FORM OF
TAX PROTECTION AGREEMENT
THIS TAX PROTECTION AGREEMENT (this "Agreement") is made and entered
into as of _________ __, 2004 by and among Brandywine Realty Trust, a Maryland
real estate investment trust (the "REIT"), Brandywine Operating Partnership,
L.P., a Delaware limited partnership (the "Partnership"), ____________________,
a Delaware limited partnership ("Subsidiary Partnership") TLS Equity
Associates-II, a Pennsylvania general partnership ("TLSEA-II"), Two ▇▇▇▇▇ Co.,
Inc. a Pennsylvania corporation ("TLC Inc." and, together with TLSEA-II, the
"Protected ▇▇▇▇▇ Partners"), and TRC Associates Limited Partnership, a Delaware
limited partnership (the "TRCALP Protected Partner" and, collectively with the
Protected ▇▇▇▇▇ Partners, the "Protected Partners").
WHEREAS, pursuant to that certain Contribution Agreement, dated as of
August 18, 2004 (the "Contribution Agreement"), the TRCALP Protected Partner
transferred to the Partnership all of such Protected Partner's interests in
TRCLP, a Delaware limited partnership ("TRCLP") in exchange for common units of
limited partnership interest ("OP Units"), a class of zero coupon preferred
units ("Preferred Units") in the Partnership and a "debt financed distribution"
(the "Transaction");
WHEREAS, pursuant to the Contribution Agreement, the Protected ▇▇▇▇▇
Partners transferred to Subsidiary Partnership some or all of such ▇▇▇▇▇
Protected Partners' indirect interests in Two ▇▇▇▇▇ Square Associates, a
Delaware limited partnership ("Two ▇▇▇▇▇ ▇▇") in exchange for limited
partnership interests in the Subsidiary Partnership (the "▇▇▇▇▇ Transaction");
WHEREAS, it is intended for federal income tax purposes that the
Transaction be treated as a contribution by the TRCALP Protected Partner of its
interest in TRCLP to the Partnership in exchange for OP Units and Preferred
Units under Section 721 of the Internal Revenue Code of 1986, as amended (the
"Code") pursuant to the "assets over" form of transaction set forth in Treasury
Regulation Section 1.708-1(c)(3) and the receipt of a series of "debt financed
distributions" within the meaning of Treasury Regulation Section 1.707-5(b);
WHEREAS, it is intended for federal income tax purposes that the ▇▇▇▇▇
Transaction be treated as a contribution by the TRCALP Protected ▇▇▇▇▇ Partner
of their interests in Two ▇▇▇▇▇ ▇▇ in exchange for an equity interest in
Subsidiary Partnership under Section 721 of the Code;
WHEREAS, in accordance with Section 2 of the Contribution Agreement and
in consideration for the agreement of the Protected Partners to consummate the
Transaction, and the ▇▇▇▇▇ Transaction the parties desire to enter into this
Agreement regarding certain tax matters associated with the Transaction and the
▇▇▇▇▇ Transaction; and
WHEREAS, the REIT, the Partnership, and the Subsidiary Partnership
desire to evidence their agreement regarding amounts that may be payable as a
result of certain actions being taken by the Partnership or Subsidiary
Partnership regarding the disposition of certain of the assets of TRCLP, the
Subsidiary Partnership or other contributed assets and certain debt obligations
of the Partnership, its partners and its subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein and in
the Contribution Agreement, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
To the extent not otherwise defined herein, capitalized terms used in
this Agreement have the meanings ascribed to them in the Contribution Agreement
(as defined above).
"Accounting Firm" has the meaning set forth in Section 4.2.
"Allocable Share of Incurred Indebtedness" has the meaning set forth in
Section 3.1, and shall be, for each Protected Partner, the amount set forth on
Schedule 3.1 hereto next to such Protected Partner's name as amended from time
to time.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent" means the prior written consent to do the act or thing for
which the consent is required or solicited, which consent may be executed by a
duly authorized officer or agent of the party granting such consent.
"Guaranteed Amount" means the aggregate amount of each Guaranteed Debt
that is guaranteed at any time by Partner Guarantors.
"Guaranteed Debt" means any loan existing, incurred (or assumed) by the
Partnership or any of its Subsidiaries that is guaranteed in whole or in part by
Partner Guarantors at any time on or after the Closing Date pursuant to Article
3 hereof.
"Incurred Indebtedness" shall mean indebtedness which qualifies as
Qualified Guarantee Indebtedness and meets the additional requirements of
Section 3.2(vii) and (viii) which is incurred by the Partnership to fund a "debt
financed distribution" to a Protected Partner within the meaning of Treasury
Regulation Section 1.707-5(b) as further described in Section 3.2 hereof and
Section 2 of the Contribution Agreement.
"Indirect Owner" means, in the case of a Protected Partner that is an
entity classified as an S corporation, a partnership or disregarded entity for
federal income tax purposes, any person owning an equity interest in such
Protected Partner, and, in the case of any Indirect Owner that itself is an
entity classified as an S Corporation, a partnership or disregarded entity for
federal income tax purposes, any person owning an equity interest in such
entity.
"Minimum Liability Amount" means, for each Protected Partner, the
amount set forth on Schedule 3.1 hereto next to such Protected Partner's name as
amended from time to time, but in no event shall the aggregate Minimum Liability
Amount exceed the sum of $50,000,000 plus the Protected Partners' aggregate
historical Allocable Share of Incurred Indebtedness.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"OP Units" means Class A units of limited partnership interest of the
Partnership owned by the Protected Partners, as described in the Partnership
Agreement and any other partnership interest into which such OP Units may be
converted.
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"Partner Guarantors" means those Protected Partners who have guaranteed
any portion of the Guaranteed Debt. The Partner Guarantors and each Partner
Guarantor's dollar amount share of the Guaranteed Amount with respect to the
Guaranteed Debt, including any Incurred Indebtedness, as of the Closing Date
will be set forth on Schedule 3.2 hereto as amended from time to time.
"Partnership" means Brandywine Operating Partnership, L.P., a Delaware
limited partnership.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Brandywine Operating Partnership, L.P., dated as of
November 18, 1997 as amended through the Closing Date, and as the same may be
further amended in accordance with the terms thereof.
"Preferred Units" means zero coupon preferred units of limited
partnership interest of the Partnership, as described in the Contribution
Agreement and the Partnership Agreement.
"Protected Gain" shall mean all of the gain that would be allocable to
and recognized by a Protected Partner (or Indirect Owners) under Section 704(c)
of the Code in the event of the sale of a Protected Property or direct or
indirect interest therein in a fully taxable transaction on the Closing Date for
consideration equal to the Section 704(c) Value of such Protected Property on
the Closing Date as set forth in Schedule 2.1B hereto.
"Protected Partner" means those persons set forth on Schedule 2.1(a)
hereto as "Protected Partners," any person who acquires OP Units, Preferred
Units or interests in Subsidiary Partnership from a Protected Partner (or
Indirect Owner) in a transaction in which gain or loss is not recognized in
whole or in part and in which such transferee's adjusted basis, as determined
for federal income tax purposes, is determined in whole or in part by reference
to the adjusted basis of a Protected Partner (or Indirect Owner) in such OP
Units, Preferred Units or interests in Subsidiary Partnership.
"Protected ▇▇▇▇▇ Partners" means TLSEA-II and TLC-Inc.
"Protected Property" means (i) each of the properties identified as a
Protected Property on Schedule 2.1(b) hereto; (ii) any other properties or
assets hereafter acquired by the Partnership or direct or indirect interest
owned by the Partnership in any Subsidiary that owns an interest in a Protected
Property, if the disposition of such properties, assets or interest would result
in the recognition of Protected Gain with respect to a Protected Property by a
Protected Partner (or Indirect Owner); and (iii) any other property that the
Partnership directly or indirectly receives that is in whole or in part a
"substituted basis property" as defined in Section 7701(a)(42) of the Code with
respect to a Protected Property or interest therein.
