TAX INDEMNIFICATION AND CONTEST AGREEMENT
BY AND AMONG
APARTMENT INVESTMENT AND MANAGEMENT COMPANY,
NATIONAL PARTNERSHIP INVESTMENTS CORP.,
XYZ HOLDINGS LLC
AND THE OTHER PARTIES SIGNATORY HERETO
Dated as of December 3, 2001
TAX INDEMNIFICATION AND CONTEST AGREEMENT
This TAX INDEMNIFICATION AND TAX CONTEST AGREEMENT (this
"Agreement") is dated as of December 3, 2001, by and among XYZ Holdings LLC
("XYZ" or the "Lead Indemnitor"), The Casden Company ("TCC"), Casden
Investment Corp. ("CIC"), Alan I. Casden ("AIC"), and Cerberus Partners,
L.P. ("CP") (the "Additional Indemnitors" and, collectively with the Lead
Indemnitor, the "Indemnitors"), and Apartment Investment and Management
Company ("AIMCO") and National Partnership Investments Corp. ("NAPICO").
WITNESSETH
WHEREAS, AIMCO has entered into an Agreement and Plan of
Merger with each of Casden Properties, Inc. ("Casden REIT") and Casden Park
La Brea, Inc. ("CPLB REIT"), each dated as of the date hereof (the "Casden
Merger Agreement" and the "Park La Brea Merger Agreement," respectively
and, together, the "Merger Agreements"); and
WHEREAS, as a condition to entering into the Merger
Agreements, the Contribution Agreement, the Casden Contribution Agreement
and other agreements to be entered into in connection therewith
(collectively, the "Acquisition Agreements"), and as an inducement to do
so, the parties hereto are entering into this Agreement;
NOW, THEREFORE, in consideration of the promises and
mutual agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. For purposes of this Agreement, the
following terms shall apply:
(a) "Acquired Asset" shall mean any asset acquired
directly or indirectly by AIMCO as a result of the transactions
contemplated by the Merger Agreements.
(b) "AIMCO Common Stock" shall mean shares of AIMCO's
Class A Common Stock, par value $.01 per share, issued pursuant to
the Acquisition Agreements and any other securities issuable in
respect thereof, whether as a dividend or distribution, in
connection with a stock split, merger, recapitalization or
otherwise.
(c) "AIMCO Common Stock Price" shall mean $47 per share.
(d) "AIMCO OP Units" shall mean partnership common units
of AIMCO OP issued pursuant to the Acquisition Agreements and any
other securities issuable in respect thereof, whether as a
distribution, in connection with a split of such common units,
merger, recapitalization or otherwise.
(e) "AIMCO Securities" shall mean AIMCO Common Stock or
AIMCO OP Units.
(f) "Casden" shall mean Casden Properties, Inc. and every
Casden Subsidiary.
(g) "Casden Entities" shall mean AIC, TCC and CIC.
(h) "CPLB" shall mean CPLB REIT and every CPLB Subsidiary
(as defined in the Park La Brea Merger Agreement).
(i) "Final Determination" shall mean (i) a decision,
judgment, decree, or other order by any court of competent
jurisdiction, which decision judgment, decree, or other order has
become final after all allowable appeals by either party to the
action have been exhausted or the time for filing such appeal has
expired, (ii) a closing agreement entered into under Section 7121
of the Code, or any final settlement agreement entered in
connection with any administrative or judicial proceeding, or
(iii) the expiration of time for instituting a claim for refund,
or if such claim was filed, the expiration of time for instituting
a suit with respect thereto.
(j) "Indemnitee" shall mean each of AIMCO and NAPICO, as
the case may be.
(k) "Indemnity Amount" shall mean the amount payable by
Indemnitor to an Indemnitee pursuant to Section 2.
(l) "Pre-Closing Period" shall mean any taxable year or
period that ends on or before the Closing Date.
(m) "Scheduled Taxes" shall mean the items listed on
Schedule B hereto.
(n) "Section 6662 Tax Liabilities" shall mean any
penalties imposed by a Tax authority for fraud, willful misconduct
or under Section 6662(b)(2) of the Code (or similar provisions of
state, local or foreign law), and any interest and additions to
tax related thereto.
(o) "Straddle Period" shall mean, with respect to any
taxable year or period of an entity that begins on or before the
Closing Date but ends after the Closing Date, the portion of such
taxable year or period that (i) begins on the first day of such
taxable year or period, and (ii) ends on the Closing Date. For
purposes of this Agreement, the Tax liability of any entity with
respect to a Straddle Period shall be computed as follows: (i) in
the case of Taxes of an entity that are either (A) based upon or
related to income or receipts, or (B) imposed in connection with
any sale, transfer, assignment, or distribution of property
(whether real or personal, tangible or intangible) by such entity,
the Tax liability for the Straddle Period shall be deemed equal to
the amount that would be payable if the period for which such Tax
is assessed had ended on and included the Closing Date, not
including transactions occurring on the Closing Date after the
Closing, and not including transfer and similar taxes related to
the transactions contemplated by the Acquisition Agreements,
determined, to the extent permissible under applicable laws, in a
manner which is consistent with such entity's accounting practices
and business operations as in effect prior to the Closing Date;
and (ii) in the case of Taxes that are not described in clause (i)
above, the Tax liability for the Straddle Period shall be the
amount due and payable on or before the Closing Date.
