INDEMNIFICATION AND TAX CONTEST AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") dated as of
________, 2000 by and among Urban Shopping Centers, L.P. (the "Partnership"),
the Head Acquisitions, L.P. (the "General Partner"), Hexalon Real Estate, Inc.
("Hexalon," and together with the Partnership and the General Partner, the
"Indemnitors"), and the holders of Class A Common Units who are signatories
hereto (such persons being referred to as the "JMB Indemnitees").
NOW, in consideration of the promises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. DEFINITIONS. For purposes of this Agreement, all capitalized
terms not otherwise defined herein shall have the meaning assigned to them in
that certain Third Amended and Restated Agreement of Limited Partnership of
Urban Shopping Centers, L.P. (the "Partnership Agreement"). For purposes of this
Agreement, the following terms shall apply:
(a) "Class A Common Unit Deficit Capital Account Amount"
means, for each Class A Common Unit on the date hereof, $321.69 (as
such amount may be adjusted for any split, reverse split or similar
adjustment to the Class A Common Units).
(b) "Debt Guarantee Amount" shall mean, initially, $100
million, increased by $20 million on each anniversary of the Effective
Date.
(c) "Debt Reduction Event" means a transaction or series of
related transactions, including without limitation, (i) a sale,
transfer, exchange, distribution or other disposition of Partnership
property, (ii) a contribution of property to a joint venture, (iii) a
pay down, forgiveness, or other reduction in the principal amount of
debt, (iv) a guarantee or purchase of any Partnership Nonrecourse Debt
by (A) the General Partner, (B) an affiliate of the General Partner, or
(C) to the General Partner's knowledge, any Partner (other than the
General Partner) or any 10% affiliate of such Partner, or (v) a
conversion or contribution of Partnership debt to equity of the
Partnership, which transaction or series of transactions could
reasonably be expected to reduce the amount of Partnership Nonrecourse
Liabilities, and immediately after such transaction or series of
transactions, the amount of Partnership Nonrecourse Liabilities
allocable to the JMB Indemnitees could reasonably be expected to be
less than the Target Class A Common Unit Debt Allocation.
(d) "Final Determination" shall mean (i) a decision, judgment,
decree, or other order by any court of competent jurisdiction, which
decision judgment, decree, or other order has become final after all
allowable appeals by either party to the action have been exhausted or
the time for filing such appeal has expired, (ii) a closing agreement
entered into under Section 7121 of the Code, or any final settlement
agreement entered in connection with an administrative or judicial
proceeding, or (iii) the expiration of time for instituting a claim for
refund, or if such claim was filed, the expiration of time for
instituting a suit with respect thereto.
(e) "Income Tax" or "Income Taxes" shall mean any federal,
state, or local tax imposed on, or measured with reference to, income
(including, without limitation, (i) any alternative minimum tax and
(ii) Illinois Personal Property Replacement Tax), plus any interest,
penalty, or addition thereto.
(f) "Qualified Nonrecourse Liabilities" shall mean Nonrecourse
Liabilities that constitute "qualified nonrecourse financing" as such
term is defined in Code Section 465(b)(6).
(g) "Restricted Property Section 704(c) Gain" shall mean the
taxable gain that would be allocated to, or recognized by, a JMB
Indemnitee under Code Section 704(c) or Code Section 704(c) principles
pursuant to a Book-TAX Disparity with respect to a sale, exchange,
transfer, distribution, foreclosure on, or any other disposition of
all or any portion of any Restricted Property, not to exceed the
amount of taxable gain that such JMB Indemnitee would have recognized
if the Partnership had disposed of such Restricted Property for an
amount equal to its Agreed Value on the date hereof immediately after
the adjustments provided for in Section 4.4(d)(ii)(B) of the
Partnership Agreement.
(h) "Significant Debt Reduction Event" means a Debt Reduction
Event that could reasonably be expected to exceed $10 million.
Section 2. INDEMNIFIED TAX LOSSES. If for any Partnership taxable year
that begins after the date hereof and ends on, or includes, the Call Date:
(a) A JMB Indemnitee recognizes taxable income or gain because
(i) the aggregate amount of the Partnership's
Qualified Nonrecourse Liabilities is less than
US$1,350,000,000 (determined without taking into account any
Guarantee or Indemnification Agreement (as defined in Section
16(a))), or
(ii) the Partnership does not allocate its Qualified
Nonrecourse Liabilities in accordance with Section 6.1 of the
Partnership Agreement (other than as a result of a Final
Determination); or
(b) A JMB Indemnitee recognizes Restricted Property Section
704(c) Gain; or
(c) A JMB Indemnitee cannot claim the Income Tax deductions
attributable to its allocable portion of the Depreciation Amount, or a
JMB Indemnitee recognizes Recapture Income (other than as a result of a
taxable disposition of property that is not a Restricted Property)
attributable to a prior allocation of the Depreciation Amount to a
Class A Limited Partner, because there is not a reasonable basis under
Treasury Regulation Section 1.6662-3(b)(3) for the Partnership to
report an allocation to a JMB Indemnitee of an amount of the
Partnership's Qualified Nonrecourse Liabilities at least equal to the
aggregate amount of the JMB Indemnitee's Target Class A Common Unit
Debt Allocation;
(any of subsections (a), (b) and (c) being a "Tax Loss"), then the Indemnitors
shall pay to such JMB Indemnitee an amount determined in accordance with Section
3 hereof.
