Exhibit 2.7
EXECUTION COPY
TAX PROTECTION AGREEMENT
THIS TAX PROTECTION AGREEMENT (this "Agreement") is dated as
of November 18, 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.
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, on November 19, 2003.
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.
Final Notice: Shall have the meaning set forth in Section
7(b)(i).
First Protection Period: Means the period commencing on
November 19, 2003 and ending on the earlier of (i) November
19, 2008, 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
November 19, 2003 and ending on November 19, 2018.
Guaranty Agreement: With respect to guarantees in existence as
of November 19, 2003, the term Guaranty Agreement means the
agreement dated as of August 28, 1998, as amended to the date
of the Merger Agreement, 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"), 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;
Martinsburg Mall, Martinsburg, WV; 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) 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 November 16, 2003 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.
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.
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 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
November 19, 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 on
November 19, 2003, with respect to any of the Guaranteed Debt
described in clause (iii) above.
Response Period: Has the meaning set forth in Section 7(b)(i).
Second Protection Period: Means the period commencing on
November 20, 2008, the first day following the last day of the
First Protection Period, and ending on the earlier of (i)
November 19, 2011, 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.
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:
(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).
(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 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 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.
(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 November 19, 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 November 19, 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 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.
(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 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.
(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
(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 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
"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.
(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 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:
(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.
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.
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: /s/ Bruce Goldman
-----------------------------
Name: Bruce Goldman
Title: Executive Vice President &
General Counsel
PREIT ASSOCIATES, L.P.
By: Pennsylvania Real Estate
Investment Trust, as general partner
By: /s/ Bruce Goldman
-----------------------------
Name: Bruce Goldman
Title: Executive Vice President &
General Counsel
CONTRIBUTORS:
-------------
/s/ Mark E. Pasquerilla
-----------------------------
Mark E. Pasquerilla
CROWN AMERICAN PROPERTIES, L.P.
By: Crown American Realty Trust,
as general partner
By: /s/ Terry L. Stevens
-----------------------------
Name: Terry L. Stevens
Title: Exec. Vice President & CFO
CROWN INVESTMENTS TRUST
By: /s/ Ronald J. Hamilton
-----------------------------
Name: Ronald J. Hamilton
Title: Chief Financial Officer and
Vice President
CROWN AMERICAN INVESTMENT COMPANY
By: /s/ Ronald J. Hamilton
-----------------------------
Name: Ronald J. Hamilton
Title: Chief Financial Officer and
Vice President
CROWN HOLDING COMPANY
By: /s/ Ronald J. Hamilton
-----------------------------
Name: Ronald J. Hamilton
Title: Chief Financial Officer and
Vice President
CROWN AMERICAN ASSOCIATES
By: /s/ Ronald J. Hamilton
-----------------------------
Name: Ronald J. Hamilton
Title: Chief Financial Officer and
Vice President
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
Uniontown 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
---------
FORM OF
-------
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
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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
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.
-6-
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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