Unassociated Document


    EXHIBIT
10.40

    
 

    TAX PROTECTION
AGREEMENT

     

    THIS TAX
PROTECTION AGREEMENT (“Agreement”), dated as of June 26, 2008, is made by
LIGHTSTONE VALUE PLUS REIT, L.P., a Delaware limited partnership (“LVP”), PRIME
OUTLETS ACQUISITION COMPANY LLC, a Delaware limited liability company (“POAC”),
and AR PRIME HOLDINGS, LLC, a Delaware limited liability company (“ARP”) that
will become a limited partner of LVP as a result of the Contribution (defined
below).

     

    WHEREAS ARP
owns a membership interest in POAC corresponding to a 25% Percentage of
Membership Interest (as defined in the Amended and Restated Limited Liability
Company Agreement of POAC, dated as of December 11, 2003);

     

    WHEREAS
POAC owns, indirectly through certain entities that are treated as disregarded
entities for U.S. federal tax purposes and certain other entities that are
treated as partnerships for U.S. federal tax purposes (the “Subsidiary
Partnerships”), the properties listed on Schedule A hereto (collectively, the
“Properties”); 

     

    WHEREAS,
in that certain Contribution and Conveyance Agreement, dated as of the date
hereof, by and among the Lightstone Value Plus Real Estate Investment Trust,
Inc., ARP, and LVP (the “Contribution Agreement”), ARP and LVP have agreed that,
within thirty (30) days of the completion of financial audits with respect to
all of the subsidiaries of POAC, but not later than June 26, 2009,
ARP will contribute all of its membership interest in POAC (the “Contributed
Interest”) to LVP in exchange for Units (as defined in the Contribution
Agreement) of LVP (the “Contribution”); 

     

    WHEREAS,
for federal income tax purposes, it is intended that the Contribution will be
treated as a tax-free contribution by ARP to LVP of the Contributed Interest in
exchange for Units under Section 721 of the Code;

     

    WHEREAS,
pursuant to the Contribution Agreement, LVP has agreed to make certain
undertakings to ARP as provided herein;

     

    WHEREAS
POAC desires to induce ARP to enter into the Contribution Agreement, and the
execution of this Agreement by POAC was a condition to ARP’s execution and
delivery of the Contribution Agreement;

     

    NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:

     

    1. Definitions. All
capitalized terms used and not otherwise defined in this Agreement shall have
the meaning set forth in the Partnership Agreement (as defined below). As used
herein, the following terms have the following meanings:

     

    “Applicable
Lightstone Party” shall mean (i) before the Contribution, POAC, and (ii) from
and after the Contribution, LVP.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Approved
Firms” shall mean any of the following firms: Baker & McKenzie LLP, Deloitte
& Touche LLP, Dewey & LeBoeuf LLP, McKee Nelson LLP, Kaye Scholer LLP,
and DLA Piper; and if any of the aforementioned law firms shall disband, the
parties hereto shall each make a good faith effort to choose a replacement for
each such firm.

     

    “Built-in
Gain” means gain allocable under Section 704(c) of the Code or under so-called
“reverse” Section 704(c) principles pursuant to Treasury Regulation Section
1.704-1(b)(4)(i) to ARP with respect to the Properties, the Subsidiary
Partnership Interests, or the Contributed Interest (taking into account any
special inside basis of ARP under Section 743(b) of the Code with respect to the
Properties, the Subsidiary Partnership Interests, or the Contributed Interest);
provided,
however, that,
subject to Section 2(a), the Built-in Gain with respect to the Contributed
Interest as of the date hereof shall be treated for purposes of this Agreement
as an amount equal to the excess of the fair market value of the Contributed
Interest over its adjusted basis for federal income tax purposes, and such
Built-in Gain shall thereafter be adjusted from time to time pursuant to the
principles set forth in the Code and the Regulations thereunder. For purposes of
determining Built-in Gain with respect to the Properties and the Subsidiary
Partnership Interests, the assets of POAC and the Subsidiary Partnerships shall
be deemed to have been revalued for federal income tax purposes, and the capital
accounts of the partners therein adjusted, as of the date hereof pursuant to the
principles of Treasury Regulation Section 1.704-2(b)(2)(iv)(f) (notwithstanding
that no event described in Treasury Regulation Section 1.704-2(b)(2)(iv)(f)(5)
occurs with respect to POAC or the Subsidiary Partnerships on the date hereof).
After the date hereof, the Built-in Gain shall be reduced from time to time
pursuant to the principles set forth in the Code and the Regulations thereunder.


