Exhibit 10.33

 

TAX PROTECTION AGREEMENT

 

THIS TAX PROTECTION AGREEMENT (this “Agreement”) is made and entered into as of
August 16, 2004 by and among KITE REALTY GROUP TRUST, a Maryland real estate
investment trust (the “REIT”), KITE REALTY GROUP, L.P., a Delaware limited
partnership (the “Partnership”), ALVIN E. KITE, JR., JOHN A. KITE, PAUL W. KITE,
C. KENNETH KITE AND THOMAS K. MCGOWAN (each a “Protected Partner and
collectively the “Protected Partners”).

 

WHEREAS, pursuant to that certain Contribution Agreement, dated as of April 5,
2004, and that certain Contribution Agreement, dated as of April 1, 2004, (the
“Contribution Agreements”), the Protected Partners transferred to the
Partnership all of such Protected Partner’s interests in the various entities
that own or lease real estate properties, as identified in such Contribution
Agreements, subject to specified liabilities, in exchange for Class A units of
limited partnership interest in the Partnership (“Units”) (the “Transaction”);

 

WHEREAS, it is intended for federal income tax purposes that the Transaction be
treated as a contribution by the Protected Partners of all of the contributed
assets, subject to the assumed liabilities, to the Partnership in exchange for
partnership interests under Section 721 of the Internal Revenue Code of 1986, as
amended (the “Code”);

 

WHEREAS, in accordance with Section 3.2(d) of the Contribution Agreement and in
consideration for the agreement of the Protected Partners to consummate the
Transaction, the parties desire to enter into this Agreement regarding certain
tax matters associated with the Transaction; and

 

WHEREAS, the REIT and the Partnership desire to evidence their agreement
regarding amounts that may be payable as a result of certain actions being taken
by the Partnership regarding the deposition of certain of the contributed assets
and certain debt obligations of the Partnership 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 1

DEFINITIONS

 

To the extent not otherwise defined herein, capitalized terms used in this
Agreement have the meanings ascribed to them in the Partnership Agreement (as
defined below).

 

“Annual Gain Amount” means $4,000,000 for each Gain Limitation Year; provided,
however, that the Annual Gain Amount for the Tax Protection Period ending
December 31, 2004, will be prorated based on the number of days from the Closing
Date until the end of such Gain Limitation Year.

 

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“Annual Gain Limitation” has the meaning set forth in Section 3.2.

 

“Closing Date” means August 16, 2004.

 

“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.

 

“Cumulative Recognized Protected Gain” means, for any Gain Limitation Year, the
amount equal to the sum of the Protected Gain recognized by a Protected Partner
in such Gain Limitation Year with respect to the Gain Limitation Properties,
plus the Protected Gain recognized by such Protected Partner in all preceding
Gain Limitation Years with respect to the Gain Limitation Properties.

 

“Cumulative Unadjusted Protected Gain” means, for any Gain Limitation Year, an
amount equal to the Cumulative Recognized Protected Gain for a Protected Partner
with respect to the Gain Limitation Properties, minus the Prior Adjusted
Protected Gain for such Protected Partner with respect to the Gain Limitation
Properties.

 

“Deficit Restoration Obligation” or “DRO” means a written obligation by a
Protected Partner to become a “DRO Partner” as defined in the Partnership
Agreement.

 

“Excess Protected Gain” means for a Gain Limitation Year, the amount by which
the Protected Gain recognized by the Protected Partners, as a group, with
respect to such Gain Limitation Year with respect to the Gain Limitation
Properties exceeds the Annual Gain Limitation for such Gain Limitation Year.

 

“Gain Limitation Carry-forward” means, for any Gain Limitation Year, the amount
by which:

 

(A)        the sum of Annual Gain Amounts for all preceding Gain Limitation
Years;

 

exceeds

 

(B)          the aggregate Protected Gain recognized by the Protected Partners,
as a group, with respect to the Gain Limitation Properties with respect to all
preceding Gain Limitation Years.

 

“Gain Limitation Property” means (i) each of the properties identified on
Schedule 3.1 hereto as a Gain Limitation Property; (ii) any other properties or
assets hereafter acquired by the Partnership or any direct or indirect interest
owned by the Partnership in any entity that owns an interest in a Gain
Limitation Property, if the disposition of that interest would result in the
recognition of Protected Gain by a Protected Partner; and (iii) any other
property

 

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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 Gain Limitation Property.

 

“Gain Limitation Year” means a taxable year of the Partnership ending on or
before the expiration of the Tax Protection Period.

 

“Guaranteed Amount” means the aggregate amount of each Guaranteed Debt that is
guaranteed at any time by Partner Guarantors.

 

“Guaranteed Debt” means any loans incurred (or assumed) by the Partnership or
any of its subsidiaries that are guaranteed by Partners Guarantors at any time
after the Closing Date pursuant to Article 4 hereof.

 

“Minimum Liability Amount” means, for each Protected Partner, the amount set
forth on Schedule 4.1 hereto next to such Protected Partner’s name.

 

“Nonrecourse Liability” has the meaning set forth in Treasury Regulations
§ 1.752-1(a)(2).