(p) "Substantial Authority" shall mean substantial
authority within the meaning of Section 6662(d)(2)(B)(i) of the
Code and the Treasury Regulations promulgated thereunder.
(q) "Tax Law Change" shall mean modifications to, or
enactment, promulgation, release or adoption of any changes in the
Code or the Tax law of any state, local, or foreign jurisdiction.
(r) "Tax" and/or "Taxes" shall mean all Federal, state,
local and foreign taxes, charges, fees, duties (including customs
duties), levies or other assessments, including without
limitation, income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible),
sales, use, franchise, excise, value added, stamp, leasing, lease,
user, transfer, fuel, excess profits, occupational, interest
equalization, windfall profits, severance, license, payroll,
environmental, capital stock, disability, employee's income
withholding, other withholding, and unemployment taxes, which are
imposed by any governmental authority, and such term shall include
any interest, penalties or additions to tax attributable thereto;
provided, however, that Transfer Taxes shall be excluded.
(s) "Tax Return" shall mean a report, return or other
information return required to be supplied to a governmental
entity with respect to Taxes (and any amendments thereto)
including, combined or consolidated returns for any group of
entities.
(t) "Value" shall mean, as of any date, and (A) with
respect to any shares of AIMCO Common Stock, the number of such
shares multiplied by the sum of (i) the AIMCO Common Stock Price
and (ii) the amount of any dividends that have accrued on a share
of AIMCO Common Stock from the Effective Time that have not been
paid as of such date, and (B) with respect to any AIMCO OP Units,
the number of such AIMCO OP Units multiplied by the sum of (i) the
AIMCO Common Stock Price and (ii) the amount of any distributions
that have accrued on an AIMCO OP Unit from the Effective Time that
have not been paid as of such date (if any).
(u) Any capitalized terms used herein and not defined
herein, shall have the meaning assigned to it in the Casden Merger
Agreement.
Section 2. Amount and Scope of Indemnification.
(a) Indemnitors shall provide indemnification to each
Indemnitee as set forth below.
(i) Indemnitors shall indemnify AIMCO for:
(A) any Tax liability (other than Section 6662
Tax Liabilities, Scheduled Taxes and Tax liabilities
covered under Section 2(a)(i)(D) hereof) of Casden or
CPLB for any Pre-Closing Period or Straddle Period
that has not been paid; provided, that, the aggregate
amount payable pursuant to this Section 2(a)(i)(A)
and Section 2(a)(ii)(A) shall not exceed $37,500,000;
provided further, that a claim is made by the
Internal Revenue Service (or any other Tax authority)
within three (3) years of the filing of the Tax
return unless a longer statute of limitations applies
as a result of the assessment of a Section 6662 Tax
Liability, in which case, a claim can be made at any
time;
(B) any Section 6662 Tax Liability of Casden or
CPLB for any Pre-Closing Period or Straddle Period;
(C) two-thirds (2/3) of any Tax liability
resulting from the imposition of Tax, directly or
indirectly, on AIMCO under the principles of Section
1374 of the Code (as set forth in Temp. Treas. Reg.
ss. 1.337(d)-5T and IRS Notice 88-19) as a result of
the direct or indirect sale by AIMCO of any Acquired
Asset within three (3) years of the Closing; provided
that the aggregate amount payable pursuant to this
Section 2(a)(i)(C) shall not exceed $10,000,000; and
(D) any Tax liability of Casden or CPLB incurred
as a result of the transactions undertaken in
connection with the Commercial Sale, the Ross Store
Sale, or the Asset Purchase.
(ii) Indemnitors shall indemnify NAPICO for:
(A) any Tax liability (other than Section 6662
Tax Liabilities) of NAPICO for any Pre-Closing Period
or Straddle Period ending after December 31, 1998
that has not been paid; provided, that, the aggregate
amount payable pursuant to this Section 2(a)(ii)(A)
and Section 2(a)(i)(A) shall not exceed $37,500,000;
provided further, that the Indemnitee make a claim
for such amounts within three (3) years of the filing
of the Tax return unless a longer statute of
limitations applies as a result of the assessment of
a Section 6662 Tax Liability, in which case, a claim
can be made at any time; and
(B) any Section 6662 Tax Liability of NAPICO for
any Pre-Closing Period or Straddle Period.
(iii) Notwithstanding anything to the contrary
herein, the three (3) year time limitation for
indemnification set forth in Section 2(a)(i)(A) and
Section 2(a)(ii)(A) shall be extended to include any
period if the statute of limitation is extended;
provided that, (A) the Lead Indemnitor shall have the
right to extend the statute of limitations for Taxes
which AIMCO reasonably believes are likely to result
in an assessment for which the Lead Indemnitor would
have the right to control a contest thereof under
Section 5(d) and (B) AIMCO shall have the right to
extend the statute of limitations for all other
Taxes.
(iv) Notwithstanding any other provision herein, the
Casden Entities shall indemnify each Indemnitee for
any Tax liability of NAPICO for any taxable year
ending on or prior to December 31, 1998.