     

    “Burnoff
Date” shall mean the day that is 365 days after the date hereof. However, if the
Contribution occurs after February 26, 2009, then the preceding sentence shall
be applied as if the number “365” were replaced by the sum of (i) 365 and (ii)
the number of days from (but excluding) February 26, 2009, through and including
the Closing Date.

     

    “Closing”
shall mean the closing of the exchange of the Contributed Interest for Units
pursuant to the Contribution Agreement.

     

    “Closing
Date” shall mean the date on which the Closing occurs. 

     

    “Code”
means the Internal Revenue Code of 1986, as amended.

     

    “Contributed
Interest” shall have the meaning set forth in the Recitals.

     

    “Contribution”
shall have the meaning set forth in the Recitals.

     

    “Disposition”
shall
have the meaning set forth in Section 2(a).

     

    “Excluded
Transfer” shall have the meaning set forth in Section 2(b).

     

    
      
        
        

      

      
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    “Nonrecourse
Built-in Gain” means gain recognized under Section 731(a)(1) of the Code as a
result of a deemed distribution under Section 752(b) of the Code or gain
recognized under Section 465(e) of the Code as a result of a reduction of the
amount of liabilities allocable to ARP under Section 752 of the Code below the
Protected Amount.

     

    “Partnership
Agreement” shall mean the Amended and Restated Agreement of Limited Partnership,
dated as of April 22, 2005, of LVP, as amended. 

     

    “Permitted
Transfer” shall mean (i) a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against the Applicable
Lightstone Party,
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings, or (iii) an Excluded
Transfer.

     

    “Prohibited
Transaction” shall mean a transaction that is prohibited under Section
2(a).

     

    “Properties”
shall have the meaning set forth in the Recitals.

     

    “Protected
Amount” shall mean an amount equal to the product of (i) ARP’s negative tax
capital account in POAC as of the date hereof and (ii) negative one (-1), as
such amount may be reduced pursuant to the following sentence. Upon any other
sale, exchange, transfer or disposition either (a) by ARP of some or all of its
equity interest in the
Applicable
Lightstone Party or (b) by any person or entity of some or all of its direct or
indirect equity interest in ARP, the Protected Amount shall be reduced to the
extent of (x) in situation (a), any gain recognized by ARP, but only to the
extent such gain is attributable to the amount of nonrecourse liabilities of
the
Applicable
Lightstone Party of which ARP is deemed relieved under Section 752 of the Code
and the regulations thereunder as a result of such transaction, and (y) in
situation (b), any gain recognized by such person (or, in the case of a transfer
resulting from the death of such person, the difference between the adjusted tax
basis, for federal income tax purposes, of the transferee with respect to the
transferred property and the adjusted tax basis, for federal income tax
purposes, of such person with respect to such property), but only to the extent
such gain is attributable to the amount of nonrecourse liabilities of
the
Applicable
Lightstone Party of which such person is deemed relieved under Section 752 of
the Code and the regulations thereunder as a result of such transaction.


     

    “Protected
Period” means the five-year period beginning on the date hereof.

     

    “Qualifying
Opinion” shall have the meaning set forth in Section 3(d).

     

    “Subsidiary
Partnership” shall have the meaning set forth in the Recitals.

     

    “Subsidiary
Partnership Interest” shall mean an interest in a Subsidiary Partnership held,
directly or indirectly, by the
Applicable
Lightstone Party.

     

    
      
        
        

      

      
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    2. Restrictions on Disposition
of the Properties.