Section 3. AMOUNT OF INDEMNIFICATION.
(a) In the case of a Tax Loss incurred by a JMB Indemnitee,
the Indemnitors shall pay to such JMB Indemnitee in cash in United
States dollars the sum of:
(i) the Income Taxes that would be deemed to arise
based on the assumptions set forth in Section 3(b) below as a
result of the Tax Loss, determined after taking into account
the amount of any taxable losses allocated to such JMB
Indemnitee from the Partnership for Income Tax purposes
through the date hereof which cannot be claimed by such JMB
Indemnitee for federal income tax purposes because such JMB
Indemnitee had insufficient tax basis in the Partnership to
claim such losses under Code Section 704(d) or had an
insufficient amount "at risk" in the Partnership under
Code Section 465; plus
(ii) any additional reasonable costs or expenses
(after accounting for any Income Tax deduction permitted by
the Code with respect to such costs or expenses) incurred by
such JMB Indemnitee in connection with any administrative or
judicial proceeding relating to such Tax Loss pursuant to the
terms of Section 6 hereof (including, without limitation, the
payment of any Income Tax for which a refund is claimed).
(iii) a supplemental amount such that, after
deduction of the amount of all Income Taxes that would be
deemed to arise (based on the assumptions set forth in Section
3(b) below) in respect of the sum of the amounts described in
paragraphs (i), (ii), and this paragraph (iii) of this Section
3(a), the net amount received by such JMB Indemnitee is equal
to the sum of the amounts described in paragraphs (i) and (ii)
of this Section 3(a) determined without subtracting any Income
Taxes required to be paid with respect thereto (which
supplemental amount, together with the amounts described in
paragraphs (i) and (ii) of this Section 3(a), is intended,
based on the assumptions set forth in Section 3(b) below), to
leave such JMB Indemnitee in the same after-tax position in
which such JMB Indemnitee would be if such JMB Indemnitee had
not incurred the applicable Tax Loss); and
(b) The calculation of the amount payable under Section 3(a)
shall be made based on the following assumptions:
(i) The JMB Indemnitee is taxable (A) at the highest
marginal state and local Income Tax rate applicable to a
partnership or limited liability company on the type of income
or gain recognized (but only to the extent such income or gain
recognized by such JMB Indemnitee would be subject to state or
local Income Tax under applicable state or local Income Tax
law, assuming no deduction, loss or credit is available to
offset such income or gain) and (B) at the highest marginal
federal, state and local income tax rates applicable to an
individual resident of Illinois on the type of income or gain
recognized;
(ii) Each relevant item of income, gain, loss and
deduction is treated for state and local income tax purposes
as having the same character, timing, and amount as such item
is treated for federal Income Tax purposes;
(iii) State and local Income Taxes (including state
and local Income Taxes described in Section 3(b)(i)(A) above)
are deductible for federal Income Tax purposes to the extent
permitted under the Code, assuming such JMB Indemnitee is
subject to any limitations on such deductibility imposed by
the Code that are imposed when a taxpayer's adjusted gross
income is maximized (e.g., assuming that such JMB Indemnitee
may only deduct twenty percent (20%) of such JMB Indemnitee's
itemized deduction under Code Section 68(a) as in effect on
the date hereof);
(iv) In the case of a Tax Loss under Section 2(c),
the amount of indemnification is computed based solely on the
amount of the unclaimed Income Tax deductions attributable to
the Depreciation Amount and the amount of Recapture Income in
excess of that which cannot be claimed or would be recognized
if the JMB Indemnitees were allocated Depreciation in
accordance with their relative Percentage Interests; and
(v) the aggregate gain that (A) would be recognized
by the persons subject to federal Income Tax who directly or
indirectly own the JMB Indemnitees and (B) would be
attributable to such persons' indirect interest in the
Partnership would not exceed the product of (x) the Class A
Common Unit Deficit Capital Account Amount times (y) the
number of Class A Common Units held by the JMB Indemnitees as
of the close of business on the date of this Agreement,
assuming that each such person sold his, her or its interest
in the JMB Indemnitees and/or the entities through which such
person owned his, her or its interest in the JMB Indemnitees
in a taxable transaction occurring at the opening of business
on the day following the date of this Agreement for no
consideration other than the deemed assumption of such
person's share of the Partnership's liabilities.
(c) In the event of a Tax Loss, the relevant JMB Indemnitee
shall provide the Indemnitors a written statement setting forth in
reasonable detail the computation of the amount described in Section
3(a), together with a letter from a nationally-recognized accounting
firm reasonably acceptable to the Indemnitors certifying that such
amount had been properly determined in accordance with Sections 2, 3(a)
and 3(b) above.