 

“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 is zero as of the Closing Date and will be set forth amended
from time to time Schedule 4.2 hereto.

 

“Partnership” means Kite Realty Group, L.P., a Delaware limited partnership.

 

“Partnership Agreement” means the Amended and Restated Agreement of Limited
Partnership of Kite Realty Group, L.P., dated as of August 16, 2004 as amended,
and as the same may be further amended in accordance with the terms thereof.

 

“Prior Adjusted Protected Gain” for any Gain Limitation Year, the amount of
Cumulative Recognized Protected Gain of a Protected Partner with respect to
which reimbursement payments would have been made to such Protected Partner
under Article 5 hereof (computed in accordance with the principles set forth in
the parenthetical in the first paragraph of Section 3.1, not taking into account
the limitation therein based upon the actual gain recognized by such Protected
Partner).

 

“Protected Gain” shall mean the gain that would be allocable to and recognized
by a Protected Partner under Section 704(c) of the Code in the event of the sale
of a Protected Property or Gain Limitation Property in a fully taxable
transaction (excluding its corresponding share of “book gain,” if any).  The
initial amount of Protected Gain with respect to each Protected Partner shall be
determined as if the Partnership sold a Protected Property or Gain Limitation
Property in a fully taxable transaction on the Closing Date for consideration
equal to the Section 704(c) Value of such Protected Property or Gain Limitation
Property on the Closing Date, and is set forth on Schedule 2.1(b) hereto.  Gain
that would be allocated to a Protected

 

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Partner upon a sale of a Protected Property or Gain Limitation Property that is
“book gain” (for example, gain attributable to appreciation in the actual value
of the Protected Property or Gain Limitation Property following the Closing Date
or gain resulting from reductions in the “book value of the Protected Property
or Gain Limitation Property following the Closing Date) would not be considered
Protected Gain.  (As used in this definition, “book gain” is any gain that would
not be required under Section 704 (c) of the Code and the applicable regulations
to be specially allocated to the Protected Partners, but rather would be
allocated to all partners in the Partnership, including the REIT, in accordance
with their respective economic interests in the Partnership.)

 

“Protected Partner” means those persons set forth on Schedule 2.1(a) hereto as
“Protected Partners,” any person who acquires Units from a Protected Partner 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 in such Units.

 

“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; 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.

 

“Qualified Guarantee” has the meaning set forth in Section 4.2.

 

“Qualified Guarantee Indebtedness” has the meaning set forth in Section 4.2.

 

“Section 704(c) Value” means the fair market value of any Protected Property or
Gain Limitation 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) and
each Gain Limitation Property on Schedule 3.1 hereto, as applicable.  For
purposes of this Agreement, the aggregate Section 704(c) Value for all
properties contributed to the Partnership by the Protected Partners in the
Transaction will be the agreed value of the Units to be issued in the
Transaction plus the mortgage debt secured by or allocable to such properties
outstanding on the Closing Date.  The Section 704(c) Value for each Protected
Property and each Gain Limitation Property shall be as determined by agreement
between the Protected Partners and the Partnership pursuant to this Agreement. 
The Partnership shall initially carry the Protected Property or Gain Limitation
Property on its books at a value equal to the Section 704(c) Value as set forth
above.

 

“Subsidiary” means any entity in which the Partnership owns a direct or indirect
interest that owns a Protected Property or a Gain Limitation Property on the
Closing Date, after giving effect to the Transaction, or that thereafter is a
successor to the Partnership’s direct or indirect interests in a Protected
Property or Gain Limitation Property.

 

“Tax Protection Period” means the period commencing on the Closing Date and
ending at 12:01 AM on January 1, 2017; provided, however, that with respect to a
Protected

 

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Partner, the Tax Protection Period shall terminate at such time as such
Protected Partner disposes of 50% or more of the Units received, directly or
indirectly, in the Transaction by such Protected Partner.

 

“Total Unadjusted Protected Gain” means, for any Gain Limitation Year, the sum
of the Cumulative Unadjusted Protected Gain amounts for all Protected Partners
with respect to the Gain Limitation Properties.

 

“Unadjusted Protected Gain Percentage” means, for any Gain Limitation Year, the
percentage obtained by dividing such Protected Partner’s Cumulative Unadjusted
Protected Gain by the Total Unadjusted Protected Gain for such Gain Limitation
Year and multiplying such quotient by 100.

 

“Units” means class A units of limited partnership interest of the Partnership,
as described in the Partnership Agreement.

 

ARTICLE 2

RESTRICTIONS ON DISPOSITIONS OF

PROTECTED PROPERTIES

 

2.1                                 General Prohibition on Disposition of
Protected Properties.  The Partnership agrees for the benefit of each Protected
Partner, for the term of the Tax Protection Period, not to directly or
indirectly sell, exchange, transfer, or otherwise dispose of 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 to recognize any remaining 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 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

 

(c)                                  any distribution by the 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, by the Partnership or any Subsidiary in a foreclosure
proceeding, pursuant to a deed in lieu of foreclosure, or in a bankruptcy
proceeding.

