited partnership ("PREIT Partnership"), and Crown American Properties, L.P.,
a Delaware limited partnership ("Crown Partnership"), Mr. Mark E. Pasquerilla
("Pasquerilla"), Crown Investments Trust ("CIT"), Crown American Investment
Company ("CAIC"), Crown Holding Company ("CHC"), and Crown American Associates
("CA") (Crown Partnership, Pasquerilla, CIT, CAIC, CHC and CA are referred to
herein collectively as the "Contributors," which term also includes the other
persons and entities described in the definition of "Contributor" set forth in
Section 1 below).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger among
PREIT, PREIT Partnership, Crown American Realty Trust ("Crown") and Crown
Partnership, dated as of May 13, 2003 (the "Merger Agreement"), PREIT, as
general partner of PREIT Partnership, and PREIT Partnership are making certain
undertakings to the Contributors, who will become direct and indirect limited
partners of PREIT Partnership as a result of the Crown Merger (as defined below
in Section 1) and the other transactions described in the Merger Agreement
(collectively, the "Merger Transactions"); and
WHEREAS, PREIT Partnership and the other parties hereto desire to enter
into this Agreement regarding certain matters with respect to the specified
properties identified on Schedule 1 to this Agreement (the "Protected
Properties," as further defined in Section 1 below) and certain indebtedness of
PREIT Partnership.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants, conditions and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T:
1. Definitions. All capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Merger Agreement. As used
herein, the following terms have the following meanings:
Accounting Firm: Has the meaning set forth in Section 2(f).
Arbitrator: Has the meaning set forth in Section 2(f).
Assumed Built-In Gain Calculation: Has the meaning set forth in Section
2(d).
Assumed Effective Tax Rate: Means, as to any Contributor, an amount
equal to the assumed effective federal, state and local income tax rate
applicable to long-term capital gains, computed assuming (i) an
effective combined federal, state and local income tax rate of 40%,
adjusted for future changes in the federal corporate income tax rate
applicable to long-term capital gains, which such adjustment shall be
based upon the assumption that the current federal corporate income tax
rate applicable to long-term capital gains is 35% and that a reduction
or increase in such rate will cause a corresponding change, percentage
point for percentage point, to the Assumed Effective Tax Rate.
Assumed Tax Payment Date: Means, as to any Contributor, in connection
with a breach by PREIT Partnership under either Section 2(a) or Section
3(a) resulting in the determination of a payment due under Section 2(c)
or Section 3(d), as applicable, the date that is five business days
prior to the Contributor's due date for the next required installment
of estimated tax (under Code Section 6655(c) or Code Section 6654(c),
as applicable) for which income recognized on the date of the event
causing the breach would be required to be taken into account. Such
date shall be determined without regard to whether an actual payment of
estimated taxes would be due from Contributor.
CA: Has the meaning set forth in the Preamble.
CAIC: Has the meaning set forth in the Preamble.
CFLP: Means Crown American Financing Partnership, L.P., a Delaware
limited partnership.
CHC: Has the meaning set forth in the Preamble.
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CIT: Has the meaning set forth in the Preamble.
Code: Means the Internal Revenue Code of 1986, as amended.
Contributors: Means, as of the date hereof, Crown Partnership,
Pasquerilla, CIT, CAIC, CHC and CA, and, after the date hereof, any
person who holds Protected Units who acquired such Protected Units from
a Contributor in a transaction in which gain or loss is not recognized
in whole or in part for federal income tax purposes and in which such
transferee's adjusted basis, as determined for federal income tax
purposes, is determined by reference to the adjusted basis of the
Contributor in such Protected Units.
Crown: Has the meaning set forth in the Recitals.
Crown Indemnifying Parties: Has the meaning set forth in Section 9.
Crown Merger: Means the merger of Crown, with and into PREIT, with
PREIT surviving.
Crown Partnership: Has the meaning set forth in the Preamble.
Crown Partnership Contribution Agreement: Means that certain agreement
by and between Crown Partnership and PREIT Partnership, dated as of May
13, 2003.
Crown Properties: Means those properties acquired by PREIT Partnership
from Crown and Crown Partnership in the Crown Merger and the other
Merger Transactions, including, without limitation, the Protected
Properties and the Liquidating Properties.
Crown Proportionate Interest: Has the meaning set forth in the Crown
Partnership Distribution Agreement, dated as of May 13, 2003.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Final Determination: Shall have the meaning ascribed to the term
"determination" in Sections 1313(a)(1), (a)(2) and (a)(4) of the Code.
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Final Notice: Shall have the meaning set forth in Section 7(b)(i).
First Protection Period: Means the period commencing on ________, 2003
and ending on the earlier of (i) ________, 2008, the fifth (5th)
anniversary thereof, or (ii) the first date on which the MEP Group
beneficially owns (as defined by Rule 13-d(3) of the Exchange Act) in
the aggregate less than twenty-five percent (25%) of the aggregate
number of common shares of PREIT and PREIT OP Units issued to the MEP
Group pursuant to the Crown Merger and the other Merger Transactions.
Gross-Up Amount: Means, as to any Contributor, an amount equal to the
Assumed Effective Tax Rate times the amount of any Tax Cost payable to
such Contributor under Section 2(c)(i), Section 2(d)(iii)(A), Section
2(d)(iii)(B)(3.) or Section 3(d), as relevant, and the Gross-Up Amount,
as provided for therein, so that after receipt by such Contributor of
amounts received pursuant to Section 2(c)(i), Section 2(d)(iii)(A),
Section 2(d)(iii)(B)(3.) or Section 3(d), as relevant, such Contributor
would retain an amount equal to the assumed Tax Cost, after reduction
for the assumed taxes on such assumed Tax Cost and Gross-Up Amount,
computed at the Assumed Effective Tax Rate.
Guaranteed Amount: Means, as to each Guarantee Partner, the amount of
the Guaranteed Debt guaranteed by such Guarantee Partner, as set forth
on Schedule 2 to this Agreement.
Guaranteed Debt: Means the Qualifying Debt guaranteed by the Guarantee
Partners.
Guarantee Opportunity: Shall have the meaning set forth in Section
3(a).
Guarantee Partners: Means the Contributors whose names are set forth on
Schedule 2 to this Agreement.
Guarantee Protection Period: Means the period commencing on __________,
2003 and ending on _________, 2018, the fifteenth (15th) anniversary
thereof.
Guaranty Agreement: With respect to guarantees in existence as of
__________, 2003, the term Guaranty Agreement means the agreement dated
as of August 28, 1998, as amended to the date of the Merger Agreement,
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by CIT and General Electric Capital Corporation. With respect to any
guarantee entered into pursuant to Section 3(a) hereof, the term
Guaranty Agreement means a guarantee entered into by the Guarantee
Partners substantially in the form of the agreement attached as Exhibit
A to this Agreement.
Institution: Shall have the meaning set forth in the definition of
Interest Expense in this Section 1.
Interest Expense: Means, with regard to a Contributor, an amount equal
to either:
(i) The actual interest incurred by such Contributor each
calendar quarter on a loan, if such loan is entered into, from
a lender who is, as of the date the loan is made, a "qualified
person" within the meaning of Section 49(a)(1)(D)(iv) of the
Code, which loan would be entered into for the purpose of
funding the payment of the Tax Cost of such Contributor as a
result of a breach by PREIT Partnership of Section 2(a) or
Section 3(a), as relevant, with a principal amount equal to
such Tax Cost, computed assuming (A) the term of the loan
commences on the Contributor's Assumed Tax Payment Date and
ends on the expiration of the Second Protection Period, (B)
the repayment of the loan will be made on a monthly basis, (C)
the loan will be unsecured but fully recourse to the
Contributor (and, if not the Contributor, fully recourse to
CIT and CAIC, but otherwise without recourse to, or guarantees
from, affiliates of the Contributor), and (D) the loan is
otherwise on commercially reasonable terms; provided that in
the case of this clause (i), such Contributor shall provide to
PREIT Partnership thirty (30) days notice of the terms of such
loan and, if within thirty (30) days after receipt of such
notice, PREIT Partnership delivers to such Contributor a
letter from a lender that is a "qualified person" within the
meaning of Section 49(a)(1)(D)(iv) of the Code offering to
provide to such Contributor a loan satisfying the conditions
in this clause (i) at an interest rate below the rate
specified in the notice from such Contributor to PREIT
Partnership (referred to herein as a "Qualified Loan Offer"),
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the Interest Expense shall not exceed the interest that would
be paid on the loan described in the Qualified Loan Offer. If
requested by PREIT Partnership, a Contributor shall provide
such cooperation as is reasonably requested (including,
without limitation, providing to a prospective lender such
financial information as a prospective lender might
customarily request) in order to facilitate the issuance of a
Qualified Loan Offer; or
(ii) If Contributor elects not to incur a loan described in
clause (i), the interest that would have been incurred by such
Contributor each calendar quarter on a hypothetical loan in
the principal amount equal to the Tax Cost from a lender
described in clause (i) and meeting the conditions described
in subclauses (A) through (D) of clause (i), which interest
shall be determined by a nationally recognized independent
financial institution (the "Institution") jointly selected and
retained by PREIT Partnership and the Contributor. The
determination made by the Institution shall be final,
conclusive and binding on PREIT Partnership and the
Contributor. PREIT Partnership and the Contributor shall share
the fees and expenses of any Institution equally.