(d) Any payment determined payable to a JMB Indemnitee
pursuant to this Section 3 shall be paid on the earlier of the date
that (1) the additional Income Tax as a result of the Tax Loss is
payable by such JMB Indemnitee or (2) such JMB Indemnitee has filed an
Income Tax return that reflects any additional Income Tax from the Tax
Loss, PROVIDED THAT any amounts described in Section 3(a)(ii) shall be
paid promptly upon the Partnership's receipt of notice from such JMB
Indemnitee that such amounts are due and payable by such JMB
Indemnitee, and PROVIDED FURTHER THAT so long as the Partnership is
contesting an Indemnified Partnership Level Issue, or a JMB Indemnitee
is
contesting a JMB Level Issue, in each case pursuant to Section 6 below,
the Indemnitors shall not be obligated to make an indemnity payment to
such JMB Indemnitee with respect to such Tax Loss (except for indemnity
payments with respect to Tax Losses described in Section 3(a)(ii),
which Tax Losses shall be payable by the Indemnitors on the date the
costs and expenses giving rise to such Tax Losses is payable by a JMB
Indemnitee) until the earlier to occur of (A) the date that is thirty
(30) days after a Final Determination of the JMB Indemnitee's Income
Tax liability that constitutes the Tax Loss or (B) the date such JMB
Indemnitee is required to pay the Income Tax liability that constitutes
the Tax Loss. Any payment required under this Section 3 and not made
when due shall bear interest at the rate per annum determined, from
time to time, under the provisions of Code Section 6621(a)(2) for
each day until paid.
Section 4. EXCLUSIONS.
(a) The Indemnitors shall not have any liability for
indemnification under this Agreement for any Tax Loss to the extent
such Tax Loss is a result of one or more of the following:
(i) Any subsequent action by any JMB Indemnitee or
its affiliates expressly prohibited or not expressly permitted
by the Partnership Agreement, the Merger Agreement or this
Agreement;
(ii) subject to Section 4(b) below, any (A) change
in, or amendment to, the Code or any other tax statute, which
first is effective on or after the date of the Merger
Agreement; (B) change in any final or temporary regulation
effective on or after the date of the Merger Agreement or any
final or temporary regulation which is adopted or enacted on
or after the date of the Merger Agreement; or (C) court
decision or administrative ruling or other pronouncement
issued on or after the date of the Merger Agreement
(collectively, a "Change in Law"), except for any Change in
Law for which Hexalon or any of Hexalon's Affiliates provided
direct support;
(iii) The failure of the Partnership to have at least
US$1,350,000,000 of Qualified Nonrecourse Liabilities on the
date hereof; and
(iv) The failure of a JMB Indemnitee Partner to file
its Income Tax returns in a manner that is consistent with
Income Tax returns filed by the Partnership (but only to the
extent such Partnership Income Tax returns are prepared and
filed (A) in accordance with the Partnership Agreement and
this Agreement or (B) pursuant to a Final Determination).
(b) The Indemnitors shall not have any liability for
indemnification under this Agreement for any amount which otherwise
would constitute a Tax Loss to the extent such Tax Loss is less than it
would otherwise have been because of
(i) a Class A Related Person Transfer that is either
(I) taxable for federal Income Tax purposes or (II) the result
of death; or
(ii) any adjustment to the Income Tax returns of any
JMB Indemnitee in respect of periods ending on or prior to the
Effective Date.
(c) The Indemnitors shall take any action which they are
requested in writing to take by a JMB Indemnitee if such action (A)
would reasonably be expected to avoid or reduce the amount which would
otherwise have been considered a Tax Loss but for the Change in Law
exclusion set forth in Section 4(a)(ii) above and (B) may be taken
without a material adverse effect on the Indemnitors, any other Partner
or any other JMB Indemnitee, PROVIDED THAT, for purposes of this
Section 4(c), whether an "adverse effect" has occurred shall be
determined with reference to the position in which the Indemnitors, any
other Partner or any other JMB Indemnitee (as applicable) would have
been if no Change in Law had occurred.
(d) If and to the extent the Indemnitors are relieved from
their indemnification liability on account of the exclusions set forth
in Section 4(a), then for purposes of this Agreement the Income Taxes
from which the Indemnitors are so relieved shall not be considered Tax
Losses.
Section 5. COOPERATION.
(a) Each JMB Indemnitee agrees to consider in good faith
taking any action (including filing claims for refund and amended
Income Tax returns) which it is reasonably requested to take by the
Indemnitors that would minimize the net amount of any indemnity payment
due from the Indemnitors hereunder (including, in substitution of all
or part of the Indemnitors' future obligations under this Agreement,
the distribution to a JMB Indemnitee of real property or properties
proposed by the Indemnitors, subject to an amount of indebtedness equal
to all or part of the Deficit Capital Account Amount of such JMB
Indemnitee); PROVIDED THAT no JMB Indemnitee shall be required to take
any action (or accept any distribution) that would place such JMB
Indemnitee in a materially worse Income Tax or economic position than
such JMB Indemnitee would have been in if such action were not taken
(or the distribution were not made); and PROVIDED THAT, in the case of
any such requested distribution, such distribution would not be
currently taxable to the JMB Indemnitee for Income Tax purposes (or if
not entirely non-taxable, the Partnership indemnifies the JMB
Indemnitee in the manner described in Section 3 above).