 

Notwithstanding the foregoing, this Section 2.1 shall not apply to a voluntary,
actual disposition by a Protected Partner of Units in connection with a merger
or consolidation of

 

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the Partnership pursuant to which (1) the Protected Partner is offered either
cash or property treated as cash pursuant to Section 731 of the Code (“Cash
Consideration”) or partnership interests in a partnership that would be treated
as the continuing partnership under the principles of Section 708 of the Code
and the receipt of such partnership interests would not result in the
recognition of gain for federal income tax purposes by the Protected Partner
(“Partnership Interest Consideration”); (2) the Protected Partner has the
ability to elect to receive solely Partnership Interest Consideration in
exchange for his Units and the continuing partnership has agreed in writing to
assume the obligations of the Partnership under this Agreement; (3) no Protected
Gain is recognized by the Partnership as a result of any partner of the
Partnership receiving Cash Consideration; and (4) the Protected Partner elects
to receive Cash Consideration.

 

2.2                                 Exceptions Where No Gain Recognized. 
Notwithstanding the restriction set forth in Section 2.1, the Partnership or any
Subsidiary may dispose of any Protected Property (or any 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 recognition of any taxable income or gain to
any Protected Partner with respect to any of the Units; provided, however, that:

 

(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; and

 

(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 Protected Partner (or for
which a Protected Partner otherwise has personal liability) and that is not then
in default 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 that has guaranteed, or otherwise has liability for,
such indebtedness, and (b) if such indebtedness is a Guaranteed Debt and the Tax
Protection Period shall not have expired, the Partnership shall comply with its
covenants set forth in

 

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Article 4 below with respect to such Guaranteed Debt and the Partner Guarantors
that are considered to have liability for such Guaranteed Debt (determined under
Section 4.4 treating such events as a repayment of the Guaranteed Debt).

 

ARTICLE 3

RESTRICTIONS ON DISPOSITIONS OF

GAIN LIMITATION PROPERTIES

 

3.1                                 Restrictions on Disposition of Gain
Limitation Properties. The Partnership agrees for the benefit of each Protected
Partner, for the term of the Tax Protection Period, not to directly or
indirectly sell, exchange, transfer, or otherwise dispose of a Gain Limitation
Property or any interest therein (without regard to whether such disposition is
voluntary or involuntary) in a transaction that would cause the Protected
Partners in the aggregate to recognize any Protected Gain in excess of the
Annual Gain Limitation.  (For purposes of this Article 3, the Protected Gain
recognized by each of the Protected Partners shall be deemed equal to the gain
that would have been recognized without giving effect to any adjustment in basis
that results with respect to the indirect interest of such Protected Partner in
such Protected Property, it being intended that the Annual Gain Limitation and
the related definitions are to be applied to the Protected Partners as a group
before giving effect to basis adjustments.  For example, and as an illustration
only, if a Protected Partner who would have recognized $1,500,000 of gain with
respect to the sale of a Protected Property has died, the Annual Gain Limitation
and the related definitions shall still be computed and applied as if such gain
were recognized by such Protected Partner, notwithstanding the adjustment to tax
basis that occurs with respect to such Protected Partner’s indirect interest in
the Protected Property that occurs upon the death of such Protected Partner.)

 

Without limiting the foregoing, the term “sale, exchange, transfer or
disposition” by the Partnership shall be deemed to include:

 

(a)                                  any direct or indirect disposition by any
direct or indirect Subsidiary of any Gain Limitation Property or any interest
therein;

 

(b)                                 any direct or indirect disposition by the
Partnership of any Gain Limitation 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

 

(c)                                  any distribution by the 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, by the Partnership or any Subsidiary in a foreclosure
proceeding, pursuant to a deed in lieu of foreclosure, or in a bankruptcy
proceeding.  The exceptions set forth in Section 2.2 with respect to the
Protected Properties shall apply for purposes of this Article 3 with respect to
the Gain Limitation Properties, subject to the limitations set forth in
Section 2.2.

 

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Notwithstanding the foregoing, this Section 2.1 shall not apply to a voluntary,
actual disposition by a Protected Partner of Units in connection with a merger
or consolidation of the Partnership pursuant to which (1) the Protected Partner
is offered either cash or property treated as cash pursuant to Section 731 of
the Code (“Cash Consideration”) or partnership interests in a partnership that
would be treated as the continuing partnership under the principles of
Section 708 of the Code and the receipt of such partnership interests would not
result in the recognition of gain for federal income tax purposes by the
Protected Partner (“Partnership Interest Consideration”); (2) the Protected
Partner has the ability to elect to receive solely Partnership Interest
Consideration in exchange for his Units and the continuing partnership has
agreed in writing to assume the obligations of the Partnership under this
Agreement; (3) no Protected Gain is recognized by the Partnership as a result of
any partner of the Partnership receiving Cash Consideration; and (4) the
Protected Partner elects to receive Cash Consideration.

