EXHIBIT 10.13
Tax Related Agreement
This agreement ("Agreement") is entered into as of March 6, 1998 among CWS
Communities LP, a Delaware limited partnership, the individuals and entities
having executed this Agreement on the signature pages hereto (each, a
"Contributor" and collectively "Contributors"). Each Contributor will have the
rights and obligations of a Contributor set forth herein upon such party's
execution of a counterpart signature page hereto.
Recitals:
A. Pursuant to that Contribution Agreement relating to the formation and
capitalization of CWS Communities Trust of even date herewith among
Security Capital U.S. Reality, a Luxembourg corporation, Security
Capital Holdings S.A., a Luxembourg corporation, Clayton, Williams &
Sherwood, Inc., a California corporation, CWS Communities Trust, a
Maryland real estate investment trust, Operation Partnership, CWS
Communities Incorporated, a Delaware corporation, CWS Management
Services Incorporated, a Delaware corporation and certain individuals
and entities, including the Contributors, the Contributors have
contributed to the Operating Partnership certain properties described
in Schedule A attached hereto (as each is contributed, a "Contributed
Property, and collectively, the Contributed Properties).
B. Contributors and the Operating Partnership desire to enter into this
Agreement to set forth certain terms and conditions upon which the
Operating Partnership agrees to hold, encumber and dispose of the
Contributed Properties.
Agreement:
1.1 Limitation on Sale of Contributed Property
(a) Operating Partnership will not sell, transfer, exchange or
otherwise dispose of part or all of its interest in any
Contributed Property during the period (the "Lockout Period")
commencing, with respect to each Contributed Property, on the
date such property was contributed to the Operating Partnership
("Closing Date") and ending on the tenth (10th) anniversary of
such date, subject to earlier termination as provided below,
except in connection with either a like-kind exchange of the
Contributed Property pursuant to Section 1031 of the Internal
Revenue Code of 1986, as amended (the "Code") or other
disposition that pursuant to a nonrecognition provision in the
Code does not result in the current recognition of any gain to
the Contributors. Notwithstanding anything to the contrary set
forth herein, the prohibition against the sale, transfer,
exchange or other disposition by Operating Partnership with
respect to any Contributed Property and any obligation in
subparagraphs (b), (c) and (d) below and in Paragraph 1.2 shall
automatically terminate in the event that (i) the Contributors at
any time exercise their right under the Agreement of Limited
Partnership of the Operating Partnership to exchange, in
one or multiple transactions, 95 percent of the total number of
Units ( as defined in the Contribution Agreement) held by the
Contributors (the "Contributors' Units") for Class A Shares (as
defined in the Contribution Agreement), or (ii) the Contributors
at any time effect a taxable sale, transfer, assignments or other
disposition of, in one or multiple transactions, 95 percent of
the Contributors' Units, including an exchange into Class A
Shares described in clause (i) and upon foreclosure with respect
thereto (but excluding a pledge or other grant of security
interest in the Contributors' Units).
(b) After the Lockout Period with respect to any Contributed
Property, the Operating Partnership agrees to use commercially
reasonable efforts without undue sacrifice to effect any
disposition of such Contributed Property through a disposition
pursuant to Section 1031 of the Code or other nonrecognition
disposition described above. The Operating Partnership shall not
be bound by the preceding sentence if a suitable exchange
property is not located and designated by the Operating
Partnership within 6 months after its determination to attempt to
dispose of such Contributed Property
(c) If the Operating Partnership does not effect a disposition of a
Contributed Property pursuant to subparagraph (b) above but
nevertheless intends to dispose of a Contributed Property, then
the Operating Partnership shall so notify the Contributors in
writing and the Contributors shall have the right, by written
notice delivered to the Operating Partnership within 30 days
after receipt of such notice from the Operating Partnership, to
exercise their right to redeem the Contributors' Units for such
Contributed Property in accordance with the following provisions.
Failure of the Contributors to deliver such notice during the
30-day period shall be deemed to constitute waiver of this
redemption right with respect to such Contributed Property. The
notice given by the Operating Partnership to Contributors shall
include the sales price that the Operating Partnership intends to
offer to sell, or to accept an offer to purchase, the Contributed
Property.