Liquidating Properties: Means West Manchester Mall, York, PA; Uniontown
Mall, Uniontown, PA; Mount Berry Square, Rome, GA; Shenango Valley
Mall, Sharon, PA; Schuylkill Mall, Frackville, PA; and Bradley Square
Mall, Cleveland, TN.
MEP Group: Has the meaning set forth in the Merger Agreement.
Merger Agreement: Has the meaning set forth in the Recitals.
Merger Transactions: Has the meaning set forth in the Recitals.
Original Built-In Gain: Means, in regard to a Protected Property, the
lesser of (i) the amount of gain that was deferred with respect to a
Contributor pursuant to Section 721 of the Code at the time of the
contribution of such Protected Property to Crown Partnership, or (ii)
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the amount of gain that would have been allocated to such Contributor
pursuant to Section 704(c) of the Code if Crown Partnership were to
have disposed of the Protected Property on ___________ [to be the date
immediately preceding the date of the Merger] in a fully taxable
transaction, reduced in either case from the date hereof by reductions
after the date hereof in the "book-tax disparity" (as computed for
purposes of Section 704(c) of the Code) with respect to such Protected
Property (but only if and to the extent that such reduction is matched
dollar for dollar by a reduction in the taxable gain allocable to the
Contributor pursuant to Section 704(c) of the Code by reason of a sale
or other disposition).
Pasquerilla: Has the meaning set forth in the Preamble.
Protected Properties: Means those properties set forth on Schedule 1 to
this Agreement and any other properties or assets acquired by PREIT
Partnership as "exchanged basis property" (as defined in Section
7701(a)(44) of the Code) with respect to such Protected Properties. In
no event shall the term "Protected Property" be deemed to refer to any
of the Liquidating Properties or any direct or indirect interest in any
of the Liquidating Properties.
Protected Units: Means only those PREIT OP Units issued to Crown
Partnership in the Merger Transactions, or any PREIT OP Units
thereafter issued by PREIT Partnership to the Crown Partnership or any
other Contributors in exchange for such Protected Units or solely with
respect to such Protected Units or pursuant to the exercise of an
option pursuant to which PREIT Partnership acquires limited partnership
interests in CFLP and WCALP from Crown Partnership as set forth in the
Crown Contribution Agreement. The term Protected Units shall not
include any other PREIT OP Units hereafter acquired by a Contributor,
whether from PREIT Partnership or otherwise.
Qualified Loan Offer: Has the meaning set forth in the definition of
Interest Expense in this Section 1.
Qualifying Debt: Means indebtedness of PREIT Partnership that is
described in (i), (ii) or (iii) below:
(i) In the case of indebtedness secured by any property or
other asset of PREIT Partnership and not recourse to all of
the assets of PREIT Partnership, it is the most senior
indebtedness secured by that property or asset, and the
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property securing the indebtedness must have a fair market
value, at the time that the Guarantee Opportunity is offered,
at least equal to (a) 333% of the aggregate amount of the
guarantees provided by Guarantee Partners hereunder with
respect to such indebtedness, and (b) 133% of the aggregate
amount of all indebtedness secured by such property; or
(ii) In the case of indebtedness that is recourse to
substantially all of the assets of PREIT Partnership, the
indebtedness is at all times the most senior indebtedness of
PREIT Partnership (but there shall not be a prohibition
against other indebtedness that is pari passu with such
indebtedness) and the face amount of the indebtedness
outstanding is at all times at least equal to 200% of the
aggregate amount of the guarantees provided hereunder; or
(iii) The indebtedness that is guaranteed as of __________,
2003, by one or more of the Guarantee Partners pursuant to the
Guaranty Agreement.
In addition, at no time can there be guarantees with respect to the
same indebtedness that are not provided by other Guarantee Partners
pursuant hereto that are prior to or pari passu with the guarantees
provided by the Guarantee Partners pursuant hereto (but there shall be
no prohibition on guarantees of other portions of such indebtedness);
provided, however, that such prohibition shall not apply with respect
to any other guarantees of such debt that are in effect as of the date
hereof with respect to any of the Guaranteed Debt described in clause
(iii) above.
PREIT: Has the meaning set forth in the Preamble.
PREIT OP Units: Means partnership interests of PREIT Partnership, which
are denominated as units.
PREIT Partnership: Has the meaning set forth in the Preamble.
PREIT Partnership Agreement: Means the First Amended and Restated
Agreement of Limited Partnership of PREIT Associates, L.P., dated as of
September 30, 1997, as amended.
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Response Period: Has the meaning set forth in Section 7(b)(i).
Second Protection Period: Means the period commencing on _________,
2008, the first day following the last day of the First Protection
Period, and ending on the earlier of (i) __________, 2011, the eighth
(8th) anniversary of the closing of the Merger Transactions, or (ii)
the first date on which the MEP Group beneficially owns (as defined by
Rule 13-d(3) of the Exchange Act) in the aggregate less than
twenty-five percent (25%) of the aggregate number of common shares of
PREIT and PREIT OP Units issued to the MEP Group pursuant to the Crown
Merger and the other Merger Transactions; provided, however, that there
shall be no Second Protection Period if the First Protection Period
terminates by reason of clause (ii) in the definition of the First
Protection Period.
Subsidiary: Means any subsidiary of PREIT Partnership that owns a
Protected Property, after giving effect to the Merger Transactions, or
that thereafter is a successor to PREIT Partnership's direct or
indirect interest in a Protected Property.
Successor Partnership: Has the meaning set forth in Section 2(b).
Tax Cost: Means, as to each Contributor, an amount equal to the Assumed
Effective Tax Rate times the income and/or gain required to be
recognized by such Contributor as a result of a breach of Section 2(a)
or Section 3(a) of this Agreement, as applicable (determined subject to
the limitations set forth in Section 2((d)(i) and (ii) or Section 3(d),
as applicable).
WCALP: Means Washington Crown Center Associates L.P., a Pennsylvania
limited partnership.
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2. Restriction on Dispositions of Protected Properties.
(a) Restriction. PREIT Partnership agrees for the benefit of each
Contributor, for the cumulative term of the First Protection Period and the
Second Protection Period, that neither it nor any Subsidiary will directly or
indirectly sell, exchange, or otherwise dispose of any Protected Property except
as otherwise expressly permitted pursuant to this Agreement.