     

    (a) Subject
to Section 2(b), LVP and POAC agree that during the Protected Period neither
the
Applicable
Lightstone Party, nor any entity in which the
Applicable
Lightstone Party holds a direct or indirect interest, will consummate a sale,
transfer, exchange or other disposition of all or any portion of the Properties,
the Contributed Interest, or any indirect interest in all or any portion of the
Properties or the Contributed Interest (a “Disposition”), or engage in any other
transaction, that results in the recognition and allocation to ARP of all or any
portion of its Built-in Gain that it would not otherwise have recognized at such
time as a result of the application of the Code and Regulations in the absence
of such transaction or any other transaction. For purposes of the preceding
sentence, the Contributed Interest shall not be treated as having any Built-in
Gain until after the Contribution. In addition, the
Applicable
Lightstone Party shall not
enter into any transaction described in the first sentence of Section 3(d)
unless the
Applicable
Lightstone Party shall have first provided ARP with a Qualifying Opinion in a
timely manner pursuant to the requirements of Section 3(d). ARP shall have the
right to seek and obtain specific performance or injunctive relief as a remedy
with respect to any breach or threatened breach of the covenant set forth in the
preceding sentence.

     

    (b) The first
sentence of Section 2(a) shall not apply to (i) a
transfer of any of the Properties or the Contributed Interest in an involuntary
bankruptcy against the Applicable
Lightstone Party or
(ii) the
condemnation or other taking of any of the Properties by a governmental entity
or authority in eminent domain proceedings. Furthermore,
if in any calendar year, taking into account all direct or indirect Dispositions
by LVP of one or more Properties or portions thereof that (i) are taxable in
whole or in part and (ii) occur during such calendar year and after the Burnoff
Date, LVP
transfers Properties or portions thereof having an aggregate value as of the
date hereof as set forth on Schedule A hereto that is less than or equal to ten
percent (10%) of the total value of the Properties as of the date hereof as set
forth on Schedule A hereto, then the
first sentence of Section 2(a) shall not apply to such Dispositions (each such
Disposition, an “Excluded Transfer”); moreover, if the aggregate value (as of
the date hereof as set forth on Schedule A hereto) of the Properties transferred
in such Dispositions is less than ten percent (10%) of the total value of the
Properties as of the date hereof as set forth on Schedule A hereto, then such
deficit shall carry over to the following calendar year and increase the amount
of Properties the transfers of which may qualify as Excluded Transfers for such
year, and if such amounts are not transferred, all such amounts shall carry over
to the next successive year, and so on, until the term of this Agreement shall
expire. If the preceding sentence does not apply to Dispositions by LVP in any
calendar year because the aggregate value (as of the date hereof as set forth on
Schedule A hereto) of the Properties (or portions thereof) disposed of exceeds
ten percent (10%) of the total value of the Properties as of the date hereof as
set forth on Schedule A hereto, then only a ratable portion of each such
Disposition shall qualify as an Excluded Transfer not subject to Section 2(a).
With respect to the calendar year that includes the day after the Burnoff Date,
the preceding two sentences shall be applied by substituting for each occurrence
of “ten percent (10%)” the product of (i) ten percent (10%) and (ii) a fraction,
the numerator of which is the number of days from (but excluding) the Burnoff
Date to December 31 of such calendar year, and the denominator of which is 365.
Notwithstanding anything to the contrary herein, a direct or indirect
Disposition or other transfer of a Property or a portion thereof shall not
constitute an Excluded Transfer if such transfer is effectuated with a party
“related” to LVP (applying the principles of Code Sections 267(b) and 707(b)) in
a transaction that lacks a bona fide commercially motivated business purpose. No
later than the earlier of (i) the date that is 30 days after LVP consummates a
direct or indirect Disposition, taxable in whole or in part, of one or more
Properties or portions thereof and (ii) December 31 of the calendar year in
which such Disposition occurs, LVP shall provide ARP with written notification
of such disposition, including (I) the Property, Properties, or portions thereof
disposed of, (II) the amount and nature of the consideration received, and (III)
the amount of gain (including Built-in Gain) allocable to ARP as a result of
such Disposition; provided,
however, that
LVP shall not be required to provide such notification if it shall have
previously provided the identical information to ARP pursuant to the
notification provisions of Section 3(a). 