(b) Except to the extent that any provision of this
Agreement specifically denominates an amount due pursuant to this
Agreement as interest in respect of a delayed payment, any
indemnification payment tendered to an Indemnitee pursuant to this
Section 2 will be treated by the parties as an adjustment to the
consideration received under the Acquisition Agreements to the
extent permitted by law.
(c) In the event an Indemnitee makes a claim for
indemnification hereunder, such Indemnitee shall provide the Lead
Indemnitor with a written statement setting forth in reasonable
detail the computation of the amount described in Section 2(a).
(d) Any payment determined due to an Indemnitee pursuant
to this Section 2 shall be paid within the later of (i) twenty
(20) business days after written notice from such Indemnitee to
the Lead Indemnitor that such amounts are due and payable by
Indemnitors, or (ii) ten (10) business days prior to the due date
for any return on which such Indemnitee would reflect such income
or gain. Any payment required under this Section 2 and not made
when due shall bear interest at the greater of (i) 5% per annum or
(ii) the interest rate charged by the applicable authority in
respect of such amounts, in each case, calculated and payable
monthly, compounded monthly if not paid when due.
(e) Upon request of the Lead Indemnitor, the basis of the
claim and the accuracy of an Indemnitee's calculation of the
amount or amounts payable to or by such Indemnitee pursuant to
Section 2 shall be verified by an independent, nationally
recognized accounting firm (other than the preparer of such
Indemnitee's Tax Returns or financial statements) selected by such
Indemnitee with the consent of the Lead Indemnitor, which consent
shall not be unreasonable withheld. In order to enable such
accountants to verify the basis and accuracy of such claim, such
Indemnitee shall provide to such accountants all information
reasonably necessary for such verification, including any computer
analyses used by such Indemnitee to calculate such amount or
amounts. In conducting its verification, the accounting firm shall
consult with, and consider in good faith the opinions and
positions of, such Indemnitee and the Lead Indemnitor as to the
proper resolution of any matters at issue. The review and
determination of such calculations by such accounting firm
pursuant to this Section 2(e) shall be final. The parties hereto
agree that, if the accounting firm is required to resolve any
matters relating to the computations, the accounting firm (i)
shall provide such Indemnitee and the Lead Indemnitor with a
written notification that describes in reasonable detail the
matter or matters at issue, and (ii) prior to its resolution of
the matter or matters at issue, shall provide such Indemnitee and
the Lead Indemnitor with an opportunity to set forth their
positions concerning the proper resolution of the matter or
matters at issue in accordance with a procedure reasonably
acceptable to both such Indemnitee and the Lead Indemnitor. The
cost of such verification shall be borne by the Lead Indemnitor
unless it is the determination of such verification that the
actual amount or amounts payable deviates, in a manner favorable
to the Indemnitors, by more than 10% from the amount originally
determined by such Indemnitee, in which case such cost shall be
borne by such Indemnitee.
(f) At the request and expense of the Lead Indemnitor,
the Indemnitees shall seek any refund of any Tax. In the event any
Indemnitee receives a refund of (i) any amount which gave rise to
an indemnification payment hereunder, or (ii) any Tax paid by
Casden prior to the Closing Date with respect to a Pre-Closing
Period or Straddle Period, such Indemnitee shall refund such
indemnification payment to the Indemnitors to the extent of the
Indemnitors' portion of the refund, net of collection or other
costs (including any additional Taxes imposed on such Indemnitee)
related thereto that have not theretofore been reimbursed by the
Indemnitors to such Indemnitee.
(g) The liability of the Casden Entities, on the one
hand, and CP, on the other hand, shall be several, but not joint,
in proportion to the percentages set forth on Schedule A hereto.
The liability of XYZ under this Section 2 shall be joint and
several with all other Casden Entities. The liability of the
Casden Entities under this Section 2 shall be joint and several
with respect to the sum of the percentages set forth on Schedule A
hereto for all members of the Casden Entities. No Indemnitor other
than XYZ shall be required to make any payment under this Section
2 unless and until XYZ has failed to satisfy any indemnification
obligation under this Agreement.
(h) The Indemnitees agree to accept from the Indemnitors,
in satisfaction of all or a portion of any indemnification
obligation under this Agreement, AIMCO Securities with a Value
equal to the amount of such obligation.
Section 3. Exclusions. Notwithstanding any other provision of this
Agreement, the Indemnitors shall not have any liability for indemnification
under this Agreement for any Tax liability attributable, in whole or in
part, to:
(a) any fraud, willful misconduct or gross negligence of
any Indemnitee or officer, director, employee or agent thereof;
(b) the failure of any Indemnitee to contest a Tax Claim
in accordance with Section 5 below; or
(c) the failure of any Indemnitee to comply on a timely
basis with certification, information, documentation, reporting or
other similar requirements imposed on such Indemnitee and
concerning the nationality, residence, or identity of such
Indemnitee, or the failure of any Indemnitee to comply with its
obligations set forth in Section 4, to the extent the Lead
Indemnitor demonstrates that its ability to contest such Tax
liability is actually prejudiced by such failure of the
Indemnitee.