(b) Exceptions. Notwithstanding the restriction set forth in Section
2(a), PREIT Partnership may dispose of a Protected Property if such disposition
qualifies as a like-kind exchange under Section 1031 of the Code, or an
involuntary conversion under Section 1033 of the Code, or other transaction
(including, but not limited to, a contribution of property to any entity that
qualifies for the nonrecognition of gain under Section 721 or Section 351 of the
Code, or a merger or consolidation of PREIT Partnership with or into another
entity that qualifies for taxation as a "partnership" for federal income tax
purposes (a "Successor Partnership")) that does not result in the recognition of
any Original Built-In Gain that would be allocable to a Contributor with respect
to Protected Units; provided, however, that: (i) in the event of a disposition
under Section 1031 or Section 1033 of the Code, any property that is acquired in
exchange for or as a replacement for a Protected Property shall thereafter be
considered a Protected Property for purposes of this Section 2; (ii) if the
Protected Property is transferred to another entity in a transaction in which
gain or loss is not recognized, the interest of PREIT Partnership in such entity
shall thereafter be considered a Protected Property for purposes of this Section
2, and if the acquiring entity's disposition of the Protected Property would
cause a Contributor to recognize any Original Built-In Gain as a result thereof,
the transferred Protected Property still shall be considered a Protected
Property for purposes of this Section 2; and (iii) in the event of a merger or
consolidation involving PREIT Partnership and a Successor Partnership, the
Successor Partnership shall have agreed in writing for the benefit of the
Contributors that all of the restrictions of this Section 2 shall apply with
respect to the Protected Properties, or such restrictions shall otherwise so
apply by operation of law. In addition, none of the transactions that make up
any of the Merger Transactions (including, without limitation, any transactions
involving any of the Liquidating Properties or any interest in any entity that
owns an interest in any of the Liquidating Properties) shall be considered to be
in violation of Section 2(a) of this Agreement.
(c) Damages. In the event that PREIT Partnership breaches its
obligation set forth in Section 2(a) with respect to a Contributor, except as
set forth in Section 2(d) below, the Contributor's sole right shall be to
receive from PREIT Partnership as damages an amount equal to the following:
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(i) If the breach occurs during the First Protection Period,
the sum of (A) the Tax Cost attributable to such breach and
(B) the Gross-Up Amount.
(ii) If the breach occurs during the Second Protection Period,
the Interest Expense.
(iii) If the breach occurs as a result of an "installment
sale" (within the meaning of Section 453(b)(1) of the Code),
PREIT Partnership may elect, in its sole and absolute
discretion, to pay to each Contributor on an annual basis
through the end of the Second Protection Period, in lieu of
payment under subclause (i) or (ii) of this Section 2(c), the
sum of (A) the amount of the payment that would be required to
be made to such Contributor under subclause (i) or (ii), as
applicable, with regard to the Original Built-In Gain required
to be recognized for the year at issue as a result of such
breach, after taking into account the application of the
"installment sale" rules, plus (B) the lesser of (1.) the
product of (a) the amount of the Original Built-In Gain that
is deferred to a subsequent year under the "installment sale"
rules multiplied by (b) the interest rate specified in Section
453A(c)(2)(B) of the Code, and (2.) the actual amount of
interest payable by such Contributor with respect to the year
at issue under Section 453A(c) of the Code (which amount shall
be determined for each year on the basis of a certificate
addressed to PREIT Partnership from the entity that prepared
or reviewed the federal income tax return of the Contributor
for the relevant taxable year, which certificate shall state
and warrant either (x) the actual amount of interest reported
on the Contributor's federal income tax return as due to the
Internal Revenue Service from such Contributor with respect to
such year pursuant to Section 453A of the Code, or (y) that
the amount described in subclause (1.) above with respect to
the Contributor was less than the actual amount of interest
reported on the Contributor's federal income tax return as due
to the Internal Revenue Service from such Contributor with
respect to such year pursuant to Section 453A of the Code).
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(d) Assumptions Regarding Determination of Tax Cost and Related
Amounts.
(i) In determining the Tax Cost, the Gross-Up Amount and/or
the Interest Expense for purposes of Section 2(c) and related
provisions of this Section 2, only Original Built-In Gain required to
be recognized by the respective Contributor by reason of the breach of
the covenants set forth in Section 2(a) and allocated to such
Contributor from PREIT Partnership by reason of Section 704(c) of the
Code shall be taken into account. Prior to the closing of the Crown
Merger, Crown Partnership distributed to Crown in liquidation of
Crown's interest in Crown Partnership the Crown Proportionate Interest
in substantially all of the assets of Crown Partnership (including,
directly or indirectly, each of the Protected Properties), subject to a
percentage of the liabilities of Crown Partnership equal to the Crown
Proportionate Interest. It is the understanding and intention of the
parties that, as a result of such distribution in liquidation of
Crown's interest by Crown Partnership to Crown, the Original Built-In
Gain attributable to the Protected Properties that would be allocable
to the Contributors in the future was reduced by a percentage equal to
the Crown Proportionate Interest.
(ii) Each of the parties hereto agrees (A) that, for purposes
of computing the Tax Cost, the Gross-Up Amount and/or the Interest
Expense for purposes of Section 2(c) and related provisions of this
Section 2, unless there is a Final Determination to the contrary, such
computations shall be made assuming that the Original Built-In Gain
attributable to the Protected Properties that would be allocable to the
Contributors in the future was reduced by a percentage equal to the
Crown Proportionate Interest prior to the contribution of the Protected
Properties to PREIT Partnership as part of the Merger Transactions (the
"Assumed Built-In Gain Calculation"), and (B) to prepare its tax
returns and/or information returns relating to any transaction that
results in the recognition of Original Built-In Gain by PREIT
Partnership and/or any of the Contributors in a manner consistent with
the Assumed Built-In Gain Calculation and not to take any position or
make any assertion inconsistent therewith in any proceedings with the
Internal Revenue Service or any other taxing authority. Any challenge
by the Internal Revenue Service or any other taxing authority relating
to the Assumed Built-In Gain Calculation shall be governed by Section 7
below.
(iii) In the event of a Final Determination that the
percentage of the Original Built-In Gain of Crown Partnership allocable
to the Contributors exceeds the amount contemplated under the Assumed
Built-In Gain Calculation and such increased amount is not attributable
to either the fact that Crown Partnership or any partnership in which
Crown Partnership owned an interest had in effect with respect to the
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taxable year in which the Merger Transactions closed a "Section 754
election," or a breach by any of the Contributors of their obligations
set forth in Section 2(d)(ii)(B) and/or Section 6(a) below, the amount
of damages under Section 2(c) for a breach of Section 2(a) shall equal:
(A) if the breach of Section 2(a) occurs during the First
Protection Period, the sum of (1.) the Tax Cost and (2.) the
Gross-Up Amount (both calculated without giving effect to the
limitations in Sections 2(d)(i) and 2(d)(ii) and based upon
the actual amount of such Original Built-In Gain required to
be recognized as a result of such Final Determination); and
(B) if the breach of Section 2(a) occurs during the Second
Protection Period:
(1.) with regard to the first $85.0 million of
Original Built-In Gain allocable to the Contributors,
in the aggregate, as a result of one or more breaches
of Section 2(a) during the Second Protection Period,
the Interest Expense attributable to the actual
amount of such Original Built-In Gain required to be
recognized during the Second Protection Period;
(2.) with regard to 50% of the Original Built-In Gain
in excess of $85.0 million that is allocable to the
Contributors, in the aggregate, as a result of one or
more breaches of Section 2(a) during the Second Tax
Protection Period, the Interest Expense attributable
to the actual amount of such Original Built-In Gain;
and
(3.) with regard to the remaining 50% of the Original
Built-In Gain in excess of $85.0 million that is
allocable to the Contributors, in the aggregate, as a
result of one or more breaches of Section 2(a) during
the Second Tax Protection Period, the sum of (a) the
Tax Cost and (b) the Gross-Up Amount attributable to
the actual amount of such Original Built-In Gain.
(e) Sole and Exclusive Remedy. Notwithstanding any provision of this
Agreement, the sole and exclusive rights and remedies of any Contributor for a
breach or violation of the covenants set forth in Section 2(a) shall be a claim
for damages against PREIT Partnership, computed as set forth in Sections 2(c)
and (d), and no Contributor shall be entitled to pursue a claim for specific
performance of the covenants set forth in Section 2(a) or bring a claim against
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any person that acquires a Protected Property from PREIT Partnership in
violation of Section 2(a) (other than a Successor Partnership that has agreed in
writing to be bound by the terms of this Agreement or that has otherwise
succeeded to all of the assets and all of the liabilities of PREIT Partnership,
but then only for damages computed as set forth in Sections 2(c) and 2(d)).
(f) Determination Procedures; Payment Schedule.