     

    
      
        
        

      

      
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    (c) Any
property that is exchanged for or replaces any of the Properties, a Subsidiary
Partnership Interest, the Contributed Interest, or any portion thereof and that
is “substituted basis property,” as defined in Section 7701(a)(42) of the
Code, with respect thereto shall thereafter be treated as a “Property,” a
“Subsidiary Partnership Interest,” the “Contributed Interest,” or a portion
thereof, as the case may be, for all purposes of this Agreement; provided,
however, that
(i) the Property, the Subsidiary Partnership Interest, the Contributed Interest,
or the portion thereof that was exchanged for or replaced by such new property
shall continue to be treated as a “Property,” a “Subsidiary Partnership
Interest,” the “Contributed Interest,” or a portion thereof to the extent that a
subsequent disposition of (or other transaction involving) the Property, the
Subsidiary Partnership Interest, the Contributed Interest, or the portion
thereof could result in the recognition and allocation to ARP of any Built-in
Gain, and provided further
that (ii) the Units received by ARP in exchange for the Contributed Interest in
connection with the Contribution shall not be treated as the Contributed
Interest or as having Built-in Gain under this Agreement.

     

    (d) Within 18
weeks after the date hereof, POAC shall provide to ARP a spreadsheet showing its
calculation of (i) the Built-in Gain with respect to the Properties and the
Contributed Interest as of the date hereof and (ii) ARP’s negative tax capital
account in POAC as of the date hereof. The calculation of the Built-in Gain
shall be based on the fair market values for the Properties and the Contributed
Interest shown on Schedule A hereto. The calculation of the Built-in Gain shall
also reflect any Section 704(c) or “reverse” Section 704(c) gain or loss
existing with respect to the Properties immediately prior to the date hereof. In
addition, at the time of the Contribution, the Built-in Gain with respect to the
Properties, the Subsidiary Partnership Interests, and the Contributed Interest
shall be increased by the Additional Amount, as defined in the Contribution
Agreement. Within 2 weeks after the Contribution, LVP shall provide to ARP a
spreadsheet showing the allocation of the Additional Amount among the
Properties. Each Property shall be allocated its ratable share of the Additional
Amount based on the fair market value of such Property relative to the fair
market values of all of the Properties, as shown on Schedule A hereto. The
allocation of the Additional Amount among the Subsidiary Partnership Interests
shall be made based on and consistently with the allocation of the Additional
Amount among the Properties.

     

    (e) For
federal, state, and local income tax purposes, LVP shall report (i) ARP’s
contribution of the Contributed Interest to LVP as a tax-free contribution
pursuant to Section 721 of the Code (or the
corresponding provision of state or local law, as applicable) and (ii)
ARP as a partner in LVP with respect to all of the Units received by LVP;
provided that,
upon a reasonable request from LVP’s accountant, ARP shall provide (at LVP’s
expense) to the accountant, at ARP’s election, either (i) a letter from Cooley
Godward Kronish LLP to the accountant, (ii) an opinion letter from Cooley
Godward Kronish LLP which shall provide that the accountant is entitled to rely
on it, or (iii) an opinion letter from an Approved Firm to the accountant, in
each case providing the required level of comfort to the accountant to sign the
return or returns. Notwithstanding
the foregoing, LVP shall not be deemed to have breached its obligations under
this Section 2(e) solely because a governmental taxing authority determines that
LVP would be required to file an amended tax return or amended information
statement that reports the Contribution other than as a contribution pursuant to
Section 721 of the Code. 

     

    
      
        
        

      

      
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    3. Indemnity for Breach of
Obligations set forth in Section 2.

     