 

3.2                                 Annual Gain Limitation.  For each Gain
Limitation Year, the Annual Gain Limitation will be the sum of the Annual Gain
Amount, plus the Gain Limitation Carry-forward, provided that (i) for each Gain
Limitation Year ending on or prior to December 31, 2011, the Annual Gain
Limitation shall not exceed $10,000,000, and (ii) for each Gain Limitation Year
beginning after December 31, 2011, the Annual Gain Limitation shall not exceed
$20,000,000.

 

3.3                                 Allocation of Excess Protected Gain among
Protected Partners.  For each Gain Limitation Year, the Excess Protected Gain
(computed in accordance with the principles set forth in the parenthetical in
the first paragraph of Section 3.1) will be allocated among Protected Partners
in proportion to their Unadjusted Protected Gain Percentages (computed in
accordance with the principles set forth in the parenthetical in the first
paragraph of Section 3.1) for purposes of determining the amount of Protected
Gain recognized by a Protected Partner that is subject to reimbursement pursuant
to Article 5 hereof (for purpose of Article 5, the calculations of gain
recognized by a Protected Partner and the reimbursement required shall be based
upon the actual gain recognized by such Protected Partner without regard to the
principles set forth in the parenthetical in the first paragraph of
Section 3.1).  Specifically, for each Gain Limitation Year, the amount of
Protected Gain for which a Protected Partner may be reimbursed under Article 5
hereof will equal the product of (a) the Protected Partner’s Unadjusted
Protected Gain Percentage (computed in accordance with the principles set forth
in the parenthetical in the first paragraph of Section 3.1), multiplied by (b)
the Excess Protected Gain for such Gain Limitation Year (computed in accordance
with the principles set forth in the parenthetical in the first paragraph of
Section 3.1); provided, however, that no Protected Partner shall be considered
for purposes of Article 5 to have recognized an amount of Protected Gain for a
Gain Limitation Year that exceeds the Protected Gain actually recognized by such
Protected Partner with respect to such Gain Limitation Year (computed in
accordance with the principles set forth in the parenthetical in the first
paragraph of Section 3.1), and provided further, that the Protected Gain for
which other Protected Partners are entitled to reimbursement shall be increased
by the portion of the Excess Protected Gain for such year not allocated to
Protected Partners by reason of such limitation (with such allocation to be in
accordance with the Protected Gain recognized by the Protected Partners not
subject to such limitation).  Schedule 3.3 hereto sets forth an example that
illustrates the application of this Section 3.3.

 

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ARTICLE 4
ALLOCATION OF LIABILITIES; GUARANTEE OPPORTUNITY AND DEFICIT
RESTORATION OBLIGATIONS

 

4.1                                 Minimum Liability Allocation.  During the
Tax Protection Period, the Partnership will offer to each Protected Partner the
opportunity either (i) to enter into Qualified Guarantees of Qualified Guarantee
Indebtedness or (ii) to enter into a Deficit Restoration Obligation, 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 4.  In order to minimize the need for Protected Partners to enter into
Qualified Guarantees or DROs, the Partnership will use the optional method under
Treasury Regulations Section 1.752-3(a)(3) to allocate Nonrecourse Liabilities
considered secured by a Protected Property or Gain Limitation 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 or Gain Limitation Property allocated to the
Protected Partners under Treasury Regulations Section 1.752-3(a)(2).

 

4.2                                 Qualified Guarantee Indebtedness and
Qualified Guarantee; Treatment of Qualified Guarantee 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 4, (1) the indebtedness
to be guaranteed must satisfy all of the conditions set forth in this
Section 4.2 (indebtedness satisfying all such conditions is referred to as
“Qualified Guarantee Indebtedness”); (2) the guarantee by the Partner Guarantors
must be pursuant to a Guarantee Agreement substantially in the form attached
hereto as Schedule 4.7 that satisfies the conditions set forth in Sections
4.2(i) and (iii) (a “Qualified Guarantee”); (3) the amount of debt required to
be guaranteed by the Partner Guarantor 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 4, such indebtedness thereafter
shall be considered a Guaranteed Debt and subject to all of this Article 4.  The
conditions that must be satisfied at all times with respect to any additional or
replacement Guaranteed Debt offered pursuant to this Article 4 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 4.3 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

 

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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 4 are
entered into, or (y) that are entered into after the date the guarantees
pursuant to this Article 4 are entered into with respect to such Guaranteed Debt
and that comply with Section 4.5 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 collateral
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 shall be 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 150% of the
sum of (x) the aggregate of the Guaranteed Amounts with respect to such
Guaranteed Debt, plus (y) the dollar amount of any other indebtedness that is
senior to or pari passu with the Guaranteed Debt and as to which the lender
thereunder has recourse against property that is collateral of the Guaranteed
Debt, plus (z) the aggregate amounts of any other guarantees (A) that are in
effect with respect to such Guaranteed Debt at the time the guarantees pursuant
to this Article 4 are entered into with respect to such Guaranteed Debt and that
comply with Section 4(e) 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 delivered
to the lender and (B) the execution of the guarantee by the Partner Guarantors
must be acknowledged by the lender as an inducement to it to make a new loan, to
continue an existing loan (which continuation is not otherwise required), or to
grant a material consent under an existing loan (which consent is not otherwise
required to be granted) or, alternatively, the guarantee otherwise must be
enforceable under the laws of the state governing the loan and in which the
property securing the loan is located or in which the lender has a significant
place of business (with any bona fide branch or office of the lender through
which the loan is made, negotiated, or administered being deemed a “significant
place of business” for the purposes hereof);

 

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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 § 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 4;

 

(v)                                 the aggregate Guaranteed Amounts with
respect to the Guaranteed Debt will not exceed 25% 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 25% limitation
set forth in this Section 4.2(v); and

 

(vi)                              the obligor with respect to the Guaranteed
Debt is the Partnership or an entity 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).