(i) If PREIT Partnership has breached or violated the covenant
set forth in Section 2(a) (or a Contributor asserts that PREIT
Partnership has breached or violated the covenants set forth
in Section 2(a)), PREIT Partnership and the Contributor agree
to negotiate in good faith to resolve any disagreements
regarding any such breach or violation and the amount of
damages, if any, payable to such Contributor, as computed
under Sections 2(c) and 2(d). If any such disagreement cannot
be resolved by PREIT Partnership and such Contributor within
sixty (60) days after such breach, PREIT Partnership and the
Contributor shall jointly retain an arbitrator (the
"Arbitrator") to resolve as expeditiously as possible all
points of any such disagreement (including, without
limitation, whether a breach of the covenant set forth in
Section 2(a) has occurred and, if so, the amount of damages to
which the Contributor is entitled as a result thereof,
determined as set forth in Sections 2(c) and (d)). If the
disagreement is based solely on the amount of damages (and not
as to whether a breach has occurred), then PREIT Partnership
and the Contributor shall jointly retain a nationally
recognized independent public accounting firm (an "Accounting
Firm") to act as an arbitrator for the purpose of resolving as
expeditiously as possible the amount of damages to which the
Contributor is entitled as a result of the breach. (The amount
of damages to be determined by the Arbitrator or Accounting
Firm, as applicable, shall include any interest required to be
paid to any taxing authority (other than interest that, to the
extent Section 2(c)(ii) applies, is compensated for by the
payment to the Contributor of Interest Expense, and to the
extent Section 2(c)(iii) applies, is compensated for by the
payments provided for therein) and any penalties or additions
to tax required to be paid to any taxing authority caused by
PREIT Partnership's delay in payment.) All determinations made
by the Arbitrator or the Accounting Firm, as applicable, with
respect to the resolution of any breach or violation of the
covenants set forth in Section 2(a) and the amount of damages
payable to the Contributor under Sections 2(c) and 2(d) shall
be final, conclusive and binding on PREIT Partnership and the
Contributor. The fees and expenses of any Arbitrator or
Accounting Firm shall be shared equally by PREIT Partnership
and the Contributor.
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(ii) PREIT Partnership shall pay any damages payable to a
Contributor under Section 2(c) or Section 2(d) on the
Contributor's Assumed Tax Payment Date, or, if later, not
later than ten business days following a determination of
damages in accordance with this Section 2(f); provided,
however, that, subject to the determination procedures
described in this Section 2(f), (i) the Interest Expense shall
be paid on the closest business day falling on or before the
last day of each calendar quarter during the term such
Interest Expense is (or would be, in the case of a
hypothetical loan) payable, except that the last payment shall
be made on the last day of the Second Protection Period; and
(ii) each annual payment, if any, pursuant to Section
2(c)(iii) shall be made not later than five business days
prior to the due date (determined without regard to any
extensions thereof) for the filing of such Contributor's tax
return for the taxable year to which such payment relates.
(iii) If PREIT Partnership makes a payment for damages under
this Section 2 and, at any time thereafter, there is a Final
Determination that the Contributor is required to recognize a
greater amount of income or gain than the income or gain
assumed when calculating such damages, the difference between
the damages calculated using the redetermined income or gain
and the damages previously paid shall be paid by PREIT
Partnership within ten (10) business days of the Final
Determination.
3. Election by Contributors to Enter into Guarantees of Debt of PREIT
Partnership.
(a) Requirement to Provide Guarantee Opportunity. During the
First Protection Period and, if a Guarantee Partner shall so elect in a
written notice to PREIT Partnership received at least 15 days prior to
the termination of the First Protection Period on _________, 2008,
during the remaining portion of the Guarantee Protection Period, PREIT
Partnership shall make available to each Guarantee Partner the
opportunity (a "Guarantee Opportunity") to make a "bottom guarantee" of
Qualifying Debt of PREIT Partnership or a Subsidiary in the form of the
Guaranty Agreement and in an amount equal with respect to each
Guarantee Partner to the amount set forth on Schedule 2 to this
Agreement, determined taking into account all existing guarantees of
such Guarantee Partner that are then in effect (treating as "bottom
guarantees" for this purpose the guarantees that are in effect with
respect to the indebtedness that is guaranteed as of _________, 2003,
by the Guarantee Partners pursuant to the Guaranty Agreement, as set
forth on Schedule 2 to this Agreement). During the Guarantee Protection
Period, if part or all of a Guaranteed Debt is repaid and, immediately
after such repayment, (i) the amount remaining outstanding with respect
to such Guaranteed Debt would be less than the Guaranteed Amount with
respect to such Guaranteed Debt or (ii) the Guaranteed Debt no longer
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would be treated as Qualifying Debt, PREIT Partnership shall provide to
each Guarantee Partner that had a Guaranteed Amount with respect to
such Guaranteed Debt a new Guarantee Opportunity in an amount equal to
such Partner's Guaranteed Amount with respect to the Guaranteed Debt
being repaid or no longer qualifying as Qualifying Debt, provided that
if the Guaranteed Debt is not being repaid in full, the new Guaranty
Opportunity can be an offer to allow a guarantee of a portion of that
remaining debt so long as the remaining portion of such debt, after
taking into account the Guaranty Opportunities being offered with
respect thereto, would be Qualifying Debt.
In the event that PREIT Partnership is required to offer a
Guarantee Opportunity pursuant to this Section 3(a), PREIT Partnership
will provide the Guarantee Partners notice of the type, amount and
other relevant attributes of the Qualifying Debt with respect to which
the Guarantee Opportunity is offered at least twenty (20) business days
prior to (x) the earlier of the closing of the incurrence of such debt
and the scheduled repayment of the existing Guaranteed Debt and (y) any
subsequent date on which PREIT Partnership makes available additional
Guarantee Opportunities by reason of the repayment of any indebtedness
then subject to a Guarantee by the Guarantee Partners. In the event
that PREIT Partnership repurchases outstanding Guaranteed Debt, whether
or not such debt is retired, the repurchase thereof shall be treated as
a repayment of the Guaranteed Debt for purposes of this Section 3.
(b) Agreement to Use Commercially Reasonable Efforts to
Provide Additional Guarantee Opportunities. After the expiration of the
Guarantee Protection Period, PREIT Partnership agrees to use
commercially reasonable efforts to make available to each Guarantee
Partner a Guarantee Opportunity under terms similar to those described
in Section 3(a) above, provided, however, that the Guaranteed Amount of
each Guarantee Partner shall not exceed the lesser of the amount of
such Guarantee Partner's negative tax capital account with respect to
Crown Partnership on the last day of the Guarantee Protection Period or
such Guarantee Partner's negative tax capital account with respect to
Crown Partnership on the date hereof. PREIT Partnership's only
obligation with respect to this Section 3(b) shall be to use
commercially reasonable efforts. In the event PREIT Partnership fails
to use commercially reasonable efforts to provide additional guarantee
opportunities to each Guarantee Partner under this Section 3(b), the
exclusive remedy of such Guarantee Partners shall be an action for
specific performance, with no entitlement to monetary damages.
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(c) No Representations or Warranties. PREIT Partnership makes
no representation or warranty to any Guarantee Partner that any
guarantee currently in effect or any guarantee entered into pursuant to
Section 3(a) or Section 3(b) shall be respected for federal income tax
purposes for purposes of causing the Guarantee Partner to be considered
to bear the "economic risk of loss" with respect to the indebtedness
thereby guaranteed by such Guarantee Partner for purposes of either
Section 752 or Section 465 of the Code.
(d) Damages. In the event that PREIT Partnership breaches its
obligation set forth in Section 3(a) with respect to a Guarantee
Partner during the Guarantee Protection Period, the Guarantee Partner's
sole right shall be to receive from PREIT Partnership as damages an
amount equal to the sum of (A) the Tax Cost as a result of such breach
and (B) the Gross-Up Amount.