    (a) In the
event that either LVP or POAC engages in a Prohibited Transaction in breach of
its obligations set forth in Section 2(a), LVP and POAC shall be jointly
and severally liable to ARP for, and shall pay to ARP, an amount equal to (i)
the aggregate federal, state and local income taxes deemed incurred by ARP with
respect to any portion of its Built-in Gain that it recognizes as a result of
such Prohibited Transaction plus (ii) a “gross-up” amount so that, after the
hypothetical payment by ARP of all federal, state and local income taxes on
amounts received pursuant to this Section 3(a), ARP would retain from such
payments hereunder an amount equal to its total deemed income tax liability
incurred as a result of the Prohibited Transaction and its recognition of such
Built-in Gain. If (i) gain is recognized by ARP or allocated to ARP as a result
of the closing of the transactions contemplated by the Contribution Agreement
and (ii) such gain recognition is attributable to (I) incorrect information
provided by POAC or an affiliate or agent thereof to ARP or (II) a breach of
LVP’s or the Lightstone Value Plus Real Estate Investment Trust, Inc.’s
obligations under the Contribution Agreement or this Agreement, then LVP and
POAC shall indemnify ARP for such Built-in Gain under this Section 3(a) as if
such Built-in Gain had resulted from a Prohibited Transaction. Notwithstanding
anything herein to the contrary, it is the understanding and the intention of
the parties hereto that this Agreement shall in no manner create liability for
LVP as a result of any tax that may be recognized as a result of (i) the
structure and effectuation of the transactions contemplated hereby and by the
Contribution Agreement or (ii) any conversion of Units into stock of the REIT at
ARP’s election and that the only liability that may arise as to LVP shall be as
a result of its breach of its obligations imposed by this Agreement or the
Contribution Agreement, if any, or as a result of any provision of incorrect
information. At the
time LVP enters into an agreement to consummate a Prohibited Transaction that,
if consummated, would breach Section 2(a) hereof and result in the recognition
by ARP of all or any portion of its Built-in Gain, and in any case not less than
thirty (30) days prior to consummating such Prohibited Transaction, the
Applicable
Lightstone Party shall notify ARP in writing of such proposed Prohibited
Transaction and of the approximate sales price or other amount to be realized
for income tax purposes in connection therewith and all other relevant details
of the Prohibited Transaction and shall request from ARP such information
that is
within ARP’s possession or control as is
reasonably necessary for the
Applicable
Lightstone Party to calculate the amount of the indemnity set forth herein. Upon
receipt of such notice, ARP shall provide the
Applicable
Lightstone Party with any information reasonably requested by the
Applicable
Lightstone Party of ARP that is within ARP’s possession or control and is
relevant to calculation of the indemnity set forth herein within ten (10) days
of such request. Within ten (10) days after receipt of such information from ARP
(or, if
no such information is requested, at the same time that the Applicable
Lightstone Party notifies ARP of the Prohibited Transaction as provided
above),
the
Applicable
Lightstone Party shall provide to ARP (i) a computation of the indemnity
payment, if any, owing to ARP under this Section 3(a). The
Applicable
Lightstone Party shall make any required indemnity payment owing to ARP pursuant
to this Section 3(a) no later than five (5) days prior to the due date of the
quarterly estimated tax payment for individuals which next follows the date that
the Prohibited Transaction is consummated or, if later, ten (10) days after the
date required for the
Applicable
Lightstone Party’s delivery of the computation of the indemnity payment to ARP.
For purposes of determining the amount of the deemed income taxes incurred by
ARP and the amount of the indemnity for Built-in Gain under this Section 3(a),
(i) all income arising from a transaction or event that is taxable at ordinary
income rates (including, without limitation, “recapture” under Code Sections
1245 or 1250 and net short-term capital gain) under the applicable provisions of
the Code and allocable to ARP shall be treated as subject to federal, state and
local income tax at the then applicable effective tax rate imposed on ordinary
income of individuals residing in the city of New York, New York, determined
using the maximum federal rate of tax on ordinary income and the maximum state
and local rates of tax on ordinary income then in effect in New York City and
New York State, (ii) all long-term capital gain arising from the transaction or
event allocable to ARP shall be treated as subject to federal, state, and local
income tax at the then applicable effective tax rate imposed on long-term
capital gains of individuals residing in the city of New York, New York,
determined using the maximum federal, state and local rates on long-term capital
gains then in effect (taking into account any special capital gains rate
attributable to recapture of prior depreciation deductions), and (iii) any
amounts payable with respect to state and local income taxes shall be assumed to
be fully deductible (without limitation or phaseout) for federal income tax
purposes. 