(b) If a majority in interest of JMB Indemnitees requests in
writing that the Partnership take a position on the federal or
applicable state Income Tax return of the Partnership (i) for which
there is a Reasonable Basis, (ii) which would reduce the Income Taxes
payable by such JMB Indemnitees which are not Tax Losses pursuant to
this Agreement, and (iii) which would not have a material adverse
effect on the Partnership, any other Partner or any other JMB
Indemnitee, the Partnership shall adopt such position.
(c) The Indemnitors shall promptly notify each JMB Indemnitee
of the commencement of any audit or examination of the Partnership or
any Subtier Entity by any taxing authority and shall keep the JMB
Indemnitees reasonably informed as to the status of such audit or
examination and any proceedings relating thereto.
Section 6. CONTESTS PERTAINING TO TAX LOSSES.
(a) Nothing in this Agreement shall be construed to prevent
the General Partner from contesting, as the Tax Matters Partner in
accordance with the Partnership Agreement as part of the unified audit
of the Partnership, any claim involving a Partnership item (a
"Partnership Level Issue") that, if successful, would result in a Tax
Loss(an "Indemnified Partnership Level Issue") provided that the
Partnership and the General Partner comply with the terms of this
Agreement.
(b) If any taxing authority proposes in writing to adjust the
income of a JMB Indemnitee in an audit or other proceeding that cannot
be contested as an adjustment to an item (or allocation of an item) of
the Partnership, which adjustment, if successful, would cause such JMB
Indemnitee to incur a Tax Loss (a "JMB Level Issue"), such JMB
Indemnitee (i) shall promptly notify the Partnership in writing of such
proposed adjustment and (ii) shall, subject to Sections 6(b) through
6(g) below, upon the request of the Indemnitors, contest such
adjustment in good faith by such means as are permitted under
applicable law, including, without limitation (A) filing a protest and
administrative appeal, (B) contesting through applicable court
proceedings any proposed adjustment that is not favorably resolved at
the administrative level (including, where necessary, paying the
applicable Income Tax and suing for a refund), and (C) and exhausting
all appeals of any adverse court rulings.
(c) With respect to any of the proceedings described in
Section 6(b) above, the applicable JMB Indemnitee shall (i) keep the
Partnership and its counsel reasonably informed as to the progress of
such proceedings, (ii) give the Partnership and its counsel opportunity
to review and comment in advance on all written submissions and filings
relevant to the substantive issues which would potentially give rise to
a Tax Loss (after making appropriate redactions to preserve the
confidentiality of all matters not directly related to such substantive
issues), and (iii) consider in good faith any suggestions made by the
Partnership or its counsel as to the substance of any such issues.
(d) If a JMB Indemnitee receives a formal, written settlement
offer from the Internal Revenue Service or applicable state or local
taxing authority with respect to a JMB Level Issue, such JMB Indemnitee
shall promptly inform the Partnership of the receipt of such settlement
offer. If the Partnership recommends acceptance of such settlement
offer of a JMB Level Issue or if the Tax Matters Partner recommends
acceptance of a settlement offer in respect of an Indemnified
Partnership Level Issue, but such JMB Indemnitee declines to accept
such offer in writing within 30 days (if such JMB Indemnitee does not
respond within 30 days, such lack of response shall be treated as
acceptance of the Partnership's or the Tax Matters Partner's
recommendation, respectively), (i) the obligation of the Indemnitors to
make indemnity payments under this Agreement as the result of any such
contest or proceedings shall equal the obligation that it would have
had if such contest had been settled or proceeding terminated on the
basis of the formal, written settlement offer the acceptance of which
was recommended by the Partnership or the Tax Matters Partner, as
applicable, and (ii) the Indemnitors shall have no further liability
for costs or other expenses in respect of such contest.
(e) Notwithstanding Section 6(b) above, no JMB Indemnitee will
have any obligation to contest any action with respect to a JMB Level
Issue (i) unless such item or items could give rise to an indemnity
payment under this Agreement in excess of $100,000, (ii) if the
Indemnitors do not pay when due all (A) reasonable third-party costs
and out-of-pocket expenses including reasonable legal, witness and
accounting fees and other expenses and (B) in the case of any court
proceeding in which such JMB Indemnitee is required to pay the
applicable Income Tax and ▇▇▇ for a refund, the amount of such Income
Tax, and (iii) to the extent such JMB Indemnitee waives in writing the
Indemnitors' obligation to indemnify such JMB Indemnitee for the Tax
Loss attributable to such JMB Level Issue. If a JMB Indemnitee's
obligation to contest is excused on account of clause (iii) of the
preceding sentence, the Indemnitors shall not be required to make any
additional payments under this Agreement to such JMB Indemnitee with
respect to such Tax Loss.
