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.


 
















 


“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


 


9
















 


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


 


11
















 


(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


 


12
















 


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


 


13
















 


(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,


 


14
















 


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,


 


15
















 


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.


 


16
















 


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).


 


17
















 


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.


 


18
















 


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.


 


19
















 


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


 


20
















 


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


 


22
















 


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.


 


23
















 


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

  	
   

  
							



 


24
















 


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

  



 










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


 


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