     

    
      
        
        

      

      
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    (b) Notwithstanding
any provision of this Agreement to the contrary, other than the last sentence of
Section 2(a), Section 3(c), and Section 3(d), the sole and exclusive rights and
remedies of ARP for a breach or violation of the covenants set forth in
Sections 2(a) and 3(a) shall be a claim for payment against LVP and/or
POAC, computed as set forth in Section 3(a), and for interest and
enforcement costs as provided in Section 9(e). Except as provided in Sections
2(a), 3(c), and 3(d), ARP shall not be entitled to pursue a claim for specific
performance of the covenant set forth in Section 2(a) or bring a claim
against any person that acquires the Contributed Interest or any of the
Properties in violation of Section 2(a).

     

    (c) Notwithstanding
anything to the contrary herein, the
Applicable
Lightstone Party may not enter into a Prohibited Transaction unless, at least
fourteen (14) days prior to entering into such transaction, the
Applicable
Lightstone Party will have provided ARP with evidence reasonably satisfactory to
ARP that, following such transaction, and including any proceeds from such
transaction, LVP and POAC will have
the requisite liquidity to make any necessary indemnification payments required
pursuant to this Agreement. ARP shall have the right to seek and obtain specific
performance or injunctive relief as a remedy with respect to any breach or
threatened breach of this covenant.

     

    (d) Prior to
the time that the
Applicable
Lightstone Party enters into an agreement to consummate a transaction that (i)
may result in the realization of Built-in Gain but (ii) which the
Applicable
Lightstone Party may report, for federal, state, or local income tax purposes,
as not resulting (in whole or in part) in the recognition of such realized
Built-in Gain, and in any case not less than thirty (30) days prior to
consummating such transaction, the
Applicable
Lightstone Party shall provide ARP with a written description of the transaction
containing all relevant details and shall thereafter, as promptly as possible
upon ARP’s reasonable request, and in any case not less than twenty (20) days
prior to consummating such transaction, provide ARP with an opinion from any
Approved Firm that (i) meets all the requirements for “covered opinions” set
forth in Section 10.35(c) of IRS Circular 230, including the requirement that a
covered opinion consider all significant federal tax issues, (ii) is based on a
statement of facts that is not inaccurate or unreasonable in any material
respect, and (iii) concludes, at at least a “more likely than not” level of
comfort, that all or part of the Built-in Gain realized in such transaction will
not be recognized for tax purposes (such an opinion, a “Qualifying Opinion”). If
the
Applicable
Lightstone Party does not provide ARP with a description of the transaction and,
if reasonably requested by ARP, a Qualifying Opinion in a timely manner pursuant
to the first sentence of this paragraph, then the
Applicable
Lightstone Party shall not consummate such transaction. Furthermore,
the
Applicable
Lightstone Party shall not report any transaction as resulting (in whole or in
part) in the realization, but not the nonrecognition, of Built-in Gain unless
either (i) the
Applicable
Lightstone Party previously provided ARP with a Qualifying Opinion in a timely
manner pursuant to the first sentence of this paragraph or (ii) the
Applicable
Lightstone Party obtains the consent of ARP prior to taking such reporting
position. ARP shall have the right to seek and obtain specific performance or
injunctive relief as a remedy with respect to any breach or threatened breach of
the covenants set forth in this paragraph.

     

    
      
        
        

      

      
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    4. Section 704(c)
Method.
LVP and
POAC shall
use, and each of LVP and POAC shall cause any other entity in which it has a
direct or indirect interest to use, the “traditional method” under Treasury
Regulation Section 1.704-3(b) without curative allocations for purposes of
making allocations under Section 704(c) of the Code or reverse Section
704(c) allocations with respect to the Contributed Interest and the Properties
to take into account the book-tax disparities as of the date hereof with respect
to the Contributed Interest and the Properties. 

     

    5. Obligation to Maintain
Certain Debt.

     

    (a) At all
times through the Protected Period, the
Applicable
Lightstone Party agrees to maintain, directly or indirectly, an amount of
indebtedness allocable to ARP under Section 752 of the Code (and specifically as
one or more nonrecourse liabilities under Treasury Regulation Section 1.752-3)
at least equal to the Protected Amount. ARP shall have the right to seek and
obtain specific performance or injunctive relief as a remedy with respect to any
breach or threatened breach of this covenant. For the avoidance of doubt, the
purpose of this Section 5(a) is not to require the Applicable Lightstone Party
to increase the amount of liabilities to which the Properties or any
other properties are
subject, provided that the
Applicable Lightstone Party maintains in place the liabilities of POAC and its
subsidiary entities existing as of the date hereof and does not take any actions
(or cause or permit any actions to be taken) that would decrease the amounts of
such liabilities that are allocable to ARP under Section 752 and the regulations
thereunder.