In no event shall the amount taken into account for purposes
of computing the damages payable under this Section 3(d) exceed the
amount of gain that would have been recognized by the Guarantee Partner
if, at the closing of the Merger Transactions, such Guarantee Partner
had recognized an amount of gain equal to the "negative tax capital
account" that it had with respect to its interest in the Crown
Partnership at the time of the Merger Transactions, determined taking
into consideration any adjustments occurring as a direct result of the
Merger Transactions, provided that such adjustments do not result in a
"negative tax capital account" that exceeds the Guaranteed Amount with
respect to such Guarantee Partner. PREIT Partnership shall be
considered to have satisfied its obligations under Section 3(a), and
therefore shall have no liability under this Section 3(d), if it makes
an offer to a Guarantee Partner of an opportunity to guarantee
Qualifying Debt within the time periods specified in Section 3(a) and
PREIT Partnership shall have no liability if a Guarantee Partner fails
to join in such guarantee of Qualifying Debt.
This Section 3(d) shall have no application in the event of a
breach by PREIT Partnership of its obligations under Section 3(b), the
exclusive remedy of a Contributor for any such breach being an action
for specific performance of the obligations of PREIT Partnership
thereunder.
(e) Sole and Exclusive Remedy; Payment Schedule.
(i) Notwithstanding any provision of this Agreement,
the sole and exclusive rights and remedies of any
Guarantee Partner for a breach or violation of the
covenants set forth in Section 3(a) shall be a claim
for damages against PREIT Partnership, computed as
set forth in Section 3(d), and no Guarantee Partner
shall be entitled to pursue a claim for specific
performance of the covenants set forth in Section
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3(a). If PREIT Partnership has breached or violated
the covenant set forth in Section 3(a) (or a
Guarantee Partner asserts that PREIT Partnership has
breached or violated the covenant set forth in
Section 3(a)), procedures similar to those described
in Section 2(f)(i) shall apply (substituting for this
purpose, to the extent relevant, "Section 3" for
"Section 2" wherever "Section 2" appears).
(ii) Payment of damages required under Section 3(d)
shall be made under the same principles as those set
forth in Sections 2(f)(ii) and (iii) (substituting
for this purpose, to the extent relevant, "Section 3"
for "Section 2" wherever "Section 2" appears).
(f) Allocation Covenant. PREIT Partnership acknowledges that
the purpose of providing Guarantee Opportunities and specifically
allowing the Contributors to guarantee Qualifying Debt is to provide
for an allocation under Section 752 of the Code of the indebtedness of
PREIT Partnership and its Subsidiaries to the Contributors in an amount
equal to the Guaranteed Amount. Subject to Section 6(b) hereof and the
following, PREIT Partnership shall file its tax returns in a manner
consistent with such allocation. PREIT Partnership shall not be
required to make allocations of Guaranteed Debt to the Contributors as
set forth above if and to the extent that PREIT Partnership determines
in good faith that there may not be "substantial authority" (within the
meaning of Section 6662(d)(2)(B)(i)) of the Code for such allocations;
provided that PREIT Partnership shall provide to the Contributors
notice of such determination and if, within forty five (45) days after
the receipt of such notice, PREIT Partnership is provided an opinion of
Reed Smith, Sullivan & Cromwell, or Ernst & Young (or another
comparable law firm or Accounting Firm) to the effect that there is
"substantial authority" (within the meaning of Section 6662(d)(2)(B)(i)
of the Code) for such allocations, PREIT Partnership shall continue to
make allocations of Guaranteed Debt to the Contributors as set forth in
the first and second sentences of this Section 3(f). Notwithstanding
the foregoing, if there shall have been a judicial determination in a
proceeding to which PREIT Partnership is a party and as to which the
Contributors have been allowed to participate (as and to the extent
contemplated in Section 7) to the effect that such allocations are not
correct, the first and second sentences of this Section 3(f) shall not
apply unless (i) the matter is being appealed to an applicable court of
appeals, (ii) the requirements of Sections 7(b)(i) (y) and (z) shall
have been satisfied in connection therewith, and (iii) the opinion
described above from a law firm or an Accounting Firm engaged by a
Contributor shall have been provided, except that such opinion shall be
to the effect that it is "more likely than not" that such allocations
will be respected. In no event shall this Section 3(f) be construed as
to relieve PREIT Partnership for liability arising from a failure by
PREIT Partnership to comply with one or more of the provisions of
Section 3(a) of this Agreement.
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(g) Cooperation in the Event of a Change. If a change in PREIT
Partnership's allocations of Guaranteed Debt to the Contributors is
required by reason of circumstances described in Section 3(f), PREIT
Partnership and its professional tax advisors shall cooperate in good
faith with the Contributors and their professional tax advisors to
develop alternative allocation arrangements and/or other mechanisms
that protect the federal income tax positions of the Contributors with
respect to their "negative tax capital accounts" in the manner
contemplated by the allocations of Guaranteed Debt to the Contributors
as set forth in this Agreement.
4. No Obligation of PREIT Partnership to Maintain Debt; No Other
Limitations.
(i) Notwithstanding any obligations of PREIT Partnership
referred to in this Agreement or otherwise, PREIT Partnership
shall not be obligated to maintain any level of indebtedness
in excess of the amounts specifically required to meet the
obligations set forth in Section 3 above.
(ii) Except as set forth in Section 2 and in Section 3 above,
neither PREIT Partnership nor PREIT shall be under any
restriction or limitation as to the actions it can take with
respect to the Protected Properties and the indebtedness of
PREIT Partnership and its Subsidiaries, whether by reason of
fiduciary duty or otherwise, regardless of the tax
consequences that such action (or any failure to act) might
have for one or more Contributors.
5. No Limitations After Expiration of Term of the Agreement. After the
expiration of the applicable protection period, except to the extent of PREIT
Partnership's obligation under Section 3(b),
(a) the restrictions set forth in Sections 2 and 3 with
respect to the Protected Properties and the Guaranty Agreements shall
be of no force and effect;
(b) neither PREIT Partnership nor PREIT shall be under any
restriction or limitation as to the actions it can take with respect to
the Protected Properties and the indebtedness of PREIT Partnership and
its Subsidiaries, whether by reason of fiduciary duty or otherwise,
regardless of the tax consequences that such action (or any failure to
act) might have for one or more Contributors; and
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(c) PREIT Partnership and PREIT shall have no duty to consider
the tax consequences to the Contributors of any action (or failure to
act) with respect to the Protected Properties or the indebtedness of
PREIT Partnership and its Subsidiaries.
6. Income Tax Reporting Obligations of the Parties.
(a) Reporting Obligations. Each party hereto agrees that its
tax returns and/or information returns will be prepared in a manner
that reflect the intent of the parties set forth below:
(i) Whether, and the extent to which, gain recognized as a
result of a breach of Section 2(a) and allocated to a
Contributor is attributable to the Original Built-In Gain of
the Protected Property subject to the disposition shall be
determined under normal tax accounting rules, with the result
that the parties hereto will treat any such recognized gain as
attributable solely to the Original Built-In Gain of the
Protected Property until all of such Original Built-In Gain
has been recognized.
(ii) The amount of the Original Built-In Gain of Crown
Partnership allocable to the Contributors does not exceed the
amount determined under the Assumed Built-In Gain Calculation.
(b) No Representations, Warranties, or Liabilities. PREIT and
PREIT Partnership make no representation or warranty to the
Contributors that any of the reporting positions described in Sections
3(f) and 6(a) and intended to be taken thereunder will be respected by
the Internal Revenue Service, or that if any such position is
challenged by the Internal Revenue Service, such challenge will not be
successful. Except to the extent of PREIT Partnership's express
obligations under Section 2 of this Agreement, neither PREIT nor PREIT
Partnership shall have any liability to any Contributor under any
circumstances in the event of a challenge by the Internal Revenue
Service to any of the reporting positions described in Sections 3(f)
and 6(a) so long as PREIT and PREIT Partnership have complied in good
faith with their obligation to report such matters in the manner
intended in Sections 3(f) and 6(a). In the event that, as the result of
a change in statute or Treasury Regulations or a judicial decision or
published revenue ruling or similar administrative pronouncement
occurring subsequent to the date hereof, PREIT, as general partner of
PREIT Partnership, determines in good faith that there is no longer a
substantial basis for taking a reporting position contemplated by
Section 3(f) or Section 6(a), no party hereto shall be required
thereafter to take such reporting position; provided, however, that
PREIT Partnership shall provide notice of such determination to each
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Contributor and if any Contributor shall, within 30 days of receipt of
such notice, provide to PREIT Partnership an opinion of Reed Smith,
Sullivan & Cromwell LLP or other tax counsel, which other counsel shall
be reasonably acceptable to PREIT Partnership, to the effect that none
of PREIT, PREIT Partnership, any of their affiliates or any person
signing the applicable tax returns will be subject to any monetary or
disciplinary penalty if PREIT and PREIT Partnership continue to take
such reporting position, then PREIT and PREIT Partnership will continue
to take such reporting position.