(d) If the Contributors elect to exercise their redemption right,
within 30 days after such election the Operating Partnership
shall sell and convey the Contributed Property to the
Contributors in redemption of and exchange for a number of
Contributors' Units allocated among the Contributors in
proportion to the number of Units held by each Contributor or as
they may otherwise agree equal to (i) the offering sales price
set forth in the notice plus any closing costs incurred by the
Operating Partnership divided by (ii) the Fair Market Value (as
defined and determined according to Exhibit N-1 (Loan Agreement)
to the Contribution Agreement) of a Class A Share as of the date
of Contributor's election. If the Contributors do not exercise
their redemption right, then the Operating Partnership may sell
the Contributed Property free of this redemption right and shall
have no obligation to renotify Contributors so long as the
Contributed Property is sold within 9 months after Contributors'
waiver of their redemption right, for a sales price of no less
than 95 percent of the offering price, subject to customary
prorations and adjustments.
1.2 Debt Guarantee Agreement
(a) From and after the Closing Date of each Contributed Property
until the 10th anniversary of such Closing Date, Operating
Partnership agrees that it will keep outstanding in accordance
with its terms the Existing Debt described in Schedule B,
attached hereto (or Replacement Financing, if applicable), in the
principal amount of no less than the amount of the deficit
balance in the capital accounts (determined in accordance with
Section 704 of the Code and Treasury Regulations thereunder) of
Contributors with respect to each Contributed Property plus the
tax basis of each Contributed Property as of the date of this
Agreement as set forth in Schedule C as of the Closing (with
respect to each Contributed Property, the "Guaranteed Amount" and
collectively the "Guaranteed Amounts") subject to required
amortization payments under the Existing Debt; provided, however,
that the foregoing limitation shall not apply if Operating
Partnership replaces or refinances the Existing Debt with respect
to such Contributed Property (the "Replacement Financing"), so
long as the Replacement Financing (i) is for a principal amount
not less than the outstanding principal balance of the Guaranteed
Amount with respect to such Contributed Property at the time of
its replacement, (ii) has an amortization schedule that provides
for monthly or other periodic repayments of principal in an
amount equal to or less than the periodic principal payments
under the amortization schedule for the Existing Debt with
respect to such Contributed Property in effect as of the Closing
Date, and (iii) such Replacement Financing with respect to any
Contributed Property shall constitute "nonrecourse debt" within
the meaning of Treasury Regulation Section 1.752-1(a)(2)
allocable to the Contributed Property to the extent of the
Guaranteed Amount. For purposes of clause (iii) of the preceding
sentence, the parties agree that any such Replacement Financing
with respect to any contributed property shall constitute
"nonrecourse debt" within the meaning of the Treasury Regulation
Section 1.752-1(a)(2) to the extent of the Guaranteed Amount if
either (x)(i) the Contributed Property is pledged as security for
such Replacement Financing, (ii) the product of (a) the
outstanding amount of any such Replacement Financing and (b) the
quotient of (I) the fair market value of the Contributed Property
(reasonably determined by the Operating Partnership) at the time
of such Replacement Financing to (II) the sum of the fair market
values of all of the properties (reasonably determined by the
Operating Partnership) securing such Replacement Financing,
equals or exceeds the Guaranteed Amount, and (iii) no partner
(other than the Contributors) bears the economic risk of loss
with respect to such Replacement Financing, within the meaning of
Treasury Regulation Section 1.752-2(a) or (y)(1) the Contributed
Property is pledged as security for such Replacement Financing
within the meaning of Treasury Regulation Section 1.752-2(a) or
(y)(i) the Contributed Property is pledged as security for a
portion of such Replacement Financing, (ii) no other property is
pledged as security for such portion of such Replacement
Financing, and (iii) no partner (other than the Contributors)
bear the economic risk of loss with respect to such Replacement
Financing within the meaning of Treasury Regulation Section
1.752-2(a).
1.3 No Representation with Regard to Tax Treatment
Notwithstanding any provision of this agreement, neither the Operating
Partnership nor [CWS Communities Trust] makes any representation
regarding (and shall have no
liability with respect to) the tax consequences to the Contributors of
the transactions contemplated herein or in any [Related Agreements].
1.4 Damages
In the event that Operating Partnership breaches any of its obligation
set forth in Paragraph 1.1 or Paragraph 1.2 (the "Tax-Related
Covenants"), the Contributors shall be entitled to receive from the
Operating Partnership as damages an amount equal to the aggregate
federal income taxes and state income taxes (at a rate of 6%) incurred
by the Contributors as a result thereof (and shall not be entitled to
any "gross-up" with respect thereto). Any such federal and state
income taxes shall be deemed to the amount of gain or income
recognized by the Contributors (not in excess of the applicable
Guaranteed Amount) multiplied by then the highest rate or rates (6% in
the case of state income taxes) applicable to such gain or income for
the year in which such gain or income its recognized. No effect shall
be given in determining the amount of damages to the Contributors of
their other taxable income, tax deductions, tax credits, tax carry
forwards nor to any other of their tax benefits or tax attributes.
1.5 Rights and Remedies of Contributors
Notwithstanding any provision of this Agreement, Contributors agree
that the sole and exclusive rights and remedies to which they may be
entitled at law in equity for a breach of the Tax-Related Covenants by
the Operating Partnership shall be for damages as determined pursuant
to Paragraph 1.4, and Contributors shall not be entitled to pursue a
claim for specific performance of the terms of the Tax-Related
Covenants. If Contributors notify in writing Operating Partnership of
a claim that Operating Partnership has breached or violated any of the
Tax-Related Covenants, Operating Partnership and Contributors agree to
negotiate in good faith to resolve any disagreements regarding any
such breach or violation. If any such disagreement cannot be resolved
by Operating Partnership and Contributors within 30 days after receipt
by Operating Partnership of the notice in accordance with the
preceding sentence, Operating Partnership and Contributors shall
jointly retain a nationally recognized independent public accounting
firm (an "Accounting Firm") to act as an arbitrator to resolve as
expeditiously as possible all points of any such disagreement
(including, without limitation, whether a breach by Operating
Partnership of any Tax-Related Covenants has occurred and, if so, the
amount of damages that the Contributors are entitled to as a result
thereof, determined as set forth in Paragraph 1.4). If the parties
cannot agree on an Accounting Firm, each of Contributors and Operating
Partnership shall retain an Accounting Firm, and the Accounting Firm
selected by Operating Partnership and the Accounting Firm selected by
Contributors shall jointly retain an Accounting Firm. If the two
Accounting Firms cannot agree upon a third Accounting Firm within 30
days, such matter shall be referred to a court of competent
jurisdiction to select the third Accounting Firm. The Accounting Firms
shall be instructed to resolve as expeditiously as possible all points
of any such disagreement (including without limitation, whether a
breach by Operating Partnership of any Tax-Related Covenants has
occurred and, if so, the amount of damages that the Contributors are
entitled to as a result thereof, determined as set forth in Paragraph
1.4).
All determinations made by the Accounting Firm or the Accounting
Firms, as the case may be, with respect to the resolution of any
breach or violation of the Tax-Related Covenants shall be final,
conclusive and binding on Operating Partnership and Contributors. The
fees and expenses of any Accounting Firms incurred in connection with
any such determination shall be shared equally by Operating
Partnership and Contributors. The rights and remedies of Contributors
set forth in this Paragraph 1.5 shall be available to each Contributor
individually.
1.6 Expenses
Each party hereto shall pay its own expenses incident to this
Agreement and the transactions contemplated hereunder, including all
legal and accounting fees and disbursements
1.7 Assignment
No party hereto shall assign its rights and/or obligations under this
Agreement, in whole or in part, whether by operation of law or
otherwise, without the prior written consent of the other parties
hereto. Notwithstanding anything to the contrary in the preceding
sentence, at any time after the Closing Date, Operating Partnership
may assign its rights and/or obligations under this Agreement to an
affiliate, or any other person or entity in connection with a merger,
consolidation, sale or contribution of all or substantially all of its
assets, or other similar corporate transaction; provided, that no
assignment pursuant to the preceding clause shall release Operating
Partnership from its liabilities and obligations hereunder.
1.8 Entire Agreement, Amendment
This Agreement, including the Schedules and other documents referred
to herein or furnished pursuant hereto, together with the Contribution
Agreement and the exhibits and other documents referred to therein of
furnished pursuant thereto, constitute the entire agreement among the
parties hereto with respect to the transactions contemplated herein,
and supersede all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein. No
amendment, modifications or discharge of this agreement shall be valid
or binding unless set forth in writing and duly executed and delivered
by the party against whom enforcement of the amendment, modifications,
or discharge is sought.
1.9 Waiver
No delay or failure on the part of any party hereto in exercising any
right, power or privilege under the Agreement or under any other
documents furnished in connection with or pursuant to this Agreement
shall impair and such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or
partial exercise of any such right, power or privilege shall preclude
the further exercise of such right, power or privilege, or the
exercise of any other right, power or privilege. No
waiver shall be valid against any part hereto unless made in writing
and signed by the party against whom enforcement of such waiver is
sought and then only to the extent expressly specified therein.
1.10 Severability
If any part of any provision of this Agreement or any other agreement
or document gives pursuant to or in connection with this Agreement
shall be invalid or unenforceable in any respect, such part shall be
ineffective to the extent of such invalidity or enforceability only,
without in any way affecting the remaining parts of such provision or
the remaining provisions of this agreement.
1.11 Governing Law
This Agreement, the rights and obligations of the parties hereto, and
any claim or disputes relating thereto, shall be governed by and
construed in accordance with the laws of the State of Maryland
(excluding the choice of law rules thereof).
1.12 Notices
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any party
pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class,
registered or certified mail, return receipt requested, postage
prepaid, or transmitted by facsimile, telegram, telecopy or telex,
addressed as follows:
(i) If to any Contributor:
Clayton, Williams & Sherwood, Inc.
Attn: Steven J. Sherwood
Byron L. Williams
800 Newport Center Drive
Newport Beach, CA 92660
Facsimile: (714) 630-2701
With a copy to
Riordon & McKinzie
Michael P. Whalen
695 Town Center Drive, Suite 1500
Costa Mesa, CA 92626
Facsimile: (714) 549-3244
(ii) If to Operating Partnership
CWS Communities LP
c/o CWS Communities Trust
11 South LaSalle Street
Chicago, IL 60603
Attn: Caroline S. McBride
Facsimile: (312) 345-5888
With copy to:
Mayer, Brown & Platt
Attn: William Levy
190 South LaSalle Street
Chicago, IL 60603
Facsimile: (312) 701-7711
Each additional party may designate by notice in writing a new address
to which any notice, demand, request or communication may thereafter
be so given, served or sent. Each notice, demand, request or
communication which shall be hand delivered, sent, mailed faxed,
telecopied or telexed in the manner described above, or which shall be
delivered to a telegraph company, shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as
it is delivered to the addressee (with return receipt, the delivery
receipt, the confirmation receipt (with respect to a facsimile), or
(with respect to a telecopy or telex) the answerback being deemed
conclusive, but not exclusive, evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
1.13 Headings
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions
hereof.
1.14 Execution in Counterparts
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required. It shall not be necessary that the
signature of, or on behalf of, each party, or that the signatures of
all persons required to bind any party, appear on each counterpart;
but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of that persons required to bind
any party, appear on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be
necessary in making proof of this Agreement to produce or account for
more than
a number of counterparts containing the respective signatures of, or
on behalf of, all of the parties hereto.
1.15 Attorneys' Fees
Should either party employ attorneys to enforce any of the provisions
hereof, the party against whom any final judgment is entered agrees to
pay the prevailing party all reasonable costs, charges and expenses,
including reasonable attorneys' fees, expended or incurred by the
prevailing party in connection therewith.
{Signature pages to follow}
CWS COMMUNTITIES LP
By: CWS Communities Trust, Its general partner
By:
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Name:
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Title:
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THE STEVEN SHERWOOD TRUST DATED
SEPTEMBER 8, 1994
By:
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Steven J. Sherwood, Trustee
CORAL CAY, LLC
By:
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Byron L. Williams, Managing Member
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JAMES L. CLAYTON, INDIVIDUALLY
TANA J. SHERWOOD TRUST DATED
APRIL 9, 1992
By:
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Tana J. Sherwood, Turstee
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JOSEPH H. SHERWOOD III, JTWROS
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LAURA G. SHERWOOD, JTWROS
CURTIS LIVING TRUST
By:
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Paul D. Curtis, Trustee
By:
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Lori E. Curtis, Trustee
WALDO NEIKIRK TRUST U/T/D DATED
JUNE 20, 1994
By:
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W. W. Neikirk, Trustee
KUK FAMILY TRUST
By:
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Thomas J. Kuk, Trustee
By:
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Ronda R. Blehm-kuk, Trustee
CLAYTON, WILLIAMS & SHERWOOD
FIANACAIL GROUP 80
By:
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Name:
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Title:
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SCHEDULE A
CONTRIBUTED PROPERTIES
Contributed Property
- --------------------
Arlington Lakeside
Grand Place
Northwood
Stone Mountain
Woodlands of Kennesaw
SCHEDULE B
EXISTING DEBT
Contributed Property Existing Debt
- --------------------- -------------
Arlington Lakeside $3,046,521
Grand Place $3,800,840
Woodlands of Kennesaw $4,175,940
Stone Mountain $4,257,884
Northwood $5,001,032
SCHEDULE C
GUARANTEED AMOUNTS
Contributed Property Guaranteed Amounts
- --------------------- ------------------
Arlington Lakeside $3,224,464
Grand Place $3,791,840
Woodlands of Kennesaw $4,179,304
Stone Mountain $4,257,884
Northwood $4,991,250
FIRST SUPPLEMENT
TO TAX RELATED AGREEMENT
THIS FIRST SUPPLEMENT TO TAX RELATED AGREEMENT ("First Supplement") dated
effective as of April 1, 1999, is entered into by CWS COMMUNTIIES LP, a Delaware
limited partnership (the "Operating Partnership"), at the request and for the
benefits of the Contributors (defined below).
RECITALS
A. Operating Partnership and various other individuals an entities
(each a "Contributor") entered into that certain Tax-Related
Agreement dated March 6, 1998 (the "Tax Related Agreement") All
initially-capitalized terms not otherwise defined herein shall
have the meanings set forth in the Tax Related Agreement unless
the context clearly indicates otherwise.
B. Operating Partnership and the Contributors each desire to
supplement the Tax Related Agreement by adding two properties as
Contributed Properties.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledge, the undersigned hereby
agrees as follows:
AGREEMENT
1. Supplement to Schedule A to the Tax Related Agreement. Schedule A
of the Tax Related Agreement is hereby supplemented to include
the following properties as "Contributed Properties," and the
Operating Partnership agrees to hold, encumber, and dispose of
such properties as Contributed Properties according to the terms
and conditions of the Tax Related Agreement:
(a) The manufactured home community commonly known as Oakcrest
Point located in San Antonio, Texas; and
(b) The manufactured home community commonly known as Misty
Winds located in Corpus Christi, Texas.
2. Supplement to Schedule B to the Tax Related Agreement. Schedule B
of the Tax Related Agreement is hereby supplemented to include
the following existing debt for the new Contributed Properties:
Contributed Property: Existing Debt
--------------------- -------------
Oakcrest Point $4,100,000
Misty Winds $2,700,000
3. Supplement to Schedule C to the Tax Related Agreement. Schedule C
of the Tax Related Agreement is hereby supplemented to include
the following guaranteed amounts for the new Contributed
Properties:
Contributed Property: Guaranteed Amount
--------------------- -----------------
Oakcrest Point $2,000,000
Misty Winds $1,600,000
4. Counterparts. This First Supplement may be executed in any number
of counterparts, each of which shall be deemed an original, but
all of which when taken together shall constitute one and the
same instrument. Each counterpart may be delivered by facsimile
transmission. The signature page of any counterpart may be
detached therefrom without impairing the legal effect of the
signature(s) thereon provided such signature page is attached to
any other counterpart identical thereto.
IN WITNESS WHEREOF, Operating Partnership has executed this First
Supplement as of the day and year first above written.
CWS COMMUNITIES LP
By: CWS Communities Trust, its general partner
By:
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Name: Carl D. Watkins
Title: Vice President