     

    (b) Federal,
state and local income tax returns filed by POAC (and, after the Contribution,
by LVP) for all taxable periods beginning prior to the expiration of the
Protected Period shall report allocations of nonrecourse liabilities to ARP in
an amount at least equal to the Protected Amount. 

     

    
      
        
        

      

      
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    6. Indemnity for Breach of
Obligations set forth in Section 5. In the
event that (i) either LVP or POAC breaches its obligations set forth in Section
5 and as a result ARP recognizes Nonrecourse Built-in Gain and (ii)
such breach has not occurred in connection with a Permitted Transfer,
LVP and
POAC shall be jointly and severally liable to ARP for, and shall pay to ARP upon
written demand by ARP, an amount equal to (i) the aggregate federal, state and
local income taxes deemed incurred by ARP as a result of such Nonrecourse
Built-in Gain recognized by ARP by reason of such breach plus (ii) a “gross-up”
amount so that, after the hypothetical payment by ARP of all federal, state and
local income taxes on amounts received pursuant to this Section 6, ARP would
retain from such payments hereunder an amount equal to its total income tax
liability deemed incurred as a result of the breach by LVP or POAC of its
obligations set forth in Section 5 and ARP’s recognition of such Nonrecourse
Built-in Gain. The principles and tax rates set forth in Section 3(a) shall
apply for purposes of determining the timing and amount of payment to be made to
ARP pursuant to this Section 6 (including, without limitation, the calculation
of the aggregate federal, state and local income taxes deemed incurred by ARP).
In addition, the notification procedures set forth in Section 3(a) shall apply
for purposes of this Section 6 with respect to transactions that would result in
a breach of Section 5. 

     

    7. Requests for
Information. Upon
the request of LVP or POAC, ARP shall provide to LVP or POAC copies of such tax
returns, schedules and other information that is within the possession or
control of ARP (including, without limitation, copies of state and federal tax
returns and related working papers) reasonably requested by LVP or POAC (“Tax
Protection Information”) to enable it to make any necessary calculations with
respect to payments required to be made by LVP and POAC hereunder, including,
without limitation, calculations of Built-in Gain and Nonrecourse Built-in Gain
claimed to be recognized by ARP. No Tax Protection Information acquired by LVP
or POAC or any of its representatives may be disclosed to any individual or
entity other than (i) those representatives of LVP or POAC who need to know the
Tax Protection Information for the purpose of assisting LVP or POAC in
evaluating and performing its obligations under this Agreement (it being
understood that prior to such disclosure LVP’s or POAC’s representatives will be
informed of the confidential nature of the Tax Protection Information and shall
agree in writing to be bound by the requirements of this Section 7 of this
Agreement), (ii) as required by applicable law, or (iii) if necessary, upon the
advice of counsel, in order to comply with any judicial order, civil or criminal
subpoena or any discovery demand in pending litigation, whether or not LVP,
POAC, or any of the representatives of LVP or POAC is a party thereto. LVP and
POAC agree to be responsible for any breach of this Agreement by the
representatives of LVP or POAC.

     

    8. Term. This
Agreement shall terminate upon the expiration of the Protected Period;
provided,
however, that if
the Contribution does not occur prior to the effective date of the termination
of the Contribution Agreement, then this Agreement shall terminate effective as
of midnight (Eastern Standard Time) on the effective date of the termination of
the Contribution Agreement; provided that, if
the Contribution Agreement is terminated under circumstances that require LVP to
pay liquidated damages to ARP, then this Agreement shall not be terminated until
all such liquidated damages have been received by ARP. In addition, Section 5 of
this Agreement shall terminate in the event that the Protected Amount is reduced
to zero. Notwithstanding the foregoing, LVP's and POAC’s payment obligations
under Sections 3, 6 and 9(e) shall survive the termination of this Agreement or
the termination of Section 5, as the case may be, to the extent such obligations
relate to a breach of LVP’s or POAC’s obligations under Section 2 or 5 occurring
before such termination of this Agreement (or in the case of liability under
Section 6, the termination of Section 5). 