"Qualified Guarantee" has the meaning set forth in Section 3.2.
"Qualified Guarantee Indebtedness" has the meaning set forth in Section
3.2.
"Section 704(c) Value" means the fair market value of any Protected
Property as agreed to by the Partnership and the Protected Partners and as set
forth next to each Protected Property on Schedule 2.1(b). The Section 704(c)
Value for each Protected Property shall be as determined by agreement between
the Protected Partners and the Partnership pursuant to this Agreement. The
Partnership shall initially carry each Protected Property on its books at a
value equal to the Section 704(c) Value of such Protected Property as set forth
above.
"Subsidiary" means any entity in which the Partnership owns a direct or
indirect interest and which entity owns a Protected Property on the Closing
Date, after giving effect to the Transaction and the ▇▇▇▇▇ Transaction, or that
thereafter is a successor entity through which the Partnership holds a direct or
indirect interest in a Protected Property.
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"Subsidiary Partnership" means the Two ▇▇▇▇▇ Transferee as defined in
Section 2.2(d) of the Contribution Agreement.
"Successor Partnership" has the meaning set forth in Section 2.2.
"Taxes" means all federal, state, local and foreign taxes (including,
without limitation, income, profit, franchise, sales, use, real property,
personal property, ad valorem, excise, employment, social security and wage
withholding taxes) and installments and estimated taxes, assessments,
deficiencies, levies, imposts, duties, withholdings, or other similar charges of
every kind, character and description imposed by any governmental authority, and
any interest, penalties or additions to tax imposed thereon or in connection
therewith.
"Tax Protection Period" means (i) with respect to the Protected
Properties set forth on Schedule 2.1(b) as 3 year Protected Properties the
period commencing on the Closing Date and ending at 12:01 AM on January 1, 2008,
(ii) with respect to the Protected Properties set forth on Schedule 2.1(b) as 10
year Protected Properties the period commencing on the Closing Date and ending
at 12:01 AM on January 1, 2015, (iii) with respect to the Protected Properties
set forth on Schedule 2.1(b) as 15 year Protected Properties the period
commencing on the Closing Date and ending at 12:01 AM on January 1, 2020, and
(iv) with respect to the obligations of the Partnership set forth in Article 3
hereof the period commencing on the Closing Date and extending throughout the
entire period that one or more Protected Partners (or Indirect Owner thereof) is
a holder of OP Units or Preferred Units.
"TRCALP Protected Partner" means TRC Associates Limited Partnership.
ARTICLE II
RESTRICTIONS ON DISPOSITIONS OF
PROTECTED PROPERTIES
2.1. GENERAL PROHIBITION ON DISPOSITION OF PROTECTED PROPERTIES. The
REIT, the Partnership and the Subsidiary Partnership agree for the benefit of
each Protected Partner (and the Indirect Owners thereof), for the term of the
Tax Protection Period applicable with respect to a Protected Property, not to
directly or indirectly sell, exchange, transfer, or otherwise dispose of such a
Protected Property or any interest therein (without regard to whether such
disposition is voluntary or involuntary) in a transaction that would cause any
of the Protected Partners (or Indirect Owners thereof) to recognize any
Protected Gain.
Without limiting the foregoing, the term "sale, exchange, transfer or
disposition" by the Partnership shall be deemed to include, and the prohibition
shall extend to:
(a) any direct or indirect disposition by any direct or
indirect Subsidiary of any Protected Property or any interest therein;
(b) any direct or indirect disposition by the Partnership or
the Subsidiary Partnership of any Protected Property (or any direct or indirect
interest therein) that is subject to Section 704(c)(1)(B) of the Code and the
Treasury Regulations thereunder; and
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(c) any distribution by the Partnership or the Subsidiary
Partnership to a Protected Partner that is subject to Section 737 of the Code
and the Treasury Regulations thereunder;
Without limiting the foregoing, a disposition shall include any
transfer, voluntary or involuntary, in a foreclosure proceeding, pursuant to a
deed in lieu of foreclosure, or in a bankruptcy proceeding.
2.2. EXCEPTIONS WHERE NO GAIN RECOGNIZED. Notwithstanding the
restrictions set forth in Section 2.1, the Partnership or any Subsidiary may
dispose of any Protected Property (or an interest therein) 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 non-recognition of gain under Section 721 or Section 351 of
the Code, or a merger or consolidation of the Partnership with or into another
entity that qualifies for taxation as a "partnership" for federal income tax
purposes (a "Successor Partnership")) that, as to each of the foregoing, does
not result (in the year of such disposition or in a later year) in the
recognition of any taxable income or gain to any Protected Partner (or Indirect
Owners) with respect to any of the Preferred Units or OP Units. In further
clarification thereof:
(a) in the case of a Section 1031 like-kind exchange, if such
exchange is with a "related party" within the meaning of Section 1031(f)(3) of
the Code, any direct or indirect disposition by such related party of the
Protected Property or any other transaction prior to the expiration of the two
(2) year period following such exchange that would cause Section 1031(f)(1) to
apply with respect to such Protected Property (including by reason of the
application of Section 1031(f)(4)) shall be considered a violation of Section
2.1 by the Partnership;
(b) in the event that at the time of the exchange or other
disposition the Protected Property is secured, directly or indirectly, by
indebtedness that is guaranteed by a Partner Guarantor (or for which a Protected
Partner (or Indirect Owner) otherwise has personal liability) and the transferee
is not a Subsidiary of the Partnership that both is more than 50% owned,
directly or indirectly by the Partnership and is and will continue to be under
the legal control of the Partnership (which shall include a partnership or
limited liability company in which the Partnership or a wholly owned subsidiary
of the Partnership is the sole managing general partner or sole managing member,
as applicable), (a) either (I) such indebtedness shall be repaid in full or (II)
the Partnership shall obtain from the lenders with respect to such indebtedness
a full and complete release of liability for each of the Protected Partners (or
Indirect Owners) that has guaranteed, or otherwise has liability for, such
indebtedness, and (b) if such indebtedness is a Guaranteed Debt and the Tax
Protection Period with respect to Article 3 shall not have expired, the
Partnership shall comply with its covenants set forth in Article 3 below with
respect to such Guaranteed Debt and the Partner Guarantors that are considered
to have liability for such Guaranteed Debt (determined under Section 3.4
treating such events as a repayment of the Guaranteed Debt); and
(c) in the event of a merger or consolidation involving the
Partnership (or any Subsidiary) and a Successor Partnership, the Successor
Partnership shall have agreed in writing for the benefit of the Protected
Partners (and the Indirect Owners thereof) that all of the restrictions
contained in this Agreement shall continue to apply, including but not limited
to, those with respect to each Protected Property.
2.3. MERGERS. Any merger or consolidation involving the Partnership or
any Subsidiary of the Partnership, whether or not the Partnership or Subsidiary
is the surviving entity in such merger or consolidation, that results in a
Protected Partner (or an Indirect Owner) being required to recognize part or all
of the Protected Gain shall be deemed to be a disposition of the Protected
Property for purposes of Section 2.1 and Article 4 shall fully apply.