(f) A JMB Indemnitee shall not settle any adjustment that
constitutes a JMB Level Issue without the Partnership's consent;
provided that (i) such consent shall not be unreasonably withheld and
(ii) such JMB Indemnitee may settle any such adjustment if such JMB
Indemnitee waives its right to indemnity under this Agreement with
respect to any Tax Loss that results from such adjustment and, in the
case of any court proceeding in which such JMB Indemnitee is required
to pay the applicable Income Tax and ▇▇▇ for a refund, shall pay to the
Indemnitors the amount of Income Tax, if any, previously paid or
advanced by the Indemnitors to such JMB Indemnitee with respect to such
adjustment under Section 6(e), plus interest at the rate determined
under Code Section 6621(a)(2) from the time such amounts were paid or
advanced by the Indemnitors.
(g) If a JMB Indemnitee receives a refund of any Income Taxes
as a result of a court decision with respect to a JMB Level Issue or a
refund of costs or expenses, such JMB Indemnitee shall promptly pay
such refund over to the Indemnitors to the extent that the Indemnitors
paid the Income Taxes or expenses or costs with respect to which such
refund was received.
Section 7. CONTESTS PERTAINING TO JMB INDEMNITEES' INCOME TAXES.
(a) If, with respect to any taxable year of the Partnership or
any Subtier Entity (or respective predecessors or successors),
including taxable years ending before, on, or after the Effective Date,
(i) any taxing authority proposes in writing to make an adjustment that
constitutes a Partnership Level Issue other than an Indemnified
Partnership Level Issue, which adjustment, if successful, would cause
the JMB Indemnitees (or direct or indirect owners thereof) as a group
to incur Income Taxes of at least $100,000 and (ii) the adverse impact
of the proposed adjustment, measured on a per Partnership Unit basis,
would be greater on the JMB Indemnitees than on the General Partner or
its predecessor (for any taxable year to which the relevant proposed
adjustment relates) then:
(i) The Partnership and the General Partner shall
promptly notify such JMB Indemnitee of such proposed
adjustment and shall permit the JMB Indemnitee and its
counsel, at the expense of such JMB Indemnitee, to control the
administrative and judicial proceedings relating to such
proposed adjustment with respect to the substantive issues
which would potentially give rise to Income Taxes to such JMB
Indemnitee. The Partnership and the General Partner shall
provide the JMB Indemnitee and its counsel powers of attorney
and any other documentation necessary to permit the JMB
Indemnitee to represent the Partnership in any such
proceedings. The JMB Indemnitee shall (i) keep the Partnership
and its counsel reasonably informed as to the progress of such
proceedings, (ii) give the Partnership and its counsel
opportunity to review and comment in advance on all written
submissions and filings relevant to the substantive issues
which would give rise to Income Taxes with respect to such JMB
Indemnitee (after making appropriate redactions to preserve
the confidentiality of all matters not directly related to
such substantive issues), and (iii) consider in good faith any
suggestions made by the Partnership or its counsel as to the
substance of any such issues.
(ii) The Partnership and the General Partner shall
promptly inform the JMB Indemnitee of the receipt of any
formal, written offer from the Internal Revenue Service or
applicable state or local taxing authority with respect to an
issue would potentially give rise to Income Taxes to such JMB
Indemnitee. The JMB Indemnitee shall be permitted to accept,
on behalf of the Partnership and the General Partner, any
settlement on any such issue, so long as such settlement does
not have a material adverse effect on the Partnership or the
other Partners or their Affiliates thereof. Neither the
Partnership nor the General Partner shall accept any
settlement with respect to any issue that would potentially
give rise to material Income Taxes to a JMB Indemnitee not
otherwise indemnified by the Indemnitors, without such JMB
Indemnitee's prior written consent, which may be withheld in
such JMB Indemnitee's absolute discretion.
(iii) If the Partnership or the General Partner
receives a refund of any Income Taxes as a result of a court
decision with respect to a JMB Indemnitee's Income Tax return,
the Indemnitors shall promptly cause such Person to pay such
refund over to such JMB Indemnitee.
(b) If, with respect to any taxable year of the Partnership or
any Subtier Entity (or respective predecessors) ending on or before the
Effective Date, (i) any taxing authority proposes in writing to make an
adjustment that constitutes a Partnership Level Issue other than an
Indemnified Partnership Level Issue, which adjustment, if successful,
would cause the JMB Indemnitees (or direct or indirect owners thereof)
as a group to incur Income Taxes of at least $100,000 and (ii) the
provisions of Section 7(a) above do not apply to such proposed
adjustment, then:
(i) The Partnership and the General Partner shall
promptly notify such JMB Indemnitee of such proposed
adjustment, and the General Partner and the JMB Indemnitee and
their respective counsel shall jointly control the
administrative and judicial proceedings relating to such
proposed adjustment with respect to the substantive issues
which would potentially give rise to Income Taxes to such JMB
Indemnitee. The General Partner and the JMB Indemnitee
shall (i) each keep the other and the other's counsel
reasonably informed as to any developments of which such
person becomes aware (including, without limitation, the
receipt of any formal, written offer from the Internal Revenue
Service or applicable state or local taxing authority with
respect to the proposed adjustment at issue) regarding such
proceedings, (ii) jointly prepare all written submissions and
filings relevant to the substantive issues which would give
rise to Income Taxes with respect to such JMB, and (iii)
cooperate in good faith to minimize the adverse impact of any
proposed adjustment to the current and former Partners of the
Partnership for the taxable periods at issue. Each party shall
bear its own expenses, including those related to all
reasonable third-party costs and out-of-pocket expenses
including reasonable legal, witness and accounting fees and
other expenses related to such proceedings.