Section 4. Preparation of Tax Returns. The Lead Indemnitor will be
responsible for the preparation and filing of all Tax Returns for Casden
and CPLB for all Pre-Closing Periods and pay all third-party costs and
expenses incurred in preparing and filing such Tax Returns. All Tax Returns
for Casden and CPLB for any Pre-Closing Period and any Straddle Period
shall be prepared in a manner consistent with the applicable entity's past
practices as in effect prior to the Closing Date; provided, that, such past
practices are in accordance with the Code and the regulations thereunder.
AIMCO agrees to reasonably cooperate in the preparation and filing of such
Tax Returns and to make available at its expense records and employees of
AIMCO necessary for the preparation or such Tax Returns. AIMCO and its
accountants will be provided for their review and comment, a draft of each
material Tax Return with respect to any period (or portion thereof) ending
on or before the Closing Date at least 20 days prior to the date the Lead
Indemnitor intends to file such Tax Return. AIMCO shall notify the Lead
Indemnitor in writing of any proposed change (a "Proposed Change") to any
such Tax Return within five business days after the delivery of such Tax
Return by the Lead Indemnitor. The Lead Indemnitor shall consider in good
faith any such Proposed Change and shall notify AIMCO of its acceptance or
rejection of any such change within five days after receipt thereof. If the
Lead Indemnitor and AIMCO disagree as to the necessity or correctness of
any Proposed Change and such proposed change relates in any material way to
the REIT status of any Indemnitee, such Proposed Change shall be submitted
to an independent, nationally recognized accounting firm (other than the
preparer of AIMCO's or the any of the Indemnitors' Tax Returns or financial
statements) selected by the accounting firm of AIMCO and the Lead
Indemnitor, for immediate resolution. In resolving a dispute concerning any
Proposed Change, the accounting firm shall consult with, and consider in
good faith the opinions and positions of, AIMCO and the Lead Indemnitor as
to the proper resolution of any matters at issue. The decision of such
accounting firm concerning such Proposed Change shall be final. The cost of
such resolution shall be borne 50% by AIMCO and 50% by the Lead Indemnitor
(or the Additional Indemnitors if not paid by the Lead Indemnitor).
Section 5. Contests Pertaining to Tax.
(a) An Indemnitee shall promptly notify the Lead
Indemnitor of (i) the commencement of an examination of the
federal income Tax Returns of Casden, CPLB, or NAPICO with respect
to any Pre-Closing Period or Straddle Period (an "IRS Exam") and
(ii) the receipt by it from the Internal Revenue Service of a
written, proposed or final revenue agent's report, a 30-day letter
or a notice of deficiency (as described in 6212 of the Code) or
similar written notice from a Tax authority of a state, local, or
foreign government, in which an adjustment is proposed or
determined to the Taxes for which Indemnitors may be required to
provide indemnification pursuant to this Agreement (a "Tax
Claim"); provided, however, that any failure to provide such
notice shall not relieve Indemnitors of any obligation to
indemnify such Indemnitee hereunder except to the extent that the
Lead Indemnitor demonstrates that its ability to contest such
adjustment is actually prejudiced by such failure of the
Indemnitee.
(b) In the event of an IRS Exam, the Indemnitee shall
provide the Lead Indemnitor (i) copies of any requests for
information or documents related to the items for which
indemnification is sought and (ii) reasonable opportunity to
review and comment upon responses to such requests and to
participate in any submission to the Internal Revenue Service in
connection with such IRS Exam.
(c) The Indemnitee shall use reasonable efforts to
contest any Tax Claim in accordance with Section 5(e); provided,
however, that such Indemnitee shall not be required to contest a
Tax Claim unless it has received on a timely basis (x) a legal
opinion (setting forth in reasonable detail the facts and analysis
upon which such opinion is based) of independent counsel selected
by the Lead Indemnitor with the consent of such Indemnitee which
consent will not be unreasonably withheld (the cost of which shall
be borne by the Lead Indemnitor) that there is a reasonable basis
that such Indemnitee will prevail on the merits of the case and
(y) a written notice (an "Indemnitor's Acknowledgement") from the
Lead Indemnitor in which the Lead Indemnitor acknowledges (i) that
such Tax Claim, if sustained in a Final Determination, may be
subject to the obligation hereunder to indemnify such Indemnitee,
and (ii) that Indemnitors are liable to pay all reasonable costs
and expenses incurred by such Indemnitee in connection with any
contest, including, without limitation, all reasonable legal and
other documented out-of-pocket expenses, and shall have provided
such Indemnitee with adequate assurances for the payment thereof.
Failure of the Lead Indemnitor to deliver an Indemnitor's
Acknowledgement to such Indemnitee within forty-five (45) days
after Indemnitor's receipt of written notice of a Tax Claim shall
result in Indemnitors' waiver of any obligation of such Indemnitee
to contest a Tax Claim, and such Indemnitee shall be entitled to
concede or settle such Tax Claim in its sole and absolute
discretion and Indemnitors shall indemnify such Indemnitee for any
Tax liability suffered by such Indemnitee.