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2.4. TAX TREATMENT OF THE TRANSACTION AND THE ▇▇▇▇▇ TRANSACTION. The
REIT, the Partnership and the Subsidiary Partnership covenant that except to the
extent a contrary position is required as a result of a change in law after the
date hereof, the Transaction and the ▇▇▇▇▇ Transaction will be reported for tax
purposes on all tax returns and submissions, as follows: (i) the contributions
by the Protected Partners pursuant to the Contribution Agreement related to the
Transaction shall be treated for all purposes as a contribution of property to
the Partnership under Section 721 of the Code in which no gain or loss is
recognized by any Protected Partner (or Indirect Owner) for federal income tax
purposes, (ii) none of the TRCALP Cash Consideration, Deferred Payments, or
Alternate Cash Consideration (each as defined in the Contribution Agreement)
distributed to the Protected Partners shall be treated as giving rise to a
transfer of money or other property that would have to be taken into account
under Treasury Regulations Section 1.707-3 as part of a disguised sale, and
(iii) the ▇▇▇▇▇ Transaction shall be treated for all purposes as a contribution
of property to Subsidiary Partnership under Section 721 of the Code in which no
gain or loss is recognized by any Protected ▇▇▇▇▇ Partner. The parties hereto
agree that they shall not take any income tax position inconsistent with
treating the Transaction and the ▇▇▇▇▇ Transaction as resulting in the
non-recognition of gain or loss to all Protected Partners (and Indirect Owners
thereof). The Protected Partners acknowledge that the foregoing is not a
guarantee that such treatment will be respected for income tax purposes and the
Partnership and the Subsidiary Partnership shall have no liability to a
Protected Partner (or Indirect Owner) as a result of the Internal Revenue
Service successfully asserting a contrary position.
ARTICLE III
ALLOCATION OF LIABILITIES; GUARANTEE OPPORTUNITY
AND DEFICIT RESTORATION OBLIGATIONS
3.1. MINIMUM LIABILITY ALLOCATION. During the Tax Protection Period,
the Partnership will offer to each Protected Partner (or, at the request of an
Indirect Owner thereof, such Indirect Owner) the opportunity (i) to enter into
Qualified Guarantees of Qualified Guarantee Indebtedness (other than Incurred
Indebtedness), in such amount or amounts so as to cause the amount of
partnership liabilities allocated to such Protected Partner for purposes of
Section 752 of the Code to be not less than such Protected Partner's Minimum
Liability Amount and to cause the amount of partnership liabilities with respect
to which such Protected Partner will be considered to be "at risk" for purposes
of Section 465 of the Code to be not less than such Protected Partner's Minimum
Liability Amount, as provided in this Article 3, and (ii) to enter into a
Qualified Guarantee of Qualified Guarantee Indebtedness, meeting the additional
requirements of Sections 3.2(vii) and (viii), incurred by the Partnership
pursuant to Section 2 of the Contribution Agreement ("Incurred Indebtedness") in
order to cause each Protected Partner's share of the Incurred Indebtedness
(within the meaning of Treasury Regulation Section 1.707-5(b)) (such Protected
Partner's "Allocable Share of the Incurred Indebtedness") to equal such
Protected Partner's share of the cash distribution traceable to the Incurred
Indebtedness (within the meaning of Treasury Regulation Section 1.707-5(b)) used
to fund the TRCALP Cash Consideration, Deferred Payments, and/or Alternate Cash
Consideration. In order to minimize the need for Protected Partners to enter
into Qualified Guarantees, the Partnership will use the optional method under
Treasury Regulation Section 1.752-3(a)(3) to allocate Nonrecourse Liabilities
considered secured by a Protected Property to the Protected Partners to the
extent that the "built-in gain" with respect to those properties exceeds the
amount of the Nonrecourse Liabilities considered secured by such Protected
Property allocated to the Protected Partners under Treasury Regulation Section
1.752-3(a)(2).
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3.2. QUALIFIED GUARANTEE INDEBTEDNESS, INCURRED INDEBTEDNESS AND
QUALIFIED GUARANTEE; TREATMENT OF QUALIFIED GUARANTEE INDEBTEDNESS AND INCURRED
INDEBTEDNESS AS GUARANTEED DEBT. In order for an offer by the Partnership of an
opportunity to guarantee indebtedness to satisfy the requirements of this
Article 3, (1) the indebtedness to be guaranteed must also satisfy conditions
(i) through (vi) set forth in this Section 3.2 (indebtedness satisfying all such
conditions is referred to as "Qualified Guarantee Indebtedness"); and with
respect to Incurred Indebtedness, the indebtedness must satisfy the additional
conditions or other requirements set forth in (vii) and (viii) of this Section
3.2; (2) the guarantee by the Partner Guarantors must be pursuant to a Guarantee
Agreement substantially in the form attached hereto as Schedule 3.7 that
satisfies the conditions set forth in Sections 3.2(i) and (iii) (a "Qualified
Guarantee"); (3) the amount of debt offered to be guaranteed by the Partner
Guarantor, if pursuant to Section 3.4, must not exceed the portion of the
Guaranteed Amount for which a replacement guarantee is being offered; and (4)
the debt to be guaranteed must be considered indebtedness of the Partnership for
purposes of determining the adjusted tax basis of the interests of partners in
the Partnership in their partnership interests. If, and to the extent that, a
Partner Guarantor elects to guarantee Qualified Guarantee Indebtedness pursuant
to an offer made in accordance with this Article 3 or guarantees Incurred
Indebtedness, such indebtedness thereafter shall be considered a Guaranteed Debt
and subject to all of this Article 3.
The conditions that must be satisfied at all times with respect to any
Guaranteed Debt or Incurred Indebtedness (but as to Incurred Indebtedness only
with respect to clauses (i), (iii), (iv), (vii) and (viii) below) offered
pursuant to this Article 3 hereof and the guarantees with respect thereto are as
follows:
(i) each such guarantee shall be a "bottom dollar guarantee"
in that the lender for the Guaranteed Debt is required to pursue all other
collateral and security for the Guaranteed Debt (other than any "bottom dollar
guarantees" permitted pursuant to this clause (i) and/or Section 3.3 below)
prior to seeking to collect on such a guarantee, and the lender shall have
recourse against the guarantee only if, and solely to the extent that, the total
amount recovered by the lender with respect to the Guaranteed Debt after the
lender has exhausted its remedies as set forth above is less than the aggregate
of the Guaranteed Amounts with respect to such Guaranteed Debt (plus the
aggregate amounts of any other guarantees (x) that are in effect with respect to
such Guaranteed Debt at the time the guarantees pursuant to this Article 3 are
entered into, or (y) that are entered into after the date the guarantees
pursuant to this Article 3 are entered into with respect to such Guaranteed Debt
and that comply with Section 3.5 below, but only to the extent that, in either
case, such guarantees are "bottom dollar guarantees" with respect to the
Guaranteed Debt), and the maximum aggregate liability of each Partner Guarantor
for all Guaranteed Debt shall be limited to the amount actually guaranteed by
such Partner Guarantor;
(ii) the fair market value of the property collateral (not
including any guarantees) against which the lender has recourse pursuant to the
Guaranteed Debt, determined as of the time the guarantee is entered into (an
independent appraisal relied upon by the lender in making the loan will be the
conclusive evidence of such fair market value when the guarantee is being
entered into in connection with the closing of such loan), shall not be less
than 140% of the sum of (x) Guaranteed Debt, plus (y) the aggregate amounts of
any other guarantees that are in effect with respect to such Guaranteed Debt at
the time the guarantees pursuant to this Article 3 are entered into with respect
to such Guaranteed Debt and that comply with Section 3.2(v) below, but only to
the extent that such guarantees are "bottom dollar guarantees" with respect to
the Guaranteed Debt);
(iii) (A) the executed guarantee must be executed by and
delivered to the lender, (B) the execution of the guarantee by the Partner
Guarantors must be acknowledged by the lender, and (C) the guarantee must be
enforceable under the laws of the state governing the loan and in which the
property securing the loan is located;
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(iv) as to each Partner Guarantor that is executing a
guarantee pursuant to this Agreement, there must be no other person that would
be considered to "bear the economic risk of loss," within the meaning of
Treasury Regulation Section 1.752-2, or would be considered to be "at risk" for
purposes of Section 465(b) with respect to that portion of such debt for which
such Partner Guarantor is being made liable for purposes of satisfying the
Partnership's obligations to such Partner Guarantor under this Article 3;
(v) the aggregate Guaranteed Amounts with respect to the
Guaranteed Debt will not exceed 35% of the amount of the Guaranteed Debt
outstanding at the time the guarantee is executed. Except for guarantees already
in place at the time a guarantee opportunity is presented to the Protected
Partners, at no time can there be guarantees with respect to the Guaranteed Debt
that are provided by other persons that are "pari passu" with or at a lower
level of risk than the guarantees provided by the Protected Partners. If there
are guarantees already in place at the time a guarantee opportunity is presented
to the Protected Partners that are "pari passu" with or at a lower level of risk
than the guarantees provided by the Protected Partners, then the amount of
Guaranteed Debt subject to such existing guarantees shall be added to the
Guaranteed Amount for purposes of calculating the 35% limitation set forth in
this Section 3.2(v); and
(vi) the obligor with respect to the Guaranteed Debt is the
Partnership or, in the case of Guaranteed Debt other than Incurred Indebtedness,
an entity in which the Partnership owns, directly and indirectly, not less than
51% of the economic interests and which is and will continue to be under the
legal control of the Partnership (which shall include a partnership or limited
liability company in which the Partnership or a wholly-owned subsidiary of the
Partnership is the sole managing general partner or sole managing member, as
applicable).