(ii) Neither the Partnership, the General Partner,
nor the Tax Matters Partner (if different than the General
Partner) shall accept any settlement with respect to any issue
that would potentially give rise to Income Taxes to a JMB
Indemnitee without such JMB Indemnitee's prior written
consent.
(iii) If the Partnership or the General Partner
receives a refund of any Income Taxes as a result of a court
decision with respect to a JMB Indemnitee's Income Tax return,
such Person shall promptly pay such refund over to such JMB
Indemnitee.
(c) To the extent the issues described in Sections 7(a) and
7(b) above relate to more than one JMB Indemnitee, the Partnership's
and General Partner's obligations to each JMB Indemnitee pursuant to
Sections 7(a) and 7(b) above shall apply only to the extent that the
JMB Indemnitees holding a majority of the Class A Units affected by
such issues appoint, with respect to such issues, within 45 days of the
notice given to such JMB Indemnitees pursuant to Section 7(a) or 7(b),
a representative with authority to act on behalf of all such JMB
Indemnitees in dealings with the Partnership, General Partner (or Tax
Matters Partner, if different than the General Partner) and relevant
taxing authority.
Section 8. TAX SAVINGS. In the event that the Partnership makes an
indemnity payment pursuant to Section 3, if the JMB Indemnitee shall realize,
with respect to any Partnership taxable year that ends on or before the earlier
of the date on which the Death Put is first exercisable or the Call Date, Income
Tax savings that would not have been realized but for the related Tax Loss or
the event giving rise thereto, as determined using the same assumptions as those
set forth for determining a Tax Loss in Section 3(b), then the JMB Indemnitee
shall pay to the Partnership an amount equal to the net reduction in Income
Taxes realized by the JMB Indemnitee, determined on an "after-tax basis" using
the same assumptions as those set forth for determining a Tax Loss, as set forth
in Section 3(b). Any payment due to the Partnership pursuant to this Section 8
shall be paid promptly and in any event within thirty (30) days after the JMB
Indemnitee has (1) received a refund or (2) filed a return that reflects or
would, taking into account the assumptions set forth in Section 3 for
determining a Tax Loss, reflect such Income Tax saving; PROVIDED, HOWEVER, that
(A) the amount payable to the Partnership hereunder shall not exceed the
aggregate amount of all indemnity payments made by the Partnership to the JMB
Indemnitee hereunder with respect to the Tax Loss that gave rise to such Income
Tax savings and not previously reimbursed by the JMB Indemnitee, provided that
any such excess amount shall be carried forward to reduce or offset any future
obligations of the Partnership hereunder with respect to such Tax Loss on a
dollar-for-dollar basis; and (B) any loss of such Income Tax savings by the JMB
Indemnitee subsequent to the year of realization by the JMB Indemnitee shall be
treated as a Tax Loss that is indemnifiable pursuant to the provisions of this
Agreement.
Section 9. TREATMENT OF INDEMNITY PAYMENTS. The Indemnitors shall be
jointly and severally liable for all payments owed by the Indemnitors pursuant
to this Agreement. Each JMB Indemnitee shall seek payment of any amounts due
such Person under this Agreement first from the Partnership; PROVIDED THAT if
the Partnership fails to pay such JMB Indemnitee any amount owing such Person
within ten (10) days after the later of the date such payment is payable under
this Agreement or the date of demand therefor, such JMB Indemnitee may then seek
immediate payment of all amounts owed from any other Indemnitor. For purposes of
the Partnership Agreement (including, without limitation, Section 4.4(a)(x)
thereof), and for all Income Tax reporting purposes, any payment made by the
Partnership to a JMB Indemnitee pursuant to this Agreement shall be treated by
each of the parties hereto as (a) a distribution of cash in the amount of such
payment by the Partnership to the holders of Partnership Units (other than the
holders of Original Class A Common Units, Series C Preferred Units and Series D
Preferred Units) in redemption of a number of Partnership Units held by such
holders with a Fair Market Value at the time of the distribution equal to the
amount of cash so distributed, and (b) a payment of such cash by such holders of
Partnership Units to such JMB Indemnitee.
Section 10. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Illinois.
Section 11. NOTICES. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms of this Agreement shall be given in the same manner as
Section 15.1 of the Partnership Agreement.