(d) The Lead Indemnitor will be entitled to contest
(acting through counsel selected by the Lead Indemnitor with the
consent of the Indemnitee whose receipt of a Tax Claim gives rise
to such contest which consent shall not be unreasonably be
withheld) and control the contest of any Tax Claim if (i) the
aggregate maximum amount payable in respect of all Tax Claims does
not exceed the Indemnitors' maximum liability under Section 2(a),
(ii)(A) such Tax Claim is asserted by the Internal Revenue Service
with respect to a Pre-Closing Period or Straddle Period of Casden,
CPLB or NAPICO or the claim relates in any material way to the
status of Casden REIT or CPLB REIT as a REIT or the amount of any
excise tax under Section 857(b)(5) of the Code, or (B) such
Indemnitee requests that the Lead Indemnitor control such contest,
(iii) such Tax Claim may be segregated in a reasonable manner
procedurally and contested independently from Tax claims of such
Indemnitee for which the Indemnitors are not obligated to
indemnify such Indemnitee, and (iv) such Indemnitee reasonably
believes that the conduct of such contest will not adversely
affect the Indemnitee's status as a "real estate investment trust"
under Section 856 of the Code ("REIT Status") or the REIT Status
of another Indemnitee. If a Tax Claim relates in any material way
to the status of Casden REIT or CPLB REIT as a REIT and the claim
also relates to other items, AIMCO shall use its reasonable
efforts to separate the items related to the status of Casden REIT
or CPLB REIT as a REIT into a contest separate from the contest of
the other items. Any such contest controlled by the Lead
Indemnitor shall be contested at the Lead Indemnitor's sole cost
and expense. The Lead Indemnitor shall consult in good faith with,
and keep reasonably informed, such Indemnitee and its counsel and
shall provide such Indemnitee with copies of any documents,
reports or claims issued by or sent to the relevant auditing agent
or Tax authority, as well as a reasonable opportunity to review
and comment thereon, but the decisions regarding what actions are
to be taken shall be made by the Lead Indemnitor in its sole
judgment, unless (i) such Indemnitee reasonably believes that it
must conduct such proceeding to avoid a material adverse affect to
its REIT Status or the REIT Status of another Indemnitee or (ii)
the aggregate maximum amount payable in respect of all Tax Claims
exceeds the Indemnitors' maximum liability under Section 2(a), in
which case, notwithstanding any other provision of this Agreement
to the contrary, Indemnitee may thereafter take over and control
the contest of such Tax Claim in accordance with Section 5(e).
(e) In the case of all Tax Claims not described in the
first sentence of Section 5(d), not described in the first
sentence of Section 5(f), where the Indemnitee takes control under
the last sentence of Section 5(d), or where the Indemnitee takes
control under the last sentence of Section 5(f), the Indemnitee
shall control the conduct of the contest of any such claim with
its own counsel and including any and all administrative appeals,
proceedings, hearings and conferences with any Tax authority in
respect of any such claim, considering, however, in good faith
such requests as the Lead Indemnitor and its counsel shall make
concerning the prudent manner in which to contest such claim. The
reasonable contest costs (including without limitation
accountant's fees, investigatory fees, and fees and disbursements
of counsel) incurred by such Indemnitee in good faith in
contesting the Tax Claim shall be borne by the Lead Indemnitor.
Indemnitee shall keep the Lead Indemnitor reasonably informed as
to the progress of such contest and shall give the Lead Indemnitor
and its counsel opportunity to review and comment in advance in
all material written submissions and filings relevant to the
substantive issues which would potentially give rise to a Tax
liability (after making appropriate redactions to preserve the
confidentiality of all matters not directly related to such
substantive issues). The Lead Indemnitor and its counsel shall
maintain confidentiality with respect to all such information.
Indemnitee shall be required to appeal an adverse decision of a
court only if (i) the aggregate maximum amount payable in respect
of all Tax Claims is less than the Indemnitors' maximum liability
under Section 2(a), and (ii) the Lead Indemnitor delivers a legal
opinion (setting forth in reasonable detail the facts and analysis
upon which such opinion is based) of independent counsel selected
by such Indemnitee reasonably acceptable to the Lead Indemnitor
(the cost of which shall be borne by the Lead Indemnitor) which
opinion concludes that, after taking into account conclusions of
fact and law contained in the lower court's decision, it is more
likely than not that such Indemnitee will prevail on appeal. In no
event shall such Indemnitee be required to appeal an adverse
determination beyond the first appeal.
(f) The Lead Indemnitor will be entitled to contest
(acting through counsel selected by the Lead Indemnitor) and
control the contest of any Tax Claim that relates in any material
way to the status of Casden REIT or CPLB REIT as a REIT, provided,
that, AIMCO reasonably believes that the conduct of such contest
will not materially adversely affect the REIT Status of any
Indemnitee. If a Tax Claim relates in any material way to the
status of Casden REIT or CPLB REIT as a REIT and the claim also
relates to other items, AIMCO shall use its best efforts (the cost
of which will be borne solely by the Lead Indemnitor) to separate
the items related to the status of Casden REIT or CPLB REIT as a
REIT into a contest separate from the contest of the other items.