7. Contests and Audits.
(a) Notification of Audits or Disputes. Upon receipt by a
party of any pending or threatened tax audit or assessment that may
affect the determination of (i) the amount of Original Built-In Gain
allocable to a Contributor by PREIT Partnership for a transaction or
event that occurred prior to the expiration of the Second Tax
Protection Period or (ii) the amount of liabilities allocated to a
Contributor by PREIT Partnership under Section 752 of the Code for a
period ending prior to the expiration of the Guarantee Protection
Period pursuant to Section 3(b), such party shall notify the other
party in writing within fourteen (14) days of the receipt of such
notice.
(b) Control and Settlement.
(i) Except as otherwise provided in this paragraph,
PREIT Partnership shall have (A) the exclusive right
(but, except as described in clause (y), not the
obligation) to control, and to represent the
interests of all affected taxpayers in, any tax audit
or administrative, judicial or other proceeding
described above in Section 7(a) and to employ counsel
of its choice, at PREIT Partnership's expense, and
(B) in the case of any proceeding involving the
matter described in clause (i) of Section 7(a), the
obligation to defend the position contemplated by
this Agreement, at the expense of PREIT Partnership;
provided, however, that PREIT Partnership shall not
enter into any settlement that affects, directly or
indirectly, the determination of the amount of
Original Built-In Gain allocable to a Contributor by
PREIT Partnership required to be recognized during
either the First Protection Period or the Second
Protection Period or the determination of the amount
of liabilities allocated to a Contributor under
Section 752 of the Code without the prior written
consent of such Contributor, which shall not be
unreasonably withheld. Each such Contributor shall
provide a written response to any written
notification by PREIT Partnership of a proposed
settlement within at least thirty (30) days (the
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"Response Period") of the receipt by the Contributor
of such notification. As a condition to withholding
its consent to a settlement pursuant to the preceding
sentence, a Contributor must: (x) have a reasonable
basis to believe that such settlement would have an
adverse impact on one or more of the Contributors
with respect to a matter covered by this Agreement,
(y) believe, based upon the advice of Reed Smith,
Sullivan & Cromwell LLP, or Ernst & Young LLP (or
another comparable law firm or Accounting Firm), that
it is "more likely than not" that the position
asserted by the Contributor would prevail if it were
to be asserted in a judicial proceeding (and upon the
written request of PREIT Partnership, such
Contributor shall provide to PREIT Partnership a
letter from such law firm or Accounting Firm
confirming such advice), and (z) except as
contemplated by clause (ii)(B) below with respect to
matters described in Section 7(a)(i), offer to assume
the subsequent costs of defending and asserting the
position asserted by the Contributor. If PREIT
Partnership has not received a response from such
Contributor within the first fourteen (14) days of
the Response Period, PREIT Partnership shall provide,
not less than ten (10) days prior to the expiration
of the Response Period, another written notification
(the "Final Notice") to the Contributor of the
proposed settlement. If PREIT Partnership has timely
provided the Final Notice and such Contributor fails
to so respond within the Response Period, such
Contributor shall be deemed to have consented to the
proposed settlement.
(ii)
(A) Except as provided in clause (B) below, in the event that
PREIT, as general partner of PREIT Partnership, determines, in good
faith and based on a reasoned analysis of outside advisors to PREIT
provided in writing (which written analysis PREIT will share with the
Contributors, if requested to do so), that PREIT Partnership would be
unlikely to prevail if it were to contest any tax audit or
administrative, judicial or other proceeding described above in Section
7(a), PREIT Partnership may elect not to contest any such proceeding,
provided, however, that, in this event, any of the Contributors shall
then be entitled to elect to contest any such proceeding, at such
Contributor's own expense. PREIT Partnership shall use good faith
efforts to provide to any Contributor and its designated tax advisor
the opportunity to participate in any tax audit or administrative,
judicial or other proceeding described above in Section 7(a), subject
to the following conditions: (1.) such participation shall be
exclusively at the expense of the Contributor and at no expense to
PREIT Partnership, and (2.) PREIT Partnership may place such
limitations on any such participation as it determines in good faith
are necessary or appropriate to avoid prejudicing its ability to
contest any adverse determination or assertion involving the amount, if
any, of the Original Built-In Gain required to be recognized by any one
or more of the Contributors during either the First Protection Period
or the Second Protection Period.
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(B) Notwithstanding clause (A) above, PREIT Partnership shall
undertake, at its expense, to contest a tax audit or administrative,
judicial or other proceeding described above in Section 7(a)(i) if a
Contributor provides to PREIT Partnership a letter from Reed Smith,
Sullivan & Cromwell LLP, or Ernst & Young LLP (or another comparable
law firm or Accounting Firm) to the effect that it is more likely than
not that the position asserted by the Contributor would prevail if it
were to be asserted in a judicial proceeding.
(C) The liability of PREIT Partnership with respect to any
Original Built-In Gain required to be recognized by any Contributor
shall be determined solely under Sections 2(c) and 2(d) above, and
PREIT Partnership, in no event, shall have any liability, monetary or
otherwise, relating to or arising out of the conduct of any proceedings
pursuant to its authority under this Section 7, except as expressly
provided for under Sections 2(c) and 2(d) above. The exclusive remedy
of any Contributor with respect to a claimed breach by PREIT
Partnership of its obligations under this Section 7 shall be an action
for specific performance, provided that the foregoing shall not in any
way limit the right of a Contributor to damages expressly provided for
in Section 2(c), Section 2(d) and Section 3(d) above.
8. Section 704(c) Method. Notwithstanding any provision of the PREIT
Partnership Agreement, PREIT Partnership shall use the "traditional method"
under Treasury Regulations Section 1.704-3(b) for purposes of making allocations
under Section 704(c) of the Code with respect to each of the Protected
Properties, with no "curative" or "remedial" allocations under Section 704(c) of
the Code other than, to the extent permitted under Treasury Regulations ss.
1.704-3(c), curative allocations of gain recognized on a disposition of an
interest in any Crown Property to offset the impact of the "ceiling rule" with
respect to such property. The fair market values of the Crown Properties for
purposes of making allocations pursuant to Section 704(c) of the Code with
respect to the Crown Properties shall be the fair market values determined for
purposes of the financial statements of PREIT and PREIT Partnership to be filed
with the Securities and Exchange Commission with respect to the period following
the Merger.
9. Liability for Certain Real Estate Transfer Taxes. Notwithstanding
any other agreement to the contrary, PREIT Partnership hereby agrees, on the one
hand, and each of CIT and CAIC (collectively, the "Crown Indemnifying Parties")
hereby agrees, jointly and severally, on the other hand, that, in the event any
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realty transfer, recording or other similar taxes are imposed by the
Pennsylvania Department of Revenue or any similar realty transfer, recording or
other similar tax is imposed by the taxing authority of a locality located in
the State of Pennsylvania on CFLP or WCALP (or PREIT Partnership, CIT, CAIC or
any affiliate thereof) as a result of the transfers of partnership interests in
either of CFLP or WCALP as part of the Merger Transactions or pursuant to
Section 4 of the Crown Partnership Contribution Agreement, the aggregate cost
equal to the sum of (a) all such realty transfer taxes imposed plus (b) any
related interest required to be paid to any taxing authority plus (c) any
related penalties or additions to tax required to be paid to any taxing
authority shall be borne in the following proportion: (i) 50% by PREIT
Partnership, and (ii) 50% by CIT and CAIC, jointly and severally. Each party
described in this paragraph 9 agrees to file any returns or other documents
required in connection with the realty transfer taxes described herein and to
pay in a timely manner all amounts due by it to the applicable taxing
authorities. Upon receipt by any party described in this paragraph 9 of any
pending or threatened tax audit or assessment that may result in a payment under
this paragraph 9, such party shall notify the other parties in writing within
fourteen (14) days of the receipt of such notice. The Crown Indemnifying Parties
shall pay to PREIT Partnership in cash or readily available funds any amounts
required to be paid by the Crown Indemnifying Parties not later than ten (10)
days after the receipt of written notice from PREIT Partnership that such amount
is due and payable hereunder.