Section 12. SUCCESSORS AND ASSIGNS. Any rights as JMB Indemnitee has
under this Agreement may not be assigned by any JMB Indemnitee (including,
without limitation, by descent or will) without the written consent of the
Partnership; provided, however that a JMB Indemnitee may assign its rights
hereunder to the transferee (other than the General Partner) of any Class A
Common Units (with the portion of the rights so transferred corresponding to the
number of Class A Common Units transferred) if such transfer is permitted by the
Partnership Agreement and is a Class A Related Person Permitted Transfer.
Subject to the preceding sentence, this Agreement will be binding on, inure to
the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
Section 13. CONTROLLING AGREEMENT. In the case of any inconsistency or
ambiguity between the terms of this Agreement and the terms of the Partnership
Agreement, the terms of this Agreement shall control.
Section 14. MISCELLANEOUS. This Agreement may be executed in any number
of counterparts, with each executed counterpart constituting an original but all
of which together shall constitute only one Agreement. Any provision of this
Agreement that is unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such unenforceability without invalidating the remaining provisions of this
Agreement and without invalidating or rendering unenforceable any provision of
this Agreement in any other jurisdiction. Neither this Agreement nor any terms
hereof may be terminated, amended, supplemented, waived, or modified in any
manner expect pursuant to a written agreement signed by the party after the date
of this Agreement against which enforcement of the termination, amendment,
supplement, waiver, or modification is sought.
Section 15. TERM. This Agreement shall terminate on the first date on
which the applicable statute of limitations bars a claim by the Internal Revenue
Service and all other relevant state or local taxing authorities with respect to
all taxable years of the Partnership, all Subtier Entities and all JMB
Indemnitees (and their respective predecessors and successors) which ends on or
before or includes the Call Date.
Section 16. PROPOSED TRANSACTIONS.
(a) Upon the request of the representative for the JMB
Indemnitees (as determined in accordance with the procedures of Section
7(c)), the General Partner agrees to use its reasonable best efforts to
increase the JMB Indemnitees' share of the indebtedness of the
Partnership under Code Section 752 by either (i) contributing to the
Partnership on terms mutually acceptable to the General Partner, the
Partnership, and the JMB Indemnitees property or properties owned by
Hexalon or its direct or indirect U.S. subsidiaries at the time of the
request which is encumbered by Qualified Nonrecourse Liabilities not in
excess, in the aggregate, of $150 million, (ii) allowing the JMB
Indemnitees to guarantee any Nonrecourse Liabilities (or portions
thereof) encumbering any Restricted Property (a "Guarantee") or enter a
contribution agreement, indemnification agreement, reimbursement
agreement, or any similar agreement that could reasonably be expected
to satisfy the requirements with Treasury Regulation section
1.752-2(b)(3) and pursuant to which the JMB Indemnitees assume the risk
of loss for purposes of Treasury Regulation section 1.752-2(a) (an
"Indemnification Agreement") with respect to Nonrecourse Liabilities
(or portions thereof) encumbering any property of the Partnership in
the aggregate, immediately after the entering into of such Guarantee or
Indemnification Agreement, not in excess of the Debt Guarantee Amount,
or (iii) some combination of clauses (i) and (ii) of this sentence. Any
Guarantee or Indemnification Agreement entered pursuant to this Section
16 shall be on terms mutually acceptable to the JMB Indemnitees, the
General Partner, and the Partnership. For avoidance of doubt, the
General Partner shall have no obligation to contribute property under
this Section 16 or enter into an Guarantee or Indemnification Agreement
or allow the JMB Indemnitees to enter an Indemnification Agreement or
Guarantee if the contribution, the Guarantee, or Indemnification
Agreement would violate any provision of any agreement the Partnership,
the General Partner or an Affiliate has or is negotiating with a
lender, a partner, or other third-party, provided that if such an
agreement or negotiations exist, the General Partner shall use its
reasonable best efforts to obtain a consent from all relevant parties
if obtaining such consent would not have a material adverse effect on
the Partnership, the General Partner, or any Affiliate of the General
Partner; provided, further, however, that the General Partner shall not
have any obligation
to contribute any property to the Partnership if it does not obtain the
prior consent of the lenders under the Chase Loan and related loans.
(b) Upon the request of the representative for the JMB
Indemnitees (as determined in accordance with the procedures of Section
7(d)), the General Partner agrees to consider in good faith any action
that would increase the JMB Indemnitees' share of the indebtedness of
the Partnership under Code Section 752, so long as such action would
not place the Partnership or any other Partner in a materially worse
Income Tax or economic position than would have been the case if the
action were not taken.
(c) Any contributions agreed upon pursuant to this Section 16
shall be made on a mutually acceptable date pursuant to customary
documentation, reasonably acceptable to the JMB Indemnitees, the
General Partner, and the Partnership. In the case of any contribution,
such documentation shall specify the number of units the Partnership
shall issue to the General Partner for the contributed property. The
parties hereto agree that the number of units shall be determined based
on (i) the Fair Market Value of the contributed property (net of
relevant liabilities encumbering it or associated with it at the time
of contribution) and (ii) the Fair Market Value of the assets of the
Partnership (net of the outstanding debt). Such Fair Market Values
shall be determined on a reasonable basis by the General Partner
reasonably consistent with any method used for purposes of determining
the General Partner's or any of its Affiliate's annual financial
reporting.