Any costs and expenses of such contest controlled by the Lead
Indemnitor shall be paid by the Lead Indemnitor. Except as
otherwise provided in this agreement, the Indemnitees shall have
sole control over all claims other that the items related to the
status of Casden REIT or CPLB REIT as a REIT. The Lead Indemnitor
shall consult in good faith with, and keep reasonably informed,
AIMCO and its counsel concerning the status of the Tax Claim and
shall provide AIMCO and its counsel with copies of any documents,
reports or claims issued by or sent to the relevant auditing agent
or Tax authority, as well as a reasonable opportunity to review
and comment thereon, but the decisions regarding what actions are
to be taken shall be made by the Lead Indemnitor in its sole
judgment, unless an Indemnitee reasonably believes that it must
conduct such proceeding to avoid a material adverse affect to the
REIT Status of an Indemnitee, in which case, notwithstanding any
other provision of this Agreement to the contrary, Indemnitees may
thereafter take over and control the contest of such Tax Claim in
accordance with Section 5(e).
(g) If the aggregate maximum amount payable in respect of
all Tax Claims is less than the Indemnitors' maximum liability
under Section 2(a), Indemnitee shall not make payment of any claim
for at least thirty (30) days after giving written notice of such
claim to Indemnitor if such forbearance is permitted by law. If
the conduct of the contest requires such Indemnitee to pay the tax
claimed and file or sue for a refund, Indemnitors shall advance to
such Indemnitee, on an interest-free basis, sufficient funds to
pay the tax and any interest, penalties and additions to tax
payable with respect thereto (to the extent such amount is subject
to Indemnitors' indemnity obligations hereunder). Indemnitee shall
immediately use such funds to pay such tax, interest, penalties or
additions to tax, as the case may be.
(h) If an Indemnitee receives any settlement offer from
the Internal Revenue Service or similar notice from a Tax
authority of a state, local, or foreign government with respect to
a claim for which such Indemnitee seeks indemnity from
Indemnitors, such Indemnitee shall promptly inform the Lead
Indemnitor of the receipt of such settlement offer. If the Lead
Indemnitor recommends acceptance of such settlement offer, but
such Indemnitee declines to accept such offer in writing within
thirty (30) days: (i) the obligation of Indemnitors to make
indemnity payments under this Agreement as the result of any such
contest or proceedings shall not exceed the obligation that it
would have had if such contest had been settled or proceeding
terminated on the basis of the settlement offer the acceptance of
which was recommended by Indemnitor; and (ii) Indemnitors shall
have no further liability for costs or other expenses in respect
of such contest. An Indemnitee shall not settle any claim without
Indemnitor's consent; provided, however, that such Indemnitee
shall not be required to contest any proposed adjustment and may
settle any such proposed adjustment if (i) such Indemnitee shall
waive its right to indemnity with respect to such adjustment and
shall refund to Indemnitors any amount previously paid or advanced
by Indemnitors with respect to such adjustment or the contest of
such adjustment, (ii) the subject of such contest has previously
been resolved in a Final Determination for a prior taxable year
adversely to such Indemnitee, unless the Lead Indemnitor shall
have provided such Indemnitee with an opinion of independent tax
counsel, selected by the Lead Indemnitor with the consent of such
Indemnitee which consent shall not be unreasonably withheld, at
the cost of the Lead Indemnitor, setting forth in reasonable
detail the facts and analysis upon which such opinion is based (a
copy of which is delivered to such Indemnitee), that as a result
of a Tax Law Change or change in fact, the prior Final
Determination is no longer determinative of the issue, or (iii)
the aggregate maximum amount payable in respect of all Tax Claims
exceeds the Indemnitors' maximum liability under Section 2(a).
(i) If the Lead Indemnitor shall have requested an
Indemnitee to contest such claim as provided above and shall have
duly complied with all the terms of this Section 5, Indemnitors'
liability for indemnification shall, at the Lead Indemnitor's
election, be deferred (subject to the provisions of Section 5(c)
hereof) until a Final Determination of the liability of such
Indemnitee. At such time, Indemnitors shall become obligated for
the payment of any indemnification hereunder resulting from the
outcome of such contest, and such Indemnitee shall become
obligated to refund to Indemnitors their portion of any amount
received as a refund by such Indemnitee or credited to such
Indemnitee attributable to advances by Indemnitors hereunder.
Within thirty (30) days following such Final Determination, any
amounts due hereunder shall be paid first by set off against each
other and either (i) Indemnitors shall pay to such Indemnitee any
excess of the full amount due hereunder over the amount of any
advances previously made by Indemnitors and applied against
Indemnitors' indemnity obligation as aforesaid or (ii) such
Indemnitee shall repay to Indemnitors their portion of any excess
of such advances over such full amount due hereunder, together
with their portion of any interest received by such Indemnitee
that is properly attributable to their portion of such excess
amount of such advances during the period such advances were
outstanding, and, if Indemnitors shall have indemnified such
Indemnitee with respect to the adverse tax consequences of any
advances or payments hereunder, their portion of the amount of any
tax savings resulting from their portion of any payment pursuant
to this sentence.
Section 6. Section 337 Election. To the extent permitted by law,
AIMCO hereby agrees to make a protective election pursuant to Treasury
Regulation Section 1.337(d)-5T(b) with respect to the transactions
contemplated by the Merger Agreements, electing to be subject to the rules
of Section 1374 of the Code and the regulations thereunder with respect to
the assets formerly held by Casden REIT or CPLB REIT in the event that
there is a Final Determination that Casden REIT or CPLB REIT did not
satisfy the requirements for qualification as a REIT for any Pre-Closing or
Straddle Period.
