EXHIBIT 99(G)
INDEMNIFICATION AND TAX CONTEST AGREEMENT
INDEMNIFICATION AND TAX CONTEST AGREEMENT (the "Agreement") dated as of
February 14, 2001 between Westfield America Management Limited ("WAML") (ACN 072
780 619) as responsible entity of the Westfield America Trust ("WAT")
(Australian Registered Scheme No. 092 058 449) a registered Managed Investment
scheme organized under the laws of New South Wales, Australia (the "Indemnitor")
and Security Capital Preferred Growth Incorporated, a Maryland real estate
investment trust ("SC-PG").
WHEREAS, Westfield America, Inc., a Missouri corporation ("WEA") has
previously issued and sold to SC-PG, and SC-PG has previously purchased from
WEA, an aggregate of 694,445 shares of WEA's Series C Cumulative Convertible
Preferred Stock, $1.00 par value per share, Series C-1 Cumulative Convertible
Preferred Stock, $1.00 par value per share, and Series C-2 Cumulative
Convertible Preferred Stock, $1.00 par value per share (together, the "Original
Shares");
WHEREAS, WAML, on behalf of WAT, desires to commence a tender offer (the
"Offer") for all of the issued and outstanding shares of common stock of WEA
(other than common stock owned by it and Westfield Corporation, Inc. and
Westfield American Investments Pty. Limited ("WAI")) and, contingent upon the
successful completion of the Offer, merge a corporation wholly owned by WAT, WCI
and WAI ("Merger Sub") with and into WEA pursuant to the terms of the Merger
Agreement (the "Merger");
WHEREAS, SC-PG and WAML, in its capacity as responsible entity and trustee
of WAT, are executing contemporaneously herewith a waiver of SC-PG's right to
convert Series C Preferred Stock under the terms of such stock into WEA's common
stock, par value, $.01 per share, until the completion of the Offer and Merger
or until certain earlier events have occurred;
WHEREAS, SC-PG and WAML, in its capacity as responsible entity and trustee
of WAT, are executing contemporaneously herewith a Preferred Stock Transaction
Agreement (the "Transaction Agreement") with respect to certain matters;
WHEREAS, WAML, in its capacity as responsible entity and trustee of WAT,
wishes to issue and sell to WEA, after the closing of the Merger special
options, the terms of which shall be as set forth in the special option deed
(the "Deed of Option") in substantially the form of EXHIBIT A to the Transaction
Agreement, and intends to convene a meeting of members of WAT for the approval
of the transactions contemplated in the Transaction Agreement and otherwise
associated with the Offer and the Merger, including, without limitation, (i) the
proposed issue by WAML of other special options to WEA which will be transferred
by WEA to Westfield Corporation, Inc. and the Merger Sub and (ii) the capital
raisings by WAT to fund the Offer and Merger; and
WHEREAS, WAML and SC-PG desire to enter into, and WAML desires to cause WEA
to enter into, certain other agreements contemporaneously with or as soon as
practicable
1
after completion of the Merger, including an exchange agreement in the form of
Exhibit B to the Transaction Agreement (the "Exchange Agreement") pursuant to
which WEA will exchange the Deed of Option and a new series of preferred stock
of WEA, the Series G Cumulative Convertible Redeemable Preferred Stock, $1.00
par value per share (the "Series G Preferred Stock"), for all of the issued and
outstanding Series C Preferred Stock, upon mutually acceptable terms and
conditions (the "Exchange").
NOW, in consideration of the promises and mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following terms
shall apply:
(a) "Board of Directors" shall mean the Board of Directors of WEA or
any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the WEA Shares.
(b) "Call Date" shall mean the date specified in the notice of the
holders required under Section 11(c) as the Call Date.
(c) "Certificate of Designation" shall mean the Certificate of
Designation setting forth "Resolution Designating Series G Preferred Shares
and Fixing Preferences and Rights Thereof" to be adopted by the Board of
Directors of WEA in substantially the form of Exhibit C to the Transaction
Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" shall mean WEA's common stock, par value, $.01 per
share or the Series A common stock, par value, $0.01 per share, as the case
may be.
(f) "Converted Value" means, with respect to each WEA Share, the Fair
Market Value (as defined in the Certificate of Designation), expressed in
U.S. dollars, of the WAT Units into which such WEA Share is convertible
pursuant to the Deed of Option.
(g) "Deed of Option" shall have the meaning ascribed in the recitals
hereto.
(h) "Dividend Payment Date" shall mean (i) for any Dividend Period
with respect to which WAT pays a dividend on the Class A Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which WAT does not pay a dividend on the Class A Common Shares,
a date to be set by the Board of Directors, which date shall not be later
than the thirtieth calendar day after the end of the applicable Dividend
Period.
(i) "Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next
succeeding Dividend Period with respect to any
2
Series G Preferred Stock (other than the initial Dividend Period, which
shall commence on the Issue Date for such Series G Preferred Stock and end
on and include the last day of the calendar quarter including such Issue
Date, and other than the Dividend Period during which any Series G
Preferred Stock shall be called pursuant to Section 11 which shall end on
and include the Call Date).
(j) "Exchange" shall have the meaning ascribed in the recitals
hereto.
(k) "Exchange Agreement" shall have the meaning ascribed in the
recitals hereto.
(l) "Final Determination" shall mean (i) a decision, judgment,
decree, or other order by any court of competent jurisdiction, which
decision judgment, decree, or other order has become final after all
allowable appeals by either party to the action have been exhausted or the
time for filing such appeal has expired, (ii) a closing agreement entered
into under Section 7121 of the Code, or any final settlement agreement
entered in connection with an administrative or judicial proceeding, or
(iii) the expiration of time for instituting a claim for refund, or if such
claim was filed, the expiration of time for instituting a suit with respect
thereto.
(m) "Indemnity Amount" shall mean the amount payable by Indemnitor to
SC-PG pursuant to Section 2.
(n) "Liquidation Preference" shall have the meaning ascribed in the
Certificate of Designation.
(o) "Merger" shall have the meaning ascribed in the recitals hereto.
(p) "Merger Sub" shall have the meaning ascribed in the recitals
hereto.
(q) "Non-U.S. Taxes" shall mean any Taxes imposed on SC-PG by any
governmental agency in or of any jurisdiction outside the United States.
(r) "Offer" shall have the meaning ascribed in the recitals hereto.
(s) "Officer's Certificate" shall mean a certificate of an officer of
SC-PG delivered to WAT 30 days prior to its exercise of a Special Option
stating that SC-PG would suffer a material adverse consequence if SC-PG
continued to hold WEA Shares and did not exercise its rights to convert
into WAT Units pursuant to the Deed of Option which certificate shall set
forth in reasonable detail the basis for such statement.
(t) "Prime" shall mean for any day the fluctuating interest per annum
equal to the rate of interest in effect for such date as publicly announced
from time to time by X.X. Xxxxxx Xxxxx or any successor thereto as its
"prime rate."
(u) "Recapitalization" shall mean the exchange of the Series G
Preferred Stock and the Deed of Option for all the issued and outstanding
Original Shares pursuant to the Exchange Agreement and Transaction
Agreement.
3
(v) "Special Option" shall have the meaning ascribed in the Deed of
Option.
(w) "Substantial Authority" shall mean substantial authority within
the meaning of Section 6662(d)(2)(B)(i) of the Code and the Treasury
Regulations promulgated thereunder.
(x) "Tax Law Change" shall mean modifications to, or enactment,
promulgation, release or adoption of any changes in the Code.
(y) "Tax Loan Obligation" shall mean any event pursuant to which
SC-PG shall have or be deemed to have taxable income or gain in the United
States which would not have arisen at the time or times such income or gain
arose BUT FOR SC-PG's participation in the Recapitalization, the
acquisition, ownership or disposition (whether by sale, exchange,
redemption, conversion or otherwise) by SC-PG of the WEA Shares, the WAT
Option Right, or the WAT Units acquired upon the exercise of such right, or
the exercise of any rights provided to SC-PG (or the exercise of any rights
provided to Indemnitor or WEA) with respect to such WEA Shares, WAT Option
Right, or WAT Units. For the avoidance of doubt, the term "Tax Loan
Obligation" shall only include events where the timing of the taxable
income or gain recognized or deemed recognized by SC-PG is accelerated
because of SC-PG's participation in the events enumerated after the "but
for" clause in such definition and SHALL NOT include any event pursuant to
which SC-PG's actual or deemed taxable income or gain is increased as a
result of the events enumerated after the "but for" clause of the
definition of Tax Loan Obligation and such event (to the extent of such
increase) shall instead constitute a Tax Loss.
(z) "Tax Loss" shall mean any event (other than an event that gives
rise to a Tax Loan Obligation) pursuant to which SC-PG shall have or be
deemed to have taxable income or gain, which income or gain would not have
arisen at any time BUT FOR SC-PG's participation in the Recapitalization,
the acquisition, ownership or disposition (whether by sale, exchange,
redemption, conversion or otherwise) by SC-PG of the WEA Shares, the WAT
Option Right, or the WAT Units acquired upon the exercise of such right, or
the exercise of any rights provided to SC-PG (or the exercise of any rights
provided to Indemnitor or WEA) by such WEA Shares, WAT Option Right, or WAT
Units.
(aa) "Taxes" shall mean all taxes, charges, fees, duties (including
customs duties), levies or other assessments, including without limitation,
income, gross receipts, net proceeds, ad valorem, turnover, real and
personal property (tangible and intangible), sales, use, franchise, excise,
value added, stamp, leasing, lease, user, transfer, fuel, excess profits,
occupational, interest equalization, windfall profits, severance, license,
payroll, environmental, capital stock, disability, employee's income
withholding, other withholding, and unemployment taxes, which are imposed
by any governmental authority, and such term shall include any interest,
penalties or additions to tax attributable thereto.
(bb) "Transaction Agreement" shall have the meaning ascribed in the
recitals hereto.
4
(cc) "U.S. Income Tax" or "U.S. Income Taxes" shall mean any U.S.
Federal, state, or local tax imposed on, or measured with reference to,
income (including, without limitation, any alternative minimum tax) plus
any interest, penalty, or addition thereto.
(dd) "WAML" shall have the meaning ascribed in the recitals hereto.
(ee) "WAT" shall have the meaning ascribed in the recitals hereto.
(ff) "WAT Option Right" shall mean SC-PG's right pursuant to the Deed
of Option to put its WEA Shares to Indemnitor in exchange for WAT Units.
(gg) "WAT Units" shall mean the ordinary shares of Indemnitor issued
to SC-PG as a result of SC-PG's exercise of the WAT Option Right.
(hh) "WEA" shall have the meaning ascribed in the recitals hereto.
(ii) "WEA Option Right" shall mean SC-PG's rights to cause WEA to
redeem SC-PG's WEA Shares pursuant to the Exchange Agreement or Certificate
or Designation, as the case may be.
(jj) "WEA Shares" shall mean the Series G Preferred Stock, and the
Common Stock into which such shares are convertible.
Section 2. AMOUNT OF INDEMNIFICATION/TAX LOANS.
(a) In the case of a Tax Loss incurred by SC-PG, Indemnitor shall pay
to SC-PG in cash in United States dollars the sum of:
(i) the U.S. Income Taxes that would be deemed to arise based on
the assumptions set forth in Section 2(c) below as a result of the Tax
Loss and all Non-U.S. Taxes actually paid or payable by SC-PG as a
result of the Tax Loss; plus
(ii) any additional costs or expenses incurred by SC-PG in
connection with any administrative or judicial proceeding relating to
such Tax Loss pursuant to the terms of Section 4 hereof; plus
(iii) a supplemental amount such that, after deduction of the
amount of all U.S. Income Taxes that would be deemed to arise (based
on the assumptions set forth in Section 2(c) below) and all Non-U.S.
Taxes actually payable by SC-PG in respect of receipt of the sum of
the amounts described in paragraphs (i), (ii), and this paragraph
(iii) of this Section 2(a), the net amount received by SC-PG is equal
to the sum of the amounts described in paragraphs (i) and (ii) of this
Section 2(a) determined without subtracting any U.S. Income Taxes
required to be paid with respect thereto (which supplemental amount,
together with the amounts described in paragraphs (i) and (ii) of this
Section 2(a), is intended to leave SC-PG in the same after-tax
position (based on the assumptions in Section
5
2(c)) in which SC-PG would be if SC-PG had not incurred the applicable
Tax Loss).
(b) In the event that (x) a Tax Loan Obligation is incurred and (y)
SC-PG has not sold for cash the WEA Shares, WAT Option Right or WAT Units
that gave rise to such Tax Loan Obligation prior to the time that U.S.
Income Taxes are due or deemed due, including estimated taxes, if any
(using the assumptions set forth in Section 2(c)) with respect to such
income or gain recognized by SC-PG, Indemnitor shall advance to SC-PG, on
an interest-free basis with no additional net after-tax cost to SC-PG , the
amount of U.S. Income Taxes that would be deemed to arise based on the
assumptions set forth in Section 2(c) below as a result of the Tax Loan
Obligation and shall in addition pay to SC-PG in cash in United States
dollars on an after-tax basis any additional costs or expenses incurred by
SC-PG in connection with such Tax Loan Obligation (including the cost of
any documentation relating to advances in connection with such Tax Loan
Obligation). Upon the earlier of (a) thirty (30) days after such time that
SC-PG sells the WEA Shares, WAT Option Right or WAT Units that gave rise to
such Tax Loan Obligation or (b) the later of (i) the 10th anniversary of
the date hereof and (ii) 5 years from the date of the event giving rise to
the Tax Loan Obligation, SC-PG shall pay to Indemnitor an amount equal to
(i) if such repayment obligation is a result of (a) above, the amount of
such Tax Loan Obligation previously advanced by Indemnitor attributable to
such WEA Shares, WAT Option Right or WAT Units sold by SC-PG or (ii) if
such repayment obligation is a result of (b) above, the amount previously
advanced by Indemnitor with respect to such Tax Loan Obligation less any
amounts previously repaid by SC-PG attributable to such Tax Loan
Obligation. Notwithstanding the foregoing, in the event that the Tax Loan
Obligation is attributable to the Recapitalization, SC-PG shall not be
required to repay all or any part of the amount advanced to SC-PG with
respect to such Tax Loan Obligation as described above, but rather such
loan shall not be repayable until the earlier of (x) such time that SC-PG
sells the WEA Shares or (y) the later of (A) such time that SC-PG exercises
its right pursuant to the Deed of Option to convert the WEA Shares into WAT
Units, and (B) 5 years after SC-PG has delivered an Officer's Certificate
to Indemnitor with respect to any WEA Shares, pay to Indemnitor an amount
equal to the amount of such Tax Loan Obligation previously advanced by
Indemnitor attributable to the WEA Shares sold or converted by SC-PG.
Indemnitor agrees that it shall enter into a subordination and
non-disturbance agreement with senior lenders of SC-PG from time to time
upon request of SC-PG, with such subordination and non-disturbance
agreement being in form and substance satisfactory to such lenders. If
SC-PG does not sell or exchange all of its WEA Shares, only that portion of
the advance attributable to the WEA Shares so sold or exchanged shall be
due.
(c) The calculation of the amount payable under Section 2(a) and
Section 2(b) with respect to U.S. Income Taxes shall be made based on the
following assumptions:
(i) SC-PG directly incurs all taxable income or gain
attributable to or arising from any Tax Loss or Tax Loan Obligation
and is taxable on such taxable income or gain in the United States;
6
(ii) For purposes of calculating U.S. Income Taxes, SC-PG is
taxable at the GREATER of (A) the highest marginal combined Federal,
state and local income tax rates applicable to an individual resident
of New York, New York on the type of income or gain recognized or (B)
the highest marginal combined Federal, state, and local income tax
rates applicable to a corporation domiciled in New York, New York on
the type of income or gain recognized;
(iii) Each relevant item of income or gain, is treated for U.S.
state and local income tax purposes as having the same character,
timing, and amount as such item is treated as having for U.S. Federal
income tax purposes; and
(iv) State and local U.S. Income Taxes (including state and local
U.S. Income Taxes described in Section 2(c)(ii) above) are deductible
for U.S. Federal income tax purposes to the extent permitted under the
Code, assuming SC-PG is subject to any limitations on such
deductibility imposed by the Code that are imposed when a taxpayer's
adjusted gross income is maximized (e.g., assuming that SC-PG may only
deduct twenty percent (20%) of such SC-PG's itemized deduction under
Code ss.68(a) as in effect on the date hereof).
(d) In the event of a Tax Loss or Tax Loan Obligation, SC-PG shall
provide Indemnitor a written statement setting forth in reasonable detail
the computation of the amount described in Section 2(a) or 2(b).
(e) Any payment determined due to SC-PG pursuant to this Section 2
shall be paid within the later of (i) twenty (20) business days after
written notice from SC-PG that such amounts are due and payable by
Indemnitor or ten (10) business days prior to the due date for any return
on which SC-PG would reflect such income or gain. Any payment required
under this Section 2 and not made when due shall bear interest at Prime
plus 5% compounded annually.
(f) Upon request of Indemnitor, the accuracy of SC-PG's calculation
of the amount or amounts payable to or by SC-PG pursuant to Section 2 shall
be verified by an independent, nationally recognized accounting firm (other
than the preparer of SC-PG's tax returns or financial statements) selected
by SC-PG and reasonably acceptable to Indemnitor. In order to enable such
accountants to verify such adjustments, SC-PG shall provide to such
accountants (for their own confidential use) all information reasonably
necessary for such verification, including any computer analyses used by
SC-PG to calculate such amount or amounts. In conducting its verification,
the accounting firm shall consult with, and consider in good faith the
opinions and positions of, SC-PG and Indemnitor as to the proper resolution
of any matters at issue. The review and determination of such calculations
by such accounting firm shall be final. The parties hereto agree that, if
the accounting firm is required to resolve any matters relating to the
computations, the accounting firm (i) shall provide SC-PG and Indemnitor
with a written notification that describes in reasonable detail the matter
or matters at issue, and (ii) prior to its resolution of the matter or
matters at issue, shall provide SC-PG and Indemnitor with an opportunity to
set forth their positions concerning the proper resolution of the matter or
matters at issue in accordance with a procedure reasonably acceptable to
both
7
SC-PG and Indemnitor. The cost of such verification shall be borne by
Indemnitor unless it is the determination of such verification that the
actual amount or amounts payable deviates, in a manner favorable to
Indemnitor, by more than 10% from the amount originally determined by
SC-PG, in which case the amount of such cost shall be borne by SC-PG.
(g) In the event that Indemnitor makes an indemnity payment to SC-PG
with respect to a Tax Loss, and if SC-PG shall actually realize, with
respect to any taxable year that ends on or before the tenth (10th)
anniversary of such indemnity payment, Tax savings that would not have been
realized but for the related Tax Loss or the event giving rise thereto, as
determined using the same assumptions as those set forth for determining a
Tax Loss in Section 2(c), SC-PG shall pay to Indemnitor an amount equal to
the net reduction in Taxes realized by SC-PG. Any payment due pursuant to
this Section 2(g) shall be paid promptly and in any event within thirty
(30) days after SC-PG has (1) received a refund or (2) filed a return that
reflects such Tax savings or the benefit of any tax attribute resulting
from such event; PROVIDED, HOWEVER, that (A) the amount payable to
Indemnitor hereunder shall not exceed the aggregate amount of all indemnity
payments made by Indemnitor to SC-PG hereunder with respect to the Tax Loss
that gave rise to such Tax savings and not previously reimbursed by SC-PG;
and (B) any loss of such Tax savings by SC-PG subsequent to the year of
realization by SC-PG shall be treated as a Tax Loss that is indemnifiable
pursuant to the provisions of this Agreement.
Section 3. EXCLUSIONS. Notwithstanding anything to the contrary in this
Agreement, Indemnitor shall not have any liability for indemnification under
this Agreement for any Tax Loss or Tax Loan Obligation to the extent that any of
the following apply:
(a) such Tax Loss or Tax Loan Obligation relates to