(d) Any Guarantee and Indemnification Agreement agreed upon
pursuant to this Section 16 shall be made on a mutually acceptable date
pursuant to customary documentation, reasonably acceptable to the
General Partner, the Partnership, and the JMB Indemnitees. Such
documentation shall include terms that allow in cases of certain
transactions, including, without limitation, sales of property, that
the Nonrecourse Liabilities to which the Indemnification Agreement
relates may be assigned to other Nonrecourse Liabilities upon the
reasonable request of the representative for the JMB Indemnitees.
(e) Notwithstanding the foregoing provisions, the General
Partner and the Partnership are under no obligation to consider any
contribution of property pursuant to this Section 16 for the twelve
month period commencing on the date of this Agreement and shall have no
obligation to consider entering any Indemnification Agreement or
Guarantee pursuant to this Section 16 until 90 days after the date of
this Agreement.
(f) Notwithstanding the foregoing provisions, the General
Partner and the Partnership shall be under no obligation to consider
any contribution of property pursuant to this Section 16 during any
time and for so long as the General Partner or any of its Affiliates
has a class of its common equity securities registered on a national
stock exchange and the Class A Limited Partners are entitled to
exchange their Class A Common Units into such publicly-traded shares;
PROVIDED that in connection with the initial public offering of such
class of common equity substantially all the assets of Hexalon and its
direct or indirect subsidiaries are contributed to the Partnership.
(g) NOTICE.
(i) No later than the later to occur of (A) five days
after the date on which the General Partner first reasonably
anticipates that a Significant Debt Reduction Event will
occur, and (B) 90 days before the anticipated occurrence of
such significant Debt Reduction Event, the General Partner
shall (or shall cause the Partnership to) notify the JMB
Indemnitees in writing of such Significant Debt Reduction
Event, which notice shall include a general description of the
Debt Reduction Event and the General Partner's reasonable
estimate of the anticipated amount by which Partnership
Nonrecourse Liabilities will be reduced if such Significant
Debt Reduction Event is consummated.
(ii) The General Partner shall cause to be included
in each report delivered to each JMB Indemnitee pursuant to
Section 9.3(b) of the Partnership Agreement ("Quarterly
Reports") a list which set forth in reasonable detail (A) all
Debt Reduction Events which occurred during the period covered
in such report, (B) the aggregate amount by which the
Partnership's Nonrecourse Liabilities were reduced as a result
of such Debt Reduction Events, and (C) the aggregate amount of
Partnership Nonrecourse Liabilities in each case as of the end
of the quarter covered in such report.
Section 17. TRANSFERS OF RESTRICTED PROPERTY. If the Partnership plans
on selling or otherwise disposing of any Restricted Property that would give
rise to a Tax Loss under Section 2(b), the JMB Indemnitees shall give the
consent that is required under Section 7.3(b) of the Partnership Agreement if
prior to the date of such transaction the Indemnitors have placed in escrow,
subject to the reasonable satisfaction of the JMB Indemnitees holding a majority
of Class A Common Units outstanding at the time of the transaction which are
held by JMB Indemnitees, readily available U.S. funds equal to the amount of the
indemnification payment required under Section 3 as a result of such sale or
other disposition.
Section 18. No payment due under this Agreement shall be subject to any
offset or defense arising under any other agreement.
- SIGNATURE PAGE FOLLOWS -
Urban Shopping Centers, L.P.
By: Head Acquisition, L.P., its General
Partner
By:
--------------------------------------------
Title:
-----------------------------------------
Head Acquisition, L.P.
By: Hexalon Real Estate, Inc., its General
Partner
By:
--------------------------------------------
Title:
-----------------------------------------
Hexalon Real Estate, Inc.
By:
--------------------------------------------
Title:
-----------------------------------------
Center Partners, Ltd.,
an Illinois limited partnership
By: JMB Realty Corporation,
a Delaware corporation,
General Partner
By:
----------------------------------
Title:
-------------------------------
Urban-Water Tower Associates,
an Illinois general partnership
By: UIDC Holdings, L.P.,
a Delaware limited partnership,
General Partner
By: JMB Realty Corporation,
a Delaware corporation,
General Partner
By:
--------------------------------------------
Title:
-----------------------------------------
Miami Associates, L.P.,
an Illinois limited partnership
By: JMB Realty Corporation,
a Delaware corporation,
General Partner
By:
--------------------------------------------
Title:
-----------------------------------------
Old Orchard Limited Partnership,
an Illinois limited partnership
By: UIDC Holdings, L.P.,
a Delaware limited partnership,
General Partner
By: JMB Realty Corporation,
a Delaware corporation,
General Partner
By:
----------------------------------
Title:
-------------------------------