 

4.3                                 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 Guarantee Protection Period, and (B) it will not
at any time, whether during or following the Guarantee 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 4.2(ii) would
continue to be satisfied with respect to the Guaranteed Debt and the Guaranteed
Debt otherwise would continue to be Qualified Guarantee Indebtedness, or
(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 either

 

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(1) to enter into a Qualified Guarantee of other the Partnership indebtedness
that constitutes Qualified Guarantee Indebtedness (with such replacement
indebtedness thereafter being considered a Guaranteed Debt and subject to this
Article 4) in an amount equal to the amount of such original Guaranteed Debt
that was guaranteed by such Partner Guarantor or (2) to enter into a DRO in the
amount of the original Guaranteed Debt that was guaranteed by such Partner
Guarantor.

 

4.4                                 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 to include in its basis for its Units an
amount of Guaranteed Debt equal to its Minimum Liability Amount, or
(ii) alternatively, the Partnership, not less than 30 days prior to such
repayment or refinancing, offers to the applicable Partner Guarantors the
opportunity either (A) to enter into a Qualified Guarantee with respect to other
Qualified Guarantee Indebtedness or (B) to enter into a DRO, in either case in
an amount sufficient so that, taking into account such guarantees of such other
Qualified Guarantee Indebtedness or DRO, as applicable, each Partner Guarantor
who guarantees such other Qualified Guarantee Indebtedness or enters into a DRO
in the amount specified by the Partnership would be entitled to include in its
adjusted tax basis for its Units debt equal to the Minimum Liability Amount for
such Partner Guarantor.

 

4.5                                 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
(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 4.2(ii) and (v) would be satisfied
immediately after the implementation of such additional guarantee (determined in
the case of Section 4.2(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
guarantee” previously permitted pursuant to this Section 4.5 or Sections 4.2(i)
and (ii) above, for purposes of making the computation provided for in
Section 4.2(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 Units pursuant to Treasury
Regulation § 1.752-2.

 

4.6                                 Process.  Whenever the Partnership is
required under this Article 4 to offer to one or more of the Partner Guarantors
an opportunity either to guarantee Qualified Guarantee Indebtedness or enter
into a DRO, the Partnership shall be considered to have satisfied its obligation
if the other conditions in this Article 4 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 4, 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

 

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Guarantee Agreement or DRO, as applicable, to be executed (which in the case of
Guarantee Agreement shall be substantially in the form of Schedule 4.7 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 4, 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 or DRO, as
applicable, 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 4 with respect to the amount
of debt that the Partnership is required to offer to be guaranteed or made
available for the DRO, 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 not 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.

 

4.7                                 Presumption as to Schedule 4.7.  The form of
the Guarantee Agreement attached hereto as Schedule 4.7 shall be conclusively
presumed to satisfy the conditions set forth in Section 4.2(i) and to have
caused the Guaranteed Debt to be considered allocable to the Guarantor Partner
who enters into such Guarantee Agreement pursuant to Treasury Regulation
§ 1.752-2 and Section 465 of the Code 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 4);

 

(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;

 

(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 4.3;

 

(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 § 1.752-2 or any person that
would be considered a “related party” as determined for purposes of Section 465
of the Code; and

 

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(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 § 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 or
entity to be considered to bear the risk of loss with respect to such Guaranteed
Debt, as determined for purposes of Treasury Regulation § 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.

 

4.8                                 Deficit Restoration Obligation.  The
Partnership will maintain an amount of indebtedness of the Partnership that
would be considered “recourse” indebtedness (taking into account all of the
facts and circumstances related to the indebtedness, the Partnership and the
General Partner) equal to or greater than the sum of the “DRO Amounts” (as
defined in the Partnership Agreement) of all Protected Partners (plus, the DRO
Amounts, if any, of other partners in the Partnership).  The deficit restoration
obligation shall be conclusively presumed to cause the Protected Partner to be
allocated an amount of liabilities equal to the DRO Amount of such Protected
Partner for purposes of Sections 465 and 752 of the Code, provided that (1) the
Partnership maintains an amount of debt that is considered “recourse”
indebtedness (determined for purposes of Section 752 of the Code and taking into
account all of the facts and circumstances related to the indebtedness, the
Partnership and the General Partner) equal to the aggregate DRO Amounts of all
partners of the Partnership and (2) all other terms and conditions of the
Partnership Agreement with respect to such deficit restoration obligation are
met.