The Partnership shall be deemed to satisfy the requirements of Sections
3.2(i), (ii) and (v) if, in lieu of offering a bottom dollar guarantee of
indebtedness secured by specific properties, it offers a bottom dollar guarantee
(or an indemnity of an existing guarantor) of a general unsecured obligation of
the Partnership which is recourse, without limitation, to all of the assets of
the Partnership and is made by a third party institutional lender with financial
covenants that are standard for such a loan. Such a guarantee may be "pari
passu" with or at a higher level of risk than another bottom dollar guarantee of
such indebtedness provided that the aggregate amount of such other guarantee is
less than $65 million.
The additional conditions that must be satisfied at all times with
respect to Incurred Indebtedness offered pursuant to this Article 3 hereof and
the guarantees with respect thereto are as follows:
(vii) the amount of the Incurred Indebtedness shall equal the
amount specified by the Protected Partners as TRCALP Cash Consideration,
Deferred Payments and/or Alternate Cash Consideration in connection with Section
2 of the Contribution Agreement so that all of the cash designated as a
"debt-financed distribution" shall qualify as a debt-financed distribution
attributable to the Incurred Indebtedness with respect to each Protected
Partner, no portion of which is taken into account as a "transfer of money" for
purposes of Section 707 and Treasury Regulation Sections 1.707-1 through
1.707-9;
(viii) notwithstanding Section 3.2 (vi) or 3.4 hereto, the
obligor with respect to the Incurred Indebtedness shall at all times be the
Partnership, such Incurred Indebtedness shall be a recourse obligation of the
Partnership where the Lender has recourse, without limitation, to all of the
assets of the Partnership, the term of the Incurred Indebtedness is not less
than forty-eight (48) months, and such indebtedness is a distinct and separate
liability of the Partnership in an amount equal to the TRCALP Cash
Consideration, Deferred Payment and/or Alternate Cash Consideration made to the
Protected Partners and for which such Protected Partner Guarantors solely bear
the economic risk of loss within the meaning of Treasury Regulation Section
1.752-2.
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3.3. COVENANT WITH RESPECT TO GUARANTEED DEBT COLLATERAL. The
Partnership covenants with the Partner Guarantors with respect to the Guaranteed
Debt that (A) it will comply with the requirements set forth in Section 2.2(b)
upon any disposition of any collateral for a Guaranteed Debt, whether during or
following the Tax Protection Period, and (B) it will not at any time, whether
during or following the Tax Protection Period, pledge the collateral with
respect to a Guaranteed Debt to secure any other indebtedness (unless such other
indebtedness is, by its terms, subordinate in all respects to the Guaranteed
Debt for which such collateral is security) or otherwise voluntarily dispose of
or reduce the amount of such collateral unless either (i) after giving effect
thereto the conditions in Section 3.2 would continue to be satisfied with
respect to the Guaranteed Debt and the Guaranteed Debt otherwise would continue
to be Qualified Guarantee Indebtedness, or in the case of Guaranteed Debt other
than Incurred Indebtedness (ii) the Partnership (A) obtains from the lender with
respect to the original Guaranteed Debt a full and complete release of any
Partner Guarantor unless the Partner Guarantor expressly requests that it not be
released, and (B) if the Tax Protection Period has not expired, offers to each
Partner Guarantor with respect to such original Guaranteed Debt, not less than
30 days prior to such pledge or disposition, the opportunity to enter into a
Qualified Guarantee of other Partnership indebtedness that constitutes Qualified
Guarantee Indebtedness (with such replacement indebtedness thereafter being
considered a Guaranteed Debt and subject to this Article 3) in an amount equal
to the amount of such original Guaranteed Debt that was guaranteed by such
Partner Guarantor.
3.4. REPAYMENT OR REFINANCING OF GUARANTEED DEBT. The Partnership shall
not, at any time during the Tax Protection Period applicable to a Partner
Guarantor, repay or refinance all or any portion of any Guaranteed Debt unless
(i) after taking into account such repayment, each Partner Guarantor would be
entitled, pursuant to Treasury Regulation Section 1.752-2 (and not Treasury
Regulation Section 1.752-3), to include in its adjusted tax basis for its
Preferred Units or OP Units an amount of Guaranteed Debt equal to its Minimum
Liability Amount plus its Allocable Share of Incurred Indebtedness, or (ii)
alternatively, the Partnership, not less than 30 days prior to such repayment or
refinancing, offers to the applicable Partner Guarantors the opportunity to
enter into a Qualified Guarantee with respect to other Qualified Guarantee
Indebtedness in an amount sufficient so that, taking into account such
guarantees of such other Qualified Guarantee Indebtedness each Partner Guarantor
who guarantees such other Qualified Guarantee Indebtedness in the amount
specified by the Partnership would be entitled, pursuant to Treasury Regulation
Section 1.752-2 (and not Treasury Regulation Section 1.752-3), to include in its
adjusted tax basis for its OP Units or Preferred Units debt equal to the Minimum
Liability Amount plus its Allocable Share of Incurred Indebtedness for such
Partner Guarantor. Notwithstanding the foregoing, under no circumstances shall
the Partnership prepay or refinance prior to the expiration of its term a
Guaranteed Debt which is an Incurred Indebtedness unless the Partnership
simultaneously incurs a new Incurred Indebtedness in the exact same amount,
which is a distinct and separate liability of the Partnership and allows each of
the Protected Partners the opportunity to make a Qualified Guarantee of such
indebtedness in an amount equal to its Allocable Share of the Incurred
Indebtedness (provided that the term of such "refinanced" Incurred Indebtedness
may be forty-eight (48) months less the number of full months that has run on
the term of the prior Incurred Indebtedness which such new Incurred Indebtedness
is refinancing). If an Incurred Indebtedness is at the end of the (48) month
period refinanced with Qualified Guarantee Indebtedness which is not Incurred
Indebtedness, then such Allocable Share of Incurred Indebtedness shall be
considered a Minimum Liability Amount and Schedule 3.1 shall be amended
accordingly.