Section 7. Cooperation.
(a) Each Indemnitee agrees to consider in good faith any
action (including filing claims for refund and amended Tax
Returns) which it is reasonably requested to take by the Lead
Indemnitor that would minimize the net amount of any indemnity
payment due from Indemnitors hereunder; provided, however, that
such Indemnitee shall not be required to take any action that such
Indemnitee reasonably believes would place such Indemnitee in a
materially worse tax or economic position than such Indemnitee
would have been in if such action were not taken.
(b) Each Indemnitee shall promptly notify the Lead
Indemnitor of the commencement of any audit or examination of such
Indemnitee by any Tax authority (other than an IRS Exam, which is
governed by Section 6) and shall keep the Lead Indemnitor
reasonably informed as to the status of such audit or examination
and any proceedings relating thereto; provided, however, that an
Indemnitee's failure to comply with this Section 7(b) shall not
affect Indemnitors' obligations pursuant to this Agreement except
to the extent that the Lead Indemnitor demonstrates that its
ability to contest any Tax liability arising out of such audit or
examination is actually prejudiced by such failure of the
Indemnitee.
Section 8. REIT Requirements. Notwithstanding the foregoing, in no
event shall the amount paid to the Indemnitees pursuant to this Agreement
in any tax year exceed the maximum amount that can be paid to the
Indemnitees in such year without causing AIMCO to fail to meet the REIT
Requirements for such year, determined as if the payment of such amount did
not constitute Qualifying Income as determined by independent accountants
to AIMCO. If the amount payable for any tax year under the preceding
sentence is less than the amount which Indemnitors would otherwise be
obligated to pay to the Indemnitees pursuant to this Agreement (the
"Expense Amount"), the Indemnitees shall so notify the Indemnitors, and
Indemnitors shall (at the Indemnitees' sole cost and expense) place the
remaining portion of the Expense Amount in escrow and shall not execute any
instrumentation permitting any release of any portion thereof to the
Indemnitees, and the Indemnitees shall not be entitled to any such amount,
unless and until the Lead Indemnitor and escrow holder receive (all at the
Indemnitees' sole cost and expense) notice from the Indemnitees, together
with either (i) an opinion of AIMCO's tax counsel to the effect that such
amount, if and to the extent paid, would not constitute gross income which
is not Qualifying Income or (ii) a letter from AIMCO's independent
accountants indicating the maximum amount that can be paid at that time to
the Indemnitees without causing AIMCO to fail to meet the REIT Requirements
for any relevant taxable year, together with either an Internal Revenue
Service Ruling issued to AIMCO or an opinion of AIMCO's tax counsel to the
effect that such payment would not be treated as includible in the income
of AIMCO for any prior taxable year, in which event escrow holder shall pay
such maximum amount. The Indemnitors' and escrow holder's obligation to pay
any unpaid portion of the Expense Amount shall terminate ten (10) years
from the date of this Agreement, and upon such date, escrow holder shall
remit any remaining funds in escrow to the Indemnitors and Indemnitors
shall have no obligation to make any further payments notwithstanding that
the entire Expense Amount has not been paid as of such date.
Section 9. Notices. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications
required or permitted by the terms of this Agreement shall be given in the
same manner as in the Master Indemnification Agreement by and among
Apartment Investment and Management Company, AIMCO Properties, L.P., XYZ
Holdings LLC and the other parties signatory thereto, dated as of the date
hereof (the "Master Indemnification Agreement").
Section 10. Miscellaneous.
(a) Each Additional Indemnitor hereby irrevocably and
unconditionally appoints the Lead Indemnitor as its agent in
connection with the matters described in this Agreement, and
grants the Lead Agent an irrevocable and durable power of
attorney, with the express authority to take any and all action on
such Additional Indemnitor's behalf in connection with this
Agreement. Each Indemnitee may rely on any action taken or not
taken, and any document or instrument executed and delivered, by
the Lead Indemnitor on behalf of any Additional Indemnitor or all
of the Additional Indemnitors in connection with the matters
described herein.
(b) Except as otherwise provided herein, the terms and
conditions of this Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective
successors and assigns, and nothing in this Agreement, express or
implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any
rights or remedies of any nature whatsoever under or by reason of
this Agreement.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK , INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES
327(B).
(d) The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms
and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this
being in addition to any other remedy to which they are entitled
under this Agreement, which shall be the exclusive remedies of the
parties with respect to any matters expressly covered by this
Agreement and the Transaction Documents, except as otherwise
expressly provided in this Agreement or the Transaction Documents.
In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located
in the State of New York or any New York state court in the event
any dispute arises out of this Agreement or any of the
Transactions, (b) agrees that it shall not attempt to deny such
personal jurisdiction by motion or other request for leave from
any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the Transaction Documents in
any court other than a federal or state court sitting in the State
of New York. Each of the Indemnitors hereby appoints the Lead
Indemnitor as its agent for service of process, and service on the
Lead Indemnitor shall be deemed service and notice to all other
Indemnitors.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
(f) When a reference is made in this Agreement to
Sections, 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."