 

4.9                                 Additional Guarantee and DRO Opportunities. 
Without limiting any of the other obligations of the Partnership under this
Agreement, from and after the expiration of the Tax Protection Period, the
Partnership shall, upon a request from a Protected Partner, use commercially
reasonable efforts to permit such Protected Partner to enter into an agreement
with the Partnership to bear the economic risk of loss as to a portion of the
Partnership’s recourse indebtedness by undertaking an obligation to restore a
portion of its negative capital account balance upon liquidation of such
Protected Partner’s interest in the Partnership and/or to bear financial
liability under a Guarantee Agreement substantially in the form of Schedule F
hereto for indebtedness that would be considered Qualifying Guarantee
Indebtedness under Section 4.2 hereof, if such Protected Partner shall provide
information from its professional tax advisor satisfactory to the Partnership
showing that, in the absence of such agreement, such Protected Partner likely
would not be allocated from the Partnership sufficient indebtedness under
Section 752 of the Code and the at-risk provisions under Section 465 of the Code
to avoid the recognition of gain (other than gain required to be recognized by
reason of actual cash distributions from the Partnership).  The Partnership and
its professional tax advisors shall cooperate in good faith with such Protected
Partner and its professional tax advisors to provide such information regarding
the allocation of the Partnership liabilities and the nature of such liabilities
as is reasonably necessary in order to determine the Protected Partner’s
adjusted tax basis in its Units and at-risk amount.  If the Partnership permits
a Protected Partner to enter into an agreement under this Section 4.9, the
Partnership shall be under no further obligation with respect thereto, and the
Partnership shall not be required to indemnify such Protected Partner for any
damage incurred, in connection with or as a result of such agreement or the
indebtedness,

 

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including without limitation a refinancing or prepayment thereof or taking any
of the other actions required by Article 4 hereof with respect to Qualified
Indebtedness.

 

ARTICLE 5

REMEDIES FOR BREACH

 

5.1                                 Monetary Damages.  In the event that the
Partnership breaches its obligations set forth in Article 2, Article 3,
Article 4 or Article 7 with respect to a Protected Partner the Protected
Partner’s sole right shall be to receive from the Partnership, and the
Partnership shall pay to such Protected Partner as damages, an amount equal to:

 

(a)                                  in the case of a violation of Articles 4 or
7, the aggregate federal, state and local income taxes incurred by the Protected
Partner as a result of the income or gain allocated to, or otherwise recognized
by, such Protected Partner with respect to its Units by reason of such breach;

 

(b)                                 in the case of a violation of Article 2, the
aggregate federal state, and local income taxes incurred with respect the
Protected Gain incurred with respect to the Protected Property that is allocable
to such Protected Partner under the Partnership Agreement;

 

(c)                                  in the case of a violation of Article 3,
the aggregate federal state, and local income taxes incurred with respect the
Excess Protected Gain incurred with respect to the Gain Limitation Property that
is allocable to such Protected Partner under the Partnership Agreement and
Section 3.3 hereof (computed without regard to the principles set forth in the
parenthetical in the first paragraph of Section 3.1);

 

plus in the case of either (a), (b) or (c), an amount equal to the aggregate
federal, state, and local income taxes payable by the Protected Partner as a
result of the receipt of any payment required under this Section 5.1.

 

For purposes of computing the amount of federal, state, and local income taxes
required to be paid by a Protected Partner, (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 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 taxable income
(taking into account the character and type 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
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 to
offset other income, gain or taxes of the Protected Partner, either in the
current year, in earlier years, or in later years).

 

5.2                                 Process for Determining Damages.  If the
Partnership has breached or violated any of the covenants set forth in
Article 2, Article 3, Article 4 or Article 7 (or a Protected Partner asserts
that the Partnership has breached or violated any of the covenants set forth in
Article 2,

 

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Article 3, Article 4 or Article 7), the Partnership and the Protected Partner
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 under Section 5.1 (and to the extent applicable, Sections 5.4 and/or
5.5).  If any such disagreement cannot be resolved by the Partnership and such
Protected Partner within 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, the Partnership and the Protected Partner shall jointly retain a
nationally recognized independent public accounting firm (“an Accounting Firm”)
to act as an arbitrator to resolve as expeditiously as possible all points of
any such disagreement (including, without limitation, whether a breach of any of
the covenants set forth Article 2, Article 3, Article 4, Article 7, or Article 8
has occurred and, if so, the amount of damages to which the Protected Partner is
entitled as a result thereof, determined as set forth in Section 5.1 (and to the
extent applicable, Section 5.4 and/or 5.5).  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 4 or Article 7 and
the amount of damages payable to the Protected Partner under Section 5.1 (and to
the extent applicable, Section 5.4 and/or 5.5) shall be final, conclusive and
binding on the Partnership and the Protected Partner.  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, provided that if
the amount determined by the Accounting Firm to be owed by the Partnership to
the Protected Partner is more than five percent (5%) higher than the amount
proposed by the Partnership to be owed to such Protected Partner 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 is
more than five percent (5%) less than the amount proposed by the Partnership to
be owed to such Protected Partner 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.