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3.5. LIMITATION ON ADDITIONAL GUARANTEES WITH RESPECT TO DEBT SECURED
BY COLLATERAL FOR GUARANTEED DEBT. The Partnership shall not offer the
opportunity or make available to any person or entity other than a Protected
Partner a guarantee of any Guaranteed Debt or other debt that is secured,
directly or indirectly, by any collateral for Guaranteed Debt unless such
Guaranteed Debt is not Incurred Indebtedness and (i) such debt by its terms is
subordinate in all respects to the Guaranteed Debt or, if such other guarantees
are of the Guaranteed Debt itself, such guarantees by their terms must be paid
in full before the lender can have recourse to the Partner Guarantors (i.e., the
first dollar amount of recovery by the applicable lenders must be applied to the
Guaranteed Amount); provided that the foregoing shall not apply with respect to
additional guarantees of Guaranteed Debt so long as the conditions set forth in
Sections 3.2(ii) and (v) would be satisfied immediately after the implementation
of such additional guarantee (determined in the case of Section 3.2(ii), based
upon the fair market value of the collateral for such Guaranteed Debt at the
time the additional guarantee is entered into and adding the amount of such
additional guarantee(s) to the sum of the applicable Guaranteed Amounts plus any
other preexisting "bottom dollar guarantees" previously permitted pursuant to
this Section 3.5 or Sections 3.2(i) and (ii) above, for purposes of making the
computation provided for in Section 3.2(ii)), and (ii) and such other guarantees
do not have the effect of reducing the amount of the Guaranteed Debt that is
includible by any Partner Guarantor in its adjusted tax basis for its Preferred
Units or OP Units pursuant to Treasury Regulation Section 1.752-2.
3.6. PROCESS. Whenever the Partnership is required under this Article 3
to offer to one or more of the Partner Guarantors an opportunity to guarantee
Qualified Guarantee Indebtedness, the Partnership shall be considered to have
satisfied its obligation if the other conditions in this Article 3 are satisfied
and, not less than thirty (30) days prior to the date that such guarantee would
be required to be executed in order to satisfy this Article 3, the Partnership
sends by first class mail, return receipt requested, to the last known address
of each such Partner Guarantor (as reflected in the records of the Partnership)
the Guarantee Agreement to be executed (which shall be substantially in the form
of Schedule 3.7 hereto, with such changes thereto as are necessary to reflect
the relevant facts) and a brief letter explaining the relevant circumstances
(including, as applicable, that the offer is being made pursuant to this Article
3, the circumstances giving rise to the offer, a brief summary of the terms of
the Qualified Guarantee Indebtedness to be guaranteed, a brief description of
the collateral for the Qualified Guarantee Indebtedness, a statement of the
amount to be guaranteed, the address to which the executed Guarantee Agreement
must be sent and the date by which it must be received, and a statement to the
effect that, if the Protected Partner fails to execute and return such Agreement
within the time period specified, the Partner Guarantor thereafter would lose
its rights under this Article 3 with respect to the amount of debt that the
Partnership is required to offer to be guaranteed and depending upon the Partner
Guarantor's circumstances and other circumstances related to the Partnership,
the Partner Guarantor could be required to recognize taxable gain as a result
thereof, either currently or prior to the expiration of the Tax Protection
Period, that otherwise would have been deferred. If a notice is properly sent in
accordance with this procedure, the Partnership shall have no responsibility as
a result of the failure of a Partner Guarantor either to receive such notice or
to respond thereto within the specified time period.
3.7. PRESUMPTION AS TO SCHEDULE 3.7. The form of the Guarantee
Agreement attached hereto as Schedule 3.7 shall be conclusively presumed to
satisfy the conditions set forth in Section 3.2(i) and to have caused the
Guaranteed Debt to be considered allocable to the Protected Partner who enters
into such Guarantee Agreement pursuant to Treasury Regulation Sections 1.752-2
and 1.707-5(b) so long as all of the following conditions are met with respect
such Guaranteed Debt:
(i) there are no other guarantees in effect with respect to
such Guaranteed Debt (other than the guarantees contemporaneously being entered
into by the Partner Guarantors pursuant to this Article 3 or, in the case of
Incurred Indebtedness, that comply with the paragraph following Section
3.2(vi));
(ii) the collateral securing such Guaranteed Debt is not, and
shall not thereafter become, collateral for any other indebtedness that is
senior to or pari passu with such Guaranteed Debt;
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(iii) no additional guarantees with respect to such Guaranteed
Debt will be entered into during the applicable Tax Protection Period pursuant
to the proviso set forth in Section 3.5;
(iv) the lender with respect to such Guaranteed Debt is not
the Partnership, any Subsidiary or other entity in which the Partnership owns a
direct or indirect interest, the REIT, any other partner in the Partnership, or
any person related to any partner in the Partnership as determined for purposes
of Treasury Regulation Section 1.752-2 or any person that would be considered a
"related party" as determined for purposes of Section 465 of the Code; and
(v) none of the REIT, nor any other partner in the
Partnership, nor any person related to any partner in the Partnership as
determined for purposes of Treasury Regulation Section 1.752-2 shall have
provided, or shall thereafter provide, collateral for, or otherwise shall have
entered into, or shall thereafter enter into, a relationship that would cause
such person to be considered to bear the risk of loss with respect to such
Guaranteed Debt, as determined for purposes of Treasury Regulation Section
1.752-2 or that would cause such entity to be considered "at risk" with respect
to such Guaranteed Debt, as determined for purposes of Section 465 of the Code.
ARTICLE IV
REMEDIES FOR BREACH
4.1. MONETARY DAMAGES. In the event that the Partnership or the
Subsidiary Partnership breaches its obligations set forth in Article 2, Article
3, Article 5, Article 6 or Article 7 with respect to a Protected Partner (or
Indirect Owner thereof), the Protected Partner's (and Indirect Owner's) sole
right shall be to receive from the Partnership, and the Partnership shall pay to
such Protected Partner (or Indirect Owner thereof) as damages, an amount equal
to:
(a) in the case of a violation of Section 2.4 or Articles 3, 5, 6,
or ▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ and local income taxes (including any
interest and penalties that are determined to be applicable) incurred by the
Protected Partner (or its Indirect Owners) as a result of the income or gain
allocated to, or otherwise recognized by, such Protected Partner (or its
Indirect Owners) by reason of such breach;
(b) in the case of a violation of Article 2 (other than Section
2.4), the aggregate federal, state, and local income taxes (including any
interest and penalties that are determined to be applicable) incurred with
respect the Protected Gain incurred with respect to the Protected Property that
is allocable to such Protected Partner (or Indirect Owners thereof) under the
Partnership Agreement;
plus in the case of either (a) or (b), an amount equal to the aggregate federal,
state, and local income taxes payable by the Protected Partner (or Indirect
Owners thereof) (including any interest and penalties that are determined to be
applicable) as a result of the receipt of any payment required under this
Section 4.1 on a fully grossed up basis (i.e., so that the amount remaining to
the Protected Partner (or Indirect Owners) after the payments of any federal,
state and local taxes on all such payments due to the Protected Partners (or
Indirect Owners) is the amount required to be paid to the Protected Partner (or
Indirect Owners) under Section 4.1(a) or (b) before calculation of such
amounts.)
For purposes of computing the amount of federal, state, and local
income taxes required to be paid by a Protected Partner (or Indirect Owners
thereof), (i) any deduction for state income taxes payable as a result thereof
actually allowed in computing federal income taxes shall be taken into account,
and (ii) a Protected Partner's (or Indirect Owner's) tax liability shall be
computed using the highest federal, state and local marginal income tax rates
that would be applicable to such Protected Partner's (or Indirect Owner's)
taxable income (taking into account the character of such income or gain) for
the year with respect to which the taxes must be paid, without regard to any
deductions, losses or credits that may be available to such Protected Partner
(or Indirect Owner) that would reduce or offset its actual taxable income or
actual tax liability if such deductions, losses or credits could be utilized by
the Protected Partner (or Indirect Owner) to offset other income, gain or taxes
of the Protected Partner (or Indirect Owner), either in the current year, in
earlier years, or in later years.