(g) Except as described in Sections 4 and 5 above, each
party shall pay all costs and expenses that it incurs with respect
to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which
such party may be entitled.
(h) Any term of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of each Indemnitee
and Indemnitor.
(i) The provisions of this Agreement shall be deemed
severable and the invalidity or enforceability of any provision
shall not affect the validity or enforceability of the other
provisions hereof. Any provision or part of this Agreement which
is invalid or unenforceable in any situation in any jurisdiction
shall, as to such situation and such jurisdiction, be ineffective
only to the extent of such invalidity and shall not affect the
enforceability of the remaining provisions hereof or the validity
or enforceability of any such provision in any other situation or
in any other jurisdiction.
Section 11. Term. Except as otherwise provided herein, with
respect to indemnification for Taxes, the term of this Agreement shall
extend from the date hereof until such time as the applicable statute of
limitations (including any extensions thereof) bars a claim by the Internal
Revenue Service or relevant foreign, state or local Tax authority for a Tax
otherwise indemnifiable under this Agreement.
Section 12. Right of Set-Off; Escrow of Certain Amounts. Upon
notice to the Indemnitors specifying in reasonable detail the basis for
such set-off, the Indemnitees and their subsidiaries may set off any amount
(the "Set-Off Amount") to which any Indemnitee may be entitled under this
Agreement against any monies, dividends (other than dividends on AIMCO
Common Stock) or payments properly due and owing to any Indemnitor pursuant
to any of the Transaction Documents (except the Consulting Agreement for
which no set off shall be effected); provided, however, that (i) with
respect to any WW Deferred Amount (as defined in the Tri-Party Agreement)
payable to XYZ under the Tri-Party Agreement, the Indemnitees may set off
only amounts representing claims for Damages (as defined in the Master
Indemnification Agreement) that relate to WW (as defined in the Tri-Party
Agreement) and (ii) with respect to any PLB A Deferred Amount, PLB B
Deferred Amount or PLB C Deferred Amount (as such terms are defined in the
Tri-Party Agreement) payable to XYZ under the Tri-Party Agreement, the
Indemnitees may set off only amounts representing claims for Damages (as
defined in the Master Indemnification Agreement) that relate to PLB A, PLB
B or PLB C (as such terms are defined in the Tri-Party Agreement). After
delivery of such notice, the Indemnitees shall cause the Set-Off Amount to
be deposited into escrow with an escrow agreement and an escrow agent
reasonably acceptable to the parties. The escrow agreement shall provide
that the Set-Off Amount shall be held by the escrow agent until such time
as the claim for indemnification under this Agreement has been finally
determined in accordance with this Agreement or by a court of competent
jurisdiction. The escrow agreement shall further provide that (i) if it is
determined that an Indemnitee is entitled to any portion of the Set-Off
Amount, the escrow agent shall pay such portion of the Set-Off Amount,
together with interest accrued thereon, to the Indemnitees and, thereafter,
the amount to which the Indemnitee is entitled pursuant to this Agreement
shall be reduced by such Set-Off Amount; and (ii) if it is determined that
an Indemnitee is not entitled to any portion of the Set-Off Amount, the
escrow agent shall pay such portion of the Set-Off Amount, together with
interest accrued thereon, to the Indemnitor(s) to whom such amount was
payable. Neither the exercise of nor the failure to exercise such right of
set-off will constitute an election of remedies or limit any Indemnitee in
any manner in the enforcement of any other remedies that may be available
to it.
Section 13. Termination. This Agreement shall automatically
terminate upon the termination of the Casden Merger Agreement in accordance
with its terms. In the event of the termination of this Agreement pursuant
to this Section 13, except as expressly provided in the Casden Merger
Agreement, no party hereto shall have any liability to any other party with
respect to this Agreement or the transactions contemplated hereby and this
Agreement shall be of no further force or effect.
Section 14. Entire Agreement. This Agreement and the other
Transaction Documents constitute the entire agreement and supersede all
other prior or contemporaneous oral or written agreements and
understandings among the parties, or any of them, with respect to the
subject matter hereof, and there are no warranties, representations or
other agreements, express or implied, made to any party by any other party
in connection with the subject matter hereof or thereof except as
specifically set forth herein or therein or in the documents delivered
pursuant hereto or in connection herewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
XYZ HOLDINGS LLC
By: CASDEN INVESTMENT CORP., its managing member
By: /s/ Alan I. Casden
-------------------------------------
Name: Alan I. Casden
Title: Chairman
THE CASDEN COMPANY
By: /s/ Alan I. Casden
---------------------------------------
Name: Alan I. Casden
Title: Chairman
CASDEN INVESTMENT CORP.
By: /s/ Alan I. Casden
---------------------------------------
Name: Alan I. Casden
Title: Chairman
/s/ Alan I. Casden
----------------------------------------
ALAN I. CASDEN
CERBERUS PARTNERS, L.P.
By: /s/ Ronald Kravit
---------------------------------------
Name: Ronald Kravit
Title: Authorized Signatory
NATIONAL PARTNERSHIP INVESTMENTS CORP.
By: /s/ Charles Boxenbaum
---------------------------------------
Name: Charles Boxembaum
Title: Chairman
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ Peter Kompaniez
---------------------------------------
Name: Peter Kompaniez
Title: President