 

5.3                                 Required Notices; Time for Payment.  In the
event that there has been a breach of Article 2, Article 3, Article 4 or
Article 7 the Partnership shall provide to the Protected Partner 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 8.4 below.  All payments required under this Article 5 to any Protected
Partner shall be made to such Protected Partner 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 is required to make
estimated tax payments that would include such gain, the Partnership shall make
a payment to the Protected Partner 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 at such time.  In the event of a payment required after the date
required pursuant to this Section 5.3, 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 “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.

 

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5.4                                 Additional Damages for Breaches of
Section 2.2(b), Section 4.2 and/or Section 4.3.  Notwithstanding any of the
foregoing in this Article 5, in the event that the Partnership should breach any
of its covenants set forth in Section 2.2(b), Section 4.2 and/or Sections 4.3
(i), (ii) and/or (iii) and a Protected Partner 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 5, the Partnership shall pay
to such Protected Partner an amount equal to the sum of (i) the Excess Payment
plus (ii) the aggregate federal, state and local income taxes, if any, computed
or set forth in Section 5.1, required to be paid by such Protected Partner by
reason of Section 5.4 becoming operative (for example, because the breach by the
Partnership and this Section 5.4 caused all or any portion of the indebtedness
in question no longer to be considered debt includible in basis by the affected
Protected Partner pursuant to Treasury Regulations § 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 (computed as set forth in Section 5.1) as a
result of any payment required under this Section 5.4.

 

ARTICLE 6

SECTION 704(C) METHOD AND ALLOCATIONS

 

6.1                                 Application of “Traditional Method.” 
Notwithstanding any provision of the Partnership Agreement, the Partnership
shall use the “traditional method” under Regulations § 1.704-3(b) for purposes
of making all allocations under Section 704(c) of the Code (with no “curative
allocations” to offset the effects of the “ceiling rule,” including upon any
sale of a Protected Property or Gain Limitation Property).

 

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ARTICLE 7

ALLOCATIONS OF LIABILITIES PURSUANT TO REGULATIONS UNDER
SECTION 752

 

7.1                                 Allocation Methods to be Followed.  Except
as provided in Section 7.2, all tax returns prepared by the Partnership with
respect to the Protected Period (and to the extent arrangements have been
entered into pursuant to Section 4.9, for so long thereafter as such
arrangements are in effect) 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 § 1.752-3 and any other recourse liabilities allocable to such
Partner Guarantor by reason of guarantees of indebtedness or DROs entered into
pursuant other agreements with the Partnership) pursuant to Treasury Regulation
§ 1.752-2 equal to such Partner Guarantor’s Minimum Liability Amount, as set
forth on Schedule B 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
or state income tax returns (including, without limitation, information returns,
such as Forms 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).

 

7.2                                 Exception to Required Allocation Method. 
Notwithstanding the provisions of this Agreement, the Partnership shall not be
required to make allocations of Guaranteed Debt 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 General Partners have been allowed to participate as
and to the extent contemplated in Article 8 to the effect that such allocations
are not correct, Section 7.1 shall not apply unless the matter is being appealed
to an applicable court of appeals, the requirements of Section 10.3 shall have
been satisfied in connection therewith, and the opinion described above from
counsel or accountants engaged by a Protected Partner 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 7.2 be
construed to relieve the Partnership for liability arising from a failure by the
Partnership to comply with one or more of the provisions of Article 4 of this
Agreement.

 

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7.3                                 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 7.2, the Partnership and its professional tax
advisors shall cooperate in good faith with each Protected Partner (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 federal income
tax positions of the Protected Partners in the manner contemplated by the
allocations of Guaranteed Debt or other recourse debt of the Partnership to the
Protected Partners as set forth in this Agreement.

 

ARTICLE 8

TAX PROCEEDINGS

 

8.1                                 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 the Partnership the
calculation of which involves a matter covered in this Agreement that could
result in tax liability to a Protected Partner (“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 (“Tax
Proceeding”) involving the Protected Partners or the Partnership or that
otherwise could involve a matter covered in this Agreement and could directly or
indirectly affect the Protected Partners (adversely or otherwise), then the REIT
or the Partnership, as applicable shall promptly notify the Protected Partners
of such Tax Claim or Tax Proceeding.

 

8.2                                 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 Tax Proceeding that could
result in tax liability to a Protected Partner 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 as a result thereof would be
required to be reimbursed by the Partnership and the REIT under Article 5 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 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 and that the Protected Partners
shall have the right to review and comment on any and all submissions made to
the to Internal Revenue Service (“IRS”), a court, or other governmental body
with respect to such Tax Claim or Tax Proceeding and that the Partnership will
consider such comments in good faith.

 

8.4                                 Timing of Tax Returns; Periodic Tax
Information.  The Partnership shall cause to be delivered to each Protected
Partner, as soon as practicable each year, the Forms K-1 that the Partnership is
required to deliver to such Protected Partners with respect to the prior taxable
year.  In addition, the Partnership agrees 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 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.