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4.2. PROCESS FOR DETERMINING DAMAGES. If the Partnership or the
Subsidiary Partnership has breached or violated any of the covenants set forth
in Article 2, Article 3, Article 5, Article 6 or Article 7 (or a Protected
Partner (or Indirect Owner thereof)) asserts that the Partnership has breached
or violated any of the covenants set forth in Article 2, Article 3, Article 5,
Article 6, or Article 7), the Partnership and the Protected Partner (or Indirect
Owners thereof) 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 Protected Partner (or Indirect Owners thereof) under Section 4.1
(and to the extent applicable, Section 4.4). If any such disagreement cannot be
resolved by the Partnership and such Protected Partner (or Indirect Owner
thereof) within (i) sixty (60) days after the receipt of notice from the
Partnership of such breach and the amount of income to be recognized by reason
thereof, (ii) sixty (60) days after the receipt of a notice from the Protected
Partner (or Indirect Owner) that the Partnership has breached its obligation,
which notice shall set forth the amount of income asserted to be recognized by
the Protected Partner (or Indirect Owner) as a result of the breach, or (iii)
ten (10) days following the receipt of notice from the Internal Revenue Service,
or other taxing authority, asserting that the Protected Partner (or Indirect
Owners) recognized taxable income as a result of a breach of this Agreement or
on account of an actual or constructive cash distribution under Subchapter K of
the Code (or the corresponding provision of state or local law) that exceeded
the Protected Partner's adjusted income tax basis in the Units, the Partnership
and the Protected Partner (or Indirect Owner) shall, in the case of an event
described in clauses (i) and (ii) above, jointly retain a nationally recognized
big four 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 of any of the
covenants set forth in Article 2, Article 3, Article 5, Article 6 or Article 7,
has occurred and, if so, the amount of damages to which the Protected Partner
(or Indirect Owners thereof) is entitled as a result thereof, determined as set
forth in Section 4.1 (and to the extent applicable, Section 4.4). All
determinations made by the Accounting Firm with respect to the resolution of any
breach or violation of any of the covenants set forth in Article 2, Article 3,
Article 5, Article 6 or Article 7 and the amount of damages payable to the
Protected Partner (or Indirect Owners) under Section 4.1 (and to the extent
applicable, Section 4.4) shall, subject to a subsequent notice received pursuant
to clause (iii) and the last sentence of this Section 4.2, be final, conclusive
and binding on the Partnership and the Protected Partner (or Indirect Owner);
provided, however, that a Protected Partner (or Indirect Owner) shall be
permitted to make a claim for a breach of this Agreement at any time and without
regard to any determination made by the Accounting Firm. The fees and expenses
of any Accounting Firm incurred in connection with any such determination shall
be shared equally by the Partnership and the Protected Partner (or Indirect
owner), provided that if the amount determined by the Accounting Firm to be owed
by the Partnership to the Protected Partner (or Indirect Owner) is more than
five percent (5%) higher than the amount proposed by the Partnership to be owed
to such Protected Partner (or Indirect Owner) prior to the submission of the
matter to the Accounting Firm, then all of the fees and expenses of any
Accounting Firm incurred in connection with any such determination shall be paid
by the Partnership, and if the amount determined by the Accounting Firm to be
owed by the Partnership to the Protected Partner (or Indirect Owner) is less
than 95% of the amount proposed by the Protected Partner (or Indirect Owner) to
be owed to the Protected Partner (or Indirect Owner) prior to the submission of
the matter to the Accounting Firm then all of the fees and expenses of any
Accounting Firm incurred in connection with any such determination shall be paid
by the Protected Partner (or Indirect Owner). In the case of any event described
in clause (iii) of this Section 4.2, the amount shown as due by the Internal
Revenue Service or other taxing authority shall be presumed to be damages
resulting from a breach of this Agreement and the amount of any such damages
shall be increased by the amount of interest and penalties required to be paid
by the Protected Partner (or Indirect Owners thereof) so that the amount of the
damages under this Section 4.1 shall not be less than the amount required to be
paid to the Internal Revenue Service or other taxing authority in respect of the
notice, grossed up for any additional amount required so that the net amount
remaining after the reduction in the proceeds received on account of federal,
state, and local taxes, plus interest and penalties, will be the amount of all
taxes interest and penalties required to be paid by the Protected Partner (or
Indirect Owner).
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4.3. REQUIRED NOTICES; TIME FOR PAYMENT. In the event that there has
been a breach of Article 2, Article 3, Article 5, Article 6, or Article 7 the
Partnership shall provide to the Protected Partners notice of the transaction or
event giving rise to such breach not later than at such time as the Partnership
provides to the Protected Partners the Schedule K-1's to the Partnership's
federal income tax return as required in accordance with Section 7.4 below. All
payments required under this Article 4 to any Protected Partner (or Indirect
Owners) shall be made to such Protected Partner (or Indirect Owners) on or
before April 15 of the year following the year in which the gain recognition
event giving rise to such payment took place; provided, that, if the Protected
Partner (or Indirect Owners) is required to make estimated tax payments that
would include such gain, the Partnership shall make a payment to the Protected
Partner (or Indirect Owners) on or before the due date for such estimated tax
payment and such payment from the Partnership shall be in an amount that
corresponds to the amount of the estimated tax being paid by such Protected
Partner (or Indirect Owners) at such time. In the event of a payment made after
the date required pursuant to this Section 4.3, interest shall accrue on the
aggregate amount required to be paid from such date to the date of actual
payment at a rate equal to the higher of (i) the "prime rate" of interest, as
published in the Wall Street Journal (or if no longer published there, as
announced by Citibank) effective as of the date the payment is required to be
made plus 10% or (ii) twenty percent, but not to exceed the maximum amount
permitted by law.
4.4. ADDITIONAL DAMAGES FOR BREACHES OF SECTION 2.2(B), SECTION 3.2
AND/OR SECTION 3.3. Notwithstanding any of the foregoing in this Article 4, in
the event that the Partnership or the Subsidiary Partnership should breach any
of its covenants set forth in Section 2.2(b), Section 3.2 and/or Sections 3.3
(i) or (ii) and a Protected Partner (or Indirect Owner) is required to make a
payment in respect of such indebtedness that it would not have had to make if
such breach had not occurred (an "Excess Payment"), then, in addition to the
damages provided for in the other Sections of this Article 4, the Partnership
shall pay to such Protected Partner (or Indirect Owners) an amount equal to the
sum of (i) the Excess Payment plus (ii) the aggregate federal, state and local
income taxes, if any, computed as set forth in Section 4.1, required to be paid
by such Protected Partner (or Indirect Owners) by reason of this Section 4.4
becoming operative (for example, because the breach by the Partnership and this
Section 4.4 caused all or any portion of the indebtedness in question no longer
to be considered debt includible in adjusted tax basis by the affected Protected
Partner pursuant to Treasury Regulation Section 1.752-2(a)), plus (iii) an
amount equal to the aggregate federal, state and local income taxes required to
be paid by the Protected Partner, (or Indirect Owners) computed as set forth in
Section 4.1, as a result of any payment required under this Section 4.4.
ARTICLE V
SECTION 704(C) METHOD AND ALLOCATIONS
5.1. APPLICATION OF "TRADITIONAL METHOD." Notwithstanding any provision
of the Partnership Agreement, the Partnership and the Subsidiary Partnership
shall use the "traditional method" under Regulations Section 1.704-3(b) for
purposes of making all allocations under Section 704(c) of the Code (with a
"curative allocation" to offset the effects of the "ceiling rule," upon any sale
of a Protected Property).