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    9. General
Provisions.

     

    (a) Notices. All
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier (providing proof of delivery) or sent by telecopy (providing
confirmation of transmission) to the parties at the following addresses or
telecopy numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):

     

    (i) if to LVP
or POAC, to:

     

    c/o The
Lightstone Group

    326 Third
Street

    Lakewood,
NJ 08701

    Attn:
Joseph E. Teichman 

    Fax
No.: 732-612-1444

    


    with a
copy to:

     

    Herrick,
Feinstein LLP

    2 Park
Avenue

    New York,
NY 10016

    Attn:
Sheldon Chanales, Esq. 

    Fax No.:
(212) 545-3313 

    


    (ii) if to
ARP, to:

     

    c/o Arbor
Commercial Mortgage LLC

    333 Earle
Ovington Boulevard

    Uniondale,
NY 11553

    Attention:
Guy R. Milone, Jr. 

    Fax No.:
(516) 506-4045

    


    with a
copy to:

     

    Cooley
Godward Kronish LLP

    1114
Avenue of the Americas

    New York,
NY 10036

    Fax No.:
(212) 479-6275

    Attn:
Thomas D. O’Connor, Esq. 

    


    (b) Counterparts. This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (c) Governing
Law. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

     

    (d) Severability. If any
term, covenant or condition of this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, this Agreement shall be construed
without such provision.

     

    (e) Interest and Enforcement
Costs. In the
event that LVP and POAC fail to pay ARP any amount due pursuant to this
Agreement on the date such amount is due, or, if no due date is specified
herein, within five (5) days after demand by ARP for such payment, then such
past due amount shall bear interest from such due date or the date demand for
payment is made, as applicable, until the date paid at a rate equal to 15% per
annum. In the event of any breach by LVP or POAC of any of its covenants in this
Agreement, LVP and POAC shall be jointly and severally liable to pay, and shall
pay, all of ARP’s costs of enforcement of its rights under this Agreement,
including but not limited to reasonable attorneys’ fees, disbursements, expenses
and court costs.

     

    (f) Subsidiary
Entities. All
references herein to the consummation, engaging in, entering into, or reporting
of a Disposition or other transaction, or entering into an agreement to do any
of the foregoing, by the
Applicable Lightstone Entity, LVP, or POAC
shall also apply to and include the consummation, engaging in, entering into, or
reporting of a Disposition or other transaction, or entering into an agreement
to do any of the foregoing, by any entity in which the Applicable Lightstone
Entity, LVP, or POAC owns, directly or indirectly, an equity
interest.

     

    (g) List of Properties Correct
and Complete. LVP and
POAC represent to ARP that the list of Properties on Schedule A hereto is
correct and complete and that the Properties are owned indirectly by POAC.


     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    IN
WITNESS WHEREOF, LVP, POAC, and ARP have caused this Agreement to be signed by
their respective authorized signatories all as of the date first written
above.

    


    
      	 	 	 
	 	
              LIGHTSTONE
      VALUE PLUS REIT, L.P. 

              By
      Lightstone Value Plus Real Estate Investment Trust, Inc., its general
      partner

            
	 
 	 
 	 
 
	
            	
            	
              By:  

            
	 	
              
                
      Name:

            
	 	
              Title:

            


    

     

    
      	 	 	 
	 	
              PRIME
      OUTLETS ACQUISITION COMPANY LLC

              By
      Lightstone Prime, LLC, its managing member 

            
	 
 	 
 	 
 
	
            	
            	
              By:

            
	 	
              
                
      Name:

            
	 	
              Title:

            


    

     

    
      	 	 	 
	 	
               ARBOR
      MILL RUN JRM, LLC

               By
      Arbor Commercial Mortgage, LLC, Member 

            
	 
 	 
 	 
 
	
            	 By  	
            
	 	
              
      Name: 
	 	Title:


    

    


    
      
        
        

      

      
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