 

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ARTICLE 9

AMENDMENT OF THIS AGREEMENT; WAIVER OF CERTAIN PROVISIONS;
APPROVAL OF CERTAIN TRANSACTIONS

 

9.1                                 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.

 

9.2                                 Waiver.  Notwithstanding the foregoing, upon
written request by the Partnership, each Protected Partner, in its sole
discretion, may waive the payment of any damages that is otherwise payable to
such Protected Partner pursuant to Article 5 hereof.  Such a waiver shall be
effective only if obtained in writing from the affected Protected Partner.

 

ARTICLE 10
MISCELLANEOUS

 

10.1                           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.

 

10.2                           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.

 

10.3                           Successors and Assigns.  This Agreement shall be
binding upon and shall inure to the benefit of the Protected Partners and their
respective successors and permitted assigns, whether so expressed or not.  This
Agreement shall be binding upon the REIT, the 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
and the Partnership covenant with and for the benefit of the Protected Partners
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 acknowledged in writing and agreed in writing to be bound by this
Agreement, provided that the foregoing shall not be deemed to permit any
transaction otherwise prohibited by this Agreement.

 

10.4                           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

 

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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.

 

10.5                           Representations and Warranties Regarding
Authority; Noncontravention.

 

10.5.1                  Representations and Warranties of the REIT and the
Partnership.  Each of the REIT and the Partnership has the requisite corporate
or other (as the case may be) 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 and the Partnership and the performance of
each of its respective obligations hereunder have been duly authorized by all
necessary trust, partnership, or other (as the case may be) action on the part
of each of the REIT and the Partnership.  This Agreement has been duly executed
and delivered by each of the REIT and the Partnership and constitutes a valid
and binding obligation of each of the REIT and the Partnership, enforceable
against each of the REIT and the 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 and the 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 and/or the 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 and the REIT of their obligations
hereunder.

 

10.5.2                  Representations and Warranties of the Protected
Partners.  Each of the Protected Partners has the requisite corporate or other
(as the case may be) 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
trust, partnership, or other (as the case may be) 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.

 

10.6                           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.

 

10.7                           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

 

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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:

 

(i)                                     if to the Partnership or the REIT, to:

 

Kite Realty Group, L.P.

30 South Meridian, Suite 1100

Indianapolis, IN 46204

Attention:  Daniel R. Sink

Facsimile:  (317) 577-0001

 

(i)                                     if to a Protected Partner, to the
address on file with the Partnership.

 

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, telecopied or telexed in the manner described above, or which
shall be delivered to a telegraph company, shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy or telex) the answerback being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.

 

10.8                           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.

 

10.9                           Governing Law.  The interpretation and
construction of this Agreement, and all matters relating thereto, shall be
governed by the laws of the State of Indiana, without regard to the choice of
law provisions thereof.

 

10.10                     Consent to Jurisdiction; Enforceability.

 

10.10.1            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 Indiana.  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.

 

10.10.2            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.

 

10.11                     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

 

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unenforceability only, without in any way affecting the remaining parts of such
provision or the remaining provisions of this Agreement.

 

10.12                     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.

 

 

 

KITE REALTY GROUP TRUST, a Maryland real
estate investment trust

 

 

 

 

By:

/s/ DANIEL R. SINK

 

 

 

Daniel R. Sink

 

 

Senior Vice President, Chief
Financial Officer and Treasurer

 

 

 

 

 

 

 

KITE REALTY GROUP, L.P., a Delaware limited
partnership

 

 

 

 

By:

Kite Realty Group Trust, its sole
General Partner

 

 

 

 

 

By:

/s/ DANIEL R. SINK

 

 

 

Daniel R. Sink

 

 

 

Senior Vice President, Chief
Financial Officer and
Treasurer

 

 

 

 

ALVIN E. KITE, JR.

 

/s/ ALVIN E. KITE, JR.

 

 

 

 

 

JOHN A. KITE

 

/s/ JOHN A. KITE

 

 

 

 

 

 

 

C. KENNETH KITE, By Martin V. Shrader, his Attorney In Fact

 

/s/ C. KENNETH KITE

 

 

 

 

 

PAUL W. KITE

 

/s/ PAUL W. KITE

 

 

 

 

 

THOMAS K. MCGOWAN

 

/s/ THOMAS K. MCGOWAN

 

 

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SCHEDULES AND EXHIBITS TO THE TAX PROTECTION AGREEMENT*

 

Schedule 2.1(a)

 

List of Protected Partners

 

 

 

Schedule 2.1(b)

 

Protected Properties and Estimated Initial Protected Gain for Protected Partners

Schedule 3.1

 

Gain Limitation Properties and Estimated Initial Protected Gain for Protected
Partners

Schedule 3.3

 

Example Illustrating the Provisions of Section 3.3 of the Agreement Relating to
Allocation of Annual Gain Limitation Among Protected Partners

Schedule 4.1

 

Minimum Liability Amount

Schedule 4.7

 

Form of Guarantee Agreement

 

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*      The Company agrees to furnish, supplementally, a copy of omitted
Schedules and Exhibits upon request.

 

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