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ARTICLE VI
ALLOCATIONS OF LIABILITIES PURSUANT TO REGULATIONS
UNDER SECTION 752
6.1. ALLOCATION METHODS TO BE FOLLOWED. All tax returns prepared by the
Partnership with respect to the Tax Protection Period that allocate liabilities
of the Partnership for purposes of Section 752 and the Treasury Regulations
thereunder shall treat each Partner Guarantor as being allocated for federal
income tax purposes an amount of recourse debt (in addition to any nonrecourse
debt otherwise allocable to such Partner Guarantor in accordance with the
Partnership Agreement and Treasury Regulations Section 1.752-3 and any other
recourse liabilities allocable to such Partner Guarantor by reason of guarantees
of indebtedness entered into pursuant to other agreements with the Partnership)
pursuant to Treasury Regulation Section 1.752-2 equal to the sum of such Partner
Guarantor's Minimum Liability Amount and Allocable Share of Incurred
Indebtedness, as set forth on Schedule 3.1 hereto and as may be reduced pursuant
to the terms of this Agreement, and the Partnership and the REIT shall not,
during or with respect to the Protected Period, take any contrary or
inconsistent position in any federal, state or local income tax returns
(including, without limitation, information returns, such as Schedules K-1,
provided to partners in the Partnership and returns of Subsidiaries of the
Partnership) or any dealings involving the Internal Revenue Service (including,
without limitation, any audit, administrative appeal or any judicial proceeding
involving the income tax returns of the Partnership or the tax treatment of any
holder of partnership interests the Partnership).
6.2. EXCEPTION TO REQUIRED ALLOCATION METHOD. Notwithstanding the
provisions of this Agreement, the Partnership shall not be required to make
allocations of Guaranteed Debt, Incurred Indebtedness or other recourse debt of
the Partnership to the Protected Partners as set forth in this Agreement if and
to the extent that the 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 allocation; provided that the Partnership shall provide to
each Protected Partner (or in the event of their death or disability, their
executor, guardian or custodian, as applicable), notice of such determination
and if, within forty-five (45) days after the receipt thereof, the Partnership
is provided an opinion of a law firm recognized as expert in such matters or a
nationally recognized public 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, the Partnership shall continue to make allocations
of Guaranteed Debt or other recourse debt of the Partnership to the Protected
Partners as set forth in this Agreement; provided further that if there shall
have been a judicial determination in a proceeding to which the Partnership is a
party and as to which the Protected Partners (or Indirect Owners) have been
allowed to participate as and to the extent contemplated in Article 7 to the
effect that such allocations are not correct, Section 6.1 shall not apply unless
the matter is being appealed to an applicable court of appeals and the opinion
described above from counsel or accountants engaged by a Protected Partner (or
Indirect Owner) 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 6.2 be construed to relieve the
Partnership from any liability arising from a failure by the Partnership to
comply with one or more of the provisions of Article 3 of this Agreement.
6.3. COOPERATION IN THE EVENT OF A CHANGE. If a change in the
Partnership's allocations of Guaranteed Debt or other recourse debt of the
Partnership to the Protected Partners is required by reason of circumstances
described in Section 6.2, the Partnership and its professional tax advisors
shall cooperate in good faith with each Protected Partner (or Indirect Owners
thereof) (or in the event of their death or disability, their executor, guardian
or custodian, as applicable) and their professional tax advisors to develop
alternative allocation arrangements and/or other mechanisms that protect the
income tax positions of the Protected Partners (and Indirect Owners) in the
manner contemplated by the allocations of Guaranteed Debt or other recourse debt
of the Partnership to the Protected Partners (and Indirect Owners) as set forth
in this Agreement.
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ARTICLE VII
TAX PROCEEDINGS
7.1. NOTICE OF TAX AUDITS. If any claim, demand, assessment (including
a notice of proposed assessment) or other assertion is made with respect to
Taxes against the Protected Partners (or Indirect Owners) or the Partnership the
calculation of which involves a matter covered in this Agreement or the tax
treatment of the Transaction or the ▇▇▇▇▇ Transaction ("Tax Claim") or if the
REIT or the Partnership receives any notice from any jurisdiction with respect
to any current or future audit, examination, investigation or other proceeding
("Proceeding") involving the Protected Partners (or Indirect Owners) or the
Partnership or that otherwise could involve a matter covered in this Agreement
and could directly or indirectly affect the Protected Partners (or Indirect
Owners) (adversely or otherwise), then the REIT or the Partnership, as
applicable, shall promptly notify the Protected Partners of such Tax Claim or
Proceeding.
7.2. CONTROL OF TAX PROCEEDINGS. The REIT, as the general partner of
the Partnership shall have the right to control the defense, settlement or
compromise of any Proceeding or Tax Claim; provided, however, that the REIT
shall not consent to the entry of any judgment or enter into any settlement with
respect to such Tax Claim or Proceeding without the prior written consent of the
Protected Partners (unless, and only to the extent, that any Taxes required to
be paid by the Protected Partners (or Indirect Owners) as a result thereof would
be required to be reimbursed by the Partnership and the REIT under Article 4 and
the Partnership and the REIT agree in connection with such settlement or
consent, to make such required payments); provided further that the Partnership
shall keep the Protected Partners (and Indirect Owners) duly informed of the
progress thereof to the extent that such Proceeding or Tax Claim could directly
or indirectly affect (adversely or otherwise) the Protected Partners (or
Indirect Owners) and that the Protected Partners (or Indirect owners) shall have
the right to review and comment on any and all submissions made to the to
Internal Revenue Service, a court, or other governmental body with respect to
such Tax Claim or Proceeding and that the Partnership will consider such
comments in good faith. Notwithstanding the foregoing, the Protected Partners
shall have the right, with counsel of their choosing, to jointly control, with
the REIT, any Proceeding or Tax Claim relating to the tax treatment of the
Transaction or the ▇▇▇▇▇ Transaction.
7.3. TIMING OF TAX RETURNS; PERIODIC TAX INFORMATION. The Partnership
shall cause to be delivered to each Protected Partner, no later than April 15 of
each year (beginning in 2005), an estimate of the Schedules K-1 that the
Partnership or Subsidiary Partnership, as applicable, is required to deliver to
such Protected Partners with respect to the prior taxable year, and a final
Schedule K-1 by July 15. In addition, the Partnership and the Subsidiary
Partnership agree to provide to the Protected Partners, upon request, an
estimate of the taxable income expected to be allocable for a specified taxable
year from the Partnership or Subsidiary Partnership to each Protected Partner
and the entities that they control, provided that such estimates shall not be
required to be provided more frequently than once each calendar quarter.
ARTICLE VIII
AMENDMENT OF THIS AGREEMENT; WAIVER OF CERTAIN PROVISIONS;
APPROVAL OF CERTAIN TRANSACTIONS
8.1. AMENDMENT. This Agreement may not be amended, directly or
indirectly (including by reason of a merger between the Partnership and another
entity) except by a written instrument signed by both the REIT, as general
partner of the Partnership, and each of the Protected Partners.
15
8.2. WAIVER. Notwithstanding the foregoing, upon written request by the
Partnership, each Protected Partner (or Indirect Owner), in its sole discretion,
may waive the payment of any damages that is otherwise payable to such Protected
Partner (or Indirect Owner) pursuant to Article 4 hereof. Such a waiver shall be
effective only if obtained in writing from the affected Protected Partner (or
Indirect Owner).