10. Waiver and Amendment. Any party hereto may waive its rights under
this Agreement at any time, and no such waiver shall operate to waive any
party's rights under this 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. This Agreement
may be amended only by a written instrument signed by the parties hereto.
11. Invalid Provision. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
12. Notices and Addresses. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
delivered personally, sent by overnight courier (providing proof of delivery) to
the parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice) from such party:
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(i) if to PREIT or PREIT Partnership, to:
Pennsylvania Real Estate Investment Trust
200 South Broad Street
Philadelphia, PA 19102
Attention: Bruce Goldman
General Counsel
Fax No.: (215) 546-7311
with a copy (which shall not constitute notice)
to:
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
Attention: Howard A. Blum
Fax No: (215) 988-2757
(ii) if to any of the Contributors, to:
Crown Investments Trust
Pasquerilla Plaza
Johnstown, PA 15901
Attention: Terry Stevens
Fax No.: (814) 533-4661
with a copy to:
Reed Smith LLP
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: David L. DeNinno
Fax No.: 412-288-3063
All notices shall be deemed given only when actually received.
13. Governing Laws; Binding Effect. This Agreement is governed by the
laws of the State of Delaware and shall be construed in accordance therewith.
All parties to this Agreement hereby consent to personal jurisdiction of the
courts located in the State of Delaware. This Agreement shall be binding upon
the heirs, personal representatives, successors and assigns of the parties
hereto.
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14. 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.
15. Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
17. Exculpation. This Agreement shall not impose any personal liability
on any shareholder, trustee, trust manager, officer, employee or agent of PREIT,
PREIT Partnership, or the Contributors, and all persons shall look solely to the
property of PREIT Partnership, PREIT, and the Contributors for the payment of
any claim hereunder or for the performance of this Agreement.
18. Prior Tax Agreements Rendered of No Force and Effect.
Notwithstanding any other agreement to the contrary, PREIT Partnership is not
assuming any obligation of Crown Partnership under any of the tax protection
agreements that are described in Schedule 2.18(j) of the Crown Disclosure
Schedule, which was prepared in connection with the Merger Agreement, or any
similar agreement to which either of Crown or Crown Partnership is a party
(other than this Agreement), and no such agreement shall have any force or
effect with respect to PREIT Partnership and any assets acquired in the Merger
Transactions.
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IN WITNESS WHEREOF, each of the undersigned has executed, or caused
this Agreement to be duly executed on its behalf, as of the date first written
above.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
By:
--------------------------------------
Name:
Title:
PREIT ASSOCIATES, L.P.
By: Pennsylvania Real Estate
Investment Trust, as general partner
By:
--------------------------------------
Name:
Title:
CONTRIBUTORS:
------------
-----------------------------------------
Mark E. Pasquerilla
CROWN AMERICAN PROPERTIES, L.P.
By: Crown American Realty Trust,
as general partner
By:
--------------------------------------
Name:
Title:
CROWN INVESTMENTS TRUST
By:
--------------------------------------
Name:
Title:
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CROWN AMERICAN INVESTMENT COMPANY
By:
--------------------------------------
Name:
Title:
CROWN HOLDING COMPANY
By:
--------------------------------------
Name:
Title:
CROWN AMERICAN ASSOCIATES
By:
--------------------------------------
Name:
Title:
-28-
Schedule 1 to Agreement
-----------------------
Protected Properties
--------------------
Capital City Mall
Hess Westgate Anchor Pad
Logan Valley Mall
North Hanover Mall & Strip
Viewmont Mall
Nittany Mall
Washington Crown Center
Francis Scott Key Mall
Lycoming Mall
Chambersburg Mall
South Mall
Philipsburg Mall
Patrick Henry Mall
New River Valley Mall
Martinsburg Mall
Wyoming Valley Mall
Palmer Park Mall
Schedule 2 to Agreement
-----------------------
Guarantee Partners and Guaranteed Amounts
-----------------------------------------
Guarantee Partners Guaranteed Amounts
------------------ ------------------
Crown Investments Trust Its share of [$250.0]
million, as determined
by the Contributors and
provided to PREIT
Partnership in writing
Crown American Investment Company The share of [$250.0]
million not allocated to
Crown Investments Trust
Exhibit A
---------
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT ("Guarantee"), dated as of _________, 2003, is
made by those certain undersigned Persons identified on Schedule 1 attached
hereto ("Guarantors"), in favor of [LENDER] ("Guaranteed Party").
WHEREAS, [BORROWER] ("Maker"), is indebted to the Guaranteed Party in
the sum of [LOAN], as evidenced by a certain Promissory Note dated [DATE] (the
"Note"), which is secured by a Mortgage (the "Mortgage") on certain property of
the Maker (the "Properties" and individually, a "Property").
WHEREAS, the Guarantors desire to guarantee collection of a portion of
the principal amount of the Note not in excess of [Guaranteed Amount] (the
"Guaranteed Amount").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, Guarantors agree as follows:
1. Guarantee
A. The Guarantors hereby irrevocably and unconditionally guarantee the
collection by the Guaranteed Party of, and hereby agree to pay to the Guaranteed
Party upon demand (following (1) foreclosure of the Mortgage, exercise of the
powers of sale thereunder and/or acceptance by the Guaranteed Party of a deed to
a Property in lieu of foreclosures, and (2) the exhaustion of the exercise of
any and all remedies available to the Guaranteed Party against Maker, including,
without limitation, realizing upon the assets of Maker other than the
Properties), an amount equal to the excess, if any, of the Guaranteed Amount
over the Maker Proceeds (as hereinafter defined). The amounts payable by each
Guarantor in respect of the guarantee obligations hereunder shall be in the same
proportion as the amounts listed next to such Guarantor's name on Schedule 2
attached hereto bears to the Guaranteed Amount provided that, notwithstanding
anything to the contrary contained in this Guarantee, each Guarantor's
obligation shall be limited to the amount(s) set forth on Schedule 2 next to
such Guarantor's name. The Guarantors' obligations as set forth in this
Paragraph 1.A. are hereinafter referred to as the "Guaranteed Obligations."
B. For the purposes of this Guarantee, the term "Maker Proceeds" shall
mean the aggregate of the Foreclosure Proceeds (as hereinafter defined) plus all
amounts collected from the Maker or realized from the sale of assets of the
Maker other than the Properties.
C. For the purposes of this Guarantee, the term "Foreclosure Proceeds"
shall have the applicable meaning set forth below with respect to a Property:
1. If at least one bona fide third party unrelated to the
Guaranteed Party (and including, without limitation, any of the
Guarantors) bids for such Property at a sale thereof, conducted upon
foreclosure of the related Mortgage or exercise of the power of sale
thereunder, Foreclosure Proceeds shall mean the highest amount bid for
such Property by the party that acquires title thereto (directly or
through a nominee) at or pursuant to such sale. For the purposes of
determining such highest bid, amounts bid for the Property by the
Guaranteed Party shall be taken into account notwithstanding the fact
that such bids may constitute credit bids which offset against the
amount due to the Guaranteed Party under the Note.
2. If there is no such unrelated third-party at such sale of
the Property so that the only bidder at such sale is the Guaranteed
Party or its designee, the Foreclosure Proceeds shall be deemed to be
fair market value (the "Fair Market Value") of the Property as of the
date of the foreclosure sale, as such Fair Market Value shall be
mutually agreed upon by the Guaranteed Party and the Guarantor or
determined pursuant to subparagraph 1.D.
3. If the Guaranteed Party receives and accepts a deed to the
Property in lieu of foreclosure in partial satisfaction of Maker's
obligations under the Note, the Foreclosure Proceeds shall be deemed to
be the Fair Market Value of such Property as of the date of delivery of
the deed-in-lieu of foreclosure, as such Fair Market Value shall be
mutually agreed upon by the Guaranteed Party and the Guarantor or
determined pursuant to subparagraph 1. D.
D. Fair Market Value of a Property shall be the price at which a
willing seller not compelled to sell would sell such Property, and a willing
buyer not compelled to buy would purchase the Property, free and clear of all
mortgages but subject to all leases and reciprocal easement and operating
agreements. If the Guaranteed Party and Guarantor are unable to agree upon the
Fair Market Value of a Property in accordance with subparagraphs 1.C.2. or 3.
above, as applicable, within twenty (20) days after the date of the foreclosure
sale or the delivery of the deed-in-lieu of foreclosure, as applicable, relating
to a Property, either party may have the Fair Market Value of a Property
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determined by appraisal by appointing an appraiser having the qualifications set
forth below to determine the same and by notifying the other party of such
appointment within twenty (20 days after the expiration of such twenty (20) day
period. If the other party shall fail to notify the first party, within twenty
(20) days after its receipt of notice of the appointment by the first party, of
the appointment by the other party of an appraiser having the qualifications set
forth below, the appraiser appointed by the first party shall alone make the
determination of such Fair Market Value. Appraisers appointed by the parties
shall be members of the Appraisal Institute (MAI) and shall have at least ten
years' experience in the valuation of properties similar to the Property being
valued in the greater metropolitan area in which such Property is located. If
each party shall appoint an appraiser having the aforesaid qualifications and is
such two appraisers cannot, within thirty (30) days after the appointment of the
second appraiser, agree upon the determination hereinabove required, then they
shall select a third appraiser which third appraiser shall have the aforesaid
qualifications, and if they fail so to do within forty (40) days after the
appointment of the second appraiser they shall notify the parties hereto, and
either party shall thereafter have the right, on notice to the other, to apply,
for the appointment of a third appraiser to the chapter of the American
Arbitration Association or its successor organization located in the
metropolitan area in which the Property is located or to which the Property is
proximate or if no such chapter is located in such metropolitan area, in the
metropolitan area closest to the Property in which such a chapter is located.
Each appraiser shall render its decision as to the Fair Market Value of the
Property in question within thirty (30) days after the appointment of the third
appraiser and shall furnish a copy thereof to the Guaranteed Party and
Guarantor. The Fair Market Value of the Property shall then be calculated as the
average of (i) the Fair Market Value determined by the third appraiser and (ii)
whichever of the Fair Market Values determined by the first two appraisers is
closer to the Fair Market Value determined by the third appraiser; provided,
however, that if the Fair Market Value determined by the third appraiser is
higher or lower than both Fair Market Values determined by the first two
appraiser, such Fair Market Value determined by the third appraiser shall be
disregarded and the Fair Market Value of the Property shall then be calculated
as the average of the Fair Market Value determined by the first two appraisers.
The Fair Market Value of a Property as so determined shall be binding and
conclusive upon the Guaranteed Party and Guarantor. Each party shall bear the
cost of its own appraiser and the cost of appointing, and the expenses of, the
third appraiser shall be shared equally by the Guaranteed Party and Guarantor.
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2. Waivers. Other Agreements.
The Guaranteed Party is hereby authorized, without notice to demand
upon Guarantors, which notice or demand is expressly waived hereby, and without
discharging or otherwise affecting the enforceability of the obligations of the
Guarantors hereunder (which shall remain absolute and unconditional
notwithstanding any such action or omission to act), from time to time to:
(i) waive or otherwise consent to noncompliance with any
provision of the Note or Mortgage, or any part thereof, or any other
instrument or agreement in respect of the Guaranteed Obligations now or
hereafter executed by Maker or any other person and delivered to the
Guaranteed Party, except that Maker shall not extend the time for
payment of the Guaranteed Obligations by Maker;
(ii) accept partial payments on the Guaranteed Obligations by
Maker;
(iii) receive, take and hold additional security or collateral
for the payment of the Guaranteed Obligations or for the payment of
this Guarantee, or for the payment of any other guarantees of the
Guaranteed Obligations, and exchange, enforce, waive, substitute,
liquidate, terminate, abandon, fail to perfect, subordinate, transfer,
or otherwise alter or release any such additional security or
collateral;
(iv) apply any and all such security or collateral and direct
the order or manner of sale thereof as the Guaranteed Party may
determine in its sole discretion;
(v) settle, release, compromise, collect or otherwise
liquidate the Guaranteed Obligations or accept, substitute, release,
exchange or otherwise alter, affect or impair any Mortgage or any other
security or collateral for the Guaranteed Obligations or any other
guarantee therefore, in any manner;
(vi) add, release or substitute any one or more other
guarantors, makers or endorsers of the Guaranteed Obligations and
otherwise deal with Maker or any other guarantor as the Guaranteed
Party may elect in its sole discretion; and
(vii) apply any and all payments or recoveries from Maker,
Guarantors or from any other guarantor of the Guaranteed Obligations,
to such of the Guaranteed Obligations as the Guaranteed Party in its
sole discretion may determine, whether such Guaranteed Obligations are
secured or unsecured or guaranteed or not guaranteed by others.
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3. Miscellaneous.
A. Notwithstanding anything in this Guarantee to the contrary, Lender
shall be required first to seek recourse and resort against Borrower and any and
all collateral (other than this Guarantee) given to Lender as security for the
Note prior to Lender's having recourse to or the right to exercise any remedies
against the Guarantors under this Guarantee. Any and all amounts received as a
result of Lender's having sought such recourse and resort shall reduce (on a
dollar-for-dollar basis) the Guaranteed Amount and the amount for which
Guarantors are liable for any and all other sums hereunder; it being agreed by
the parties hereto that the Guarantors shall only be liable to the extent there
remains unpaid any Guaranteed Amount or any other sums guaranteed by the
Guarantors hereunder after Lender has realized upon and resorted to the assets
of Borrower and all collateral (other than this Guarantee) given to Lender as
security for the Note.
B. This Guarantee is binding on the Guarantors and their successors and
assigns, and insures to the benefit of the Guaranteed Party.
C. No delay on the part of the Guaranteed Party in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise or waiver by the Guaranteed Party of any right or remedy shall preclude
any further exercise thereof, nor shall any modification or waiver of any of the
provisions of this Guarantee be binding upon the Guaranteed Party, except as
expressly set forth in a writing duly signed or delivered by the Guaranteed
Party or on the Guaranteed Party's behalf by an authorized officer or agent of
the Guaranteed Party. The Guaranteed Party's failure at any time or times
hereafter to require strict performance by Maker, Guarantors or any other person
of any of the provisions, warranties, terms and conditions contained in any
security agreement, agreements, guarantee, instrument or document now or at any
time or times hereafter executed by Maker or Guarantors or delivered to the
Guaranteed Party shall not waive, affect or diminish any right of the Guaranteed
Party at any time or times hereafter to demand strict performance thereof and
such right shall not be deemed to have been waived by any act or knowledge of
the Guaranteed Party, its agents, officers, or employees, unless such waiver is
contained in an instrument in writing signed by an officer or agent of the
Guaranteed Party and directed to Maker or Guarantors, or either of them (as the
case may be) specifying such waiver. No waiver by the Guaranteed Party of any
default shall operate as a waiver of any other default or the same default on a
future occasion, and no action by the Guaranteed Party permitted hereunder shall
in any way affect or impair the Guaranteed Party's rights or the obligations of
Guarantors under this Guarantee.
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D. This Guarantee shall be interpreted and the rights and liabilities
of the parties hereto determined in accordance with the laws (other than the
conflicts of law provisions) of the State of New York.
E. This Guarantee contains all the terms and conditions of the
agreement between the Guaranteed Party and Guarantors. The terms and provisions
of this Guarantee may not be waived, altered, modified or amended except in
writing duly executed by the party to be charged thereby.
F. Any notice shall be directed to the parties at the following
addresses:
If to Guarantors:
If to the Guaranteed Party:
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COUNTERPART GUARANTOR SIGNATURE PAGE
ATTACHED TO AND MADE A PART OF
THAT CERTAIN GUARANTY AGREEMENT
DATED AS OF
IN WITNESS WHEREOF, the undersigned has duly executed this Guarantee as
of the date first above written.
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Print Name of Guarantor
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Signature of Guarantor
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Schedule 1 to Guaranty Agreement
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Guarantors
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Schedule 2 to Guaranty Agreement
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Guaranteed Amounts
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