ARTICLE IX
MISCELLANEOUS
9.1. ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties hereto
hereby agrees to take or cause to be taken such further actions, to execute,
deliver, and file or cause to be executed, delivered and filed such further
documents, and will obtain such consents, as may be necessary or as may be
reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
9.2. ASSIGNMENT. No party hereto shall assign its or his rights or
obligations under this Agreement, in whole or in part, except by operation of
law, without the prior written consent of the other parties hereto, and any such
assignment contrary to the terms hereof shall be null and void and of no force
and effect.
9.3. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Protected Partners, the Indirect Owners and
their respective successors and permitted assigns, whether so expressed or not.
This Agreement shall be binding upon the REIT, the Partnership, the Subsidiary
Partnership and any entity that is a direct or indirect successor, whether by
merger, transfer, spin-off or otherwise, to all or substantially all of the
assets of either the REIT or the Partnership (or any prior successor thereto as
set forth in the preceding portion of this sentence), provided that none of the
foregoing shall result in the release of liability of the REIT and the
Partnership hereunder. The REIT, the Partnership, and the Subsidiary Partnership
covenant with and for the benefit of the Protected Partners (and Indirect Owners
thereof) not to undertake any transfer of all or substantially all of the assets
of either entity (whether by merger, transfer, spin-off or otherwise) unless the
transferee has in writing acknowledged and agreed to be bound by this Agreement,
provided that the foregoing shall not be deemed to permit any transaction
otherwise prohibited by this Agreement.
9.4. TRANSFER OR DEATH. If a Protected Partner (or Indirect Owner)
transfers its direct or indirect interest in Preferred Units, OP Units or
interests in Subsidiary Partnership in a fully taxable transaction or dies while
holding OP Units, Preferred Units or interests in Subsidiary Partnership, and
the transferee of such OP Units, Preferred Units or interests in Subsidiary
Partnership receives a basis step-up in connection with such event such that the
adjusted basis of the interest is equal to the greater of the fair market value
of the interest or the share of the Partnership's or the Subsidiary
Partnership's indebtedness allocable to the interest under Section 752 of the
Code, then such transferee of the OP Units, Preferred Units or interests in
Subsidiary Partnership formerly owned, directly or indirectly, by such Protected
Partner (or Indirect Owner) (the "Affected Interest") will not be eligible to
receive an indemnity payment under Section 4.1, hereof, or to recover damages
for a breach of this Agreement other than pursuant to Section 2.2(b) or Section
3.3 with respect to such Affected Interest with respect to events occurring
subsequent to such death or transfer. The Protected Partners (and Indirect
Owners) agree not to take any action which would intentionally prevent a
transferee of a direct or indirect interest in Preferred Units, OP Units or
interests in Subsidiary Partnership, in a fully taxable transaction or upon
death, from receiving a basis step-up.
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9.5. MODIFICATION; WAIVER. No failure or delay on the part of any party
hereto in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
modification or waiver of any provision of this Agreement, nor consent to any
departure by any party therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
9.6. REPRESENTATIONS AND WARRANTIES REGARDING AUTHORITY;
NONCONTRAVENTION.
9.6.1. Representations and Warranties of the REIT and the
Partnership. Each of the REIT, the Partnership and the Subsidiary Partnership
has the requisite power and authority to enter into this Agreement and to
perform its respective obligations hereunder. The execution and delivery of this
Agreement by each of the REIT, the Partnership, and the Subsidiary Partnership
and the performance of each of its respective obligations hereunder have been
duly authorized by all necessary action on the part of each of the REIT, the
Partnership and the Subsidiary Partnership. This Agreement has been duly
executed and delivered by each of the REIT, the Partnership, and the Subsidiary
Partnership and constitutes a valid and binding obligation of each of the REIT,
the Partnership and the Subsidiary Partnership, enforceable against each of the
REIT, the Partnership and the Subsidiary Partnership in accordance with its
terms, except as such enforcement may be limited by (i) applicable bankruptcy or
insolvency laws (or other laws affecting creditors' rights generally) or (ii)
general principles of equity. The execution and delivery of this Agreement by
each of the REIT, the Partnership and the Subsidiary Partnership do not, and the
performance by each of its respective obligations hereunder will not, conflict
with, or result in any violation of (i) the Partnership Agreement or (ii) any
other agreement applicable to the REIT, the Partnership and/or the Subsidiary
Partnership, other than, in the case of clause (ii), any such conflicts or
violations that would not materially adversely affect the performance by the
Partnership, the Subsidiary Partnership or the REIT of their obligations
hereunder.
9.6.2. Representations and Warranties of the Protected
Partners. Each of the Protected Partners has the requisite power and authority
to enter into this Agreement and to perform its respective obligations
hereunder. The execution and delivery of this Agreement by each of the Protected
Partners and the performance of each of its respective obligations hereunder
have been duly authorized by all necessary action on the part of each of the
Protected Partners. This Agreement has been duly executed and delivered by each
of the Protected Partners and constitutes a valid and binding obligation of each
of the Protected Partners.
9.7. CAPTIONS. The Article and 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.
9.8. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
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(i) if to the Partnership, the Subsidiary Partnership or the
REIT, to:
Brandywine Operating Partnership, L.P.
c/o Brandywine Realty Trust
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and Chief
Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
With a required copy to:
Brandywine Operating Partnership, L.P.
c/o Brandywine Realty Trust
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇.▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
(ii) if to a Protected Partner, to the address on file with
the Partnership with a notice to:
R. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇.
TRC Realty, Inc.-GP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇ LLP
22nd Floor
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
Rich ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Chance US LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ 6131
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇.▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each 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, or faxed in the manner described above, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, or (with respect to a facsimile) 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.
18
9.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.10. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating thereto, shall be governed by the laws of
the State of Delaware, without regard to the choice of law provisions thereof.
9.11. CONSENT TO JURISDICTION; ENFORCEABILITY.
9.11.1. This Agreement and the duties and obligations
of the parties hereunder shall be enforceable against any of the
parties in the courts of the State of Pennsylvania. For such purpose,
each party hereto hereby irrevocably submits to the nonexclusive
jurisdiction of such courts and agrees that all claims in respect of
this Agreement may be heard and determined in any of such courts.
9.11.2. Each party hereto hereby irrevocably agrees
that a final judgment of any of the courts specified above in any
action or proceeding relating to this Agreement shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law.
9.12. SEVERABILITY. If any part of any provision of this Agreement
shall be invalid or unenforceable in any respect, such part shall be ineffective
to the extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of such provision or the remaining provisions of
this Agreement.
9.13. COSTS OF DISPUTES. Except as otherwise expressly set forth in
this Agreement, the nonprevailing party in any dispute arising hereunder shall
bear and pay the costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by the prevailing party or parties in
connection with resolving such dispute.
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IN WITNESS WHEREOF, the REIT, the Partnership, and the Protected
Partners have caused this Agreement to be signed by their respective officers
(or general partners) thereunto duly authorized all as of the date first written
above.
BRANDYWINE REALTY TRUST, a Maryland
real estate investment trust
By:__________________________________________________
Name:
Title:
BRANDYWINE OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: BRANDYWINE REALTY TRUST,
its sole General Partner
By:__________________________________________________
Name:
Title:
SUBSIDIARY PARTNERSHIP, L.P.,
a Delaware limited partnership
By: _________________________________________________
its sole General Partner
By:__________________________________________________
Name:
Title:
TWO ▇▇▇▇▇ CO., INC.
a Pennsylvania corporation
By:__________________________________________________
Name:
Title:
TLS EQUITY ASSOCIATES-II,
a Pennsylvania general partnership
By: _____________, INC.-GP
a Pennsylvania corporation
its sole general partner
By:__________________________________________________
Name:
Title:
TRC ASSOCIATES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: TRC REALTY, INC.-GP
a Pennsylvania corporation
its sole general partner
By:__________________________________________________
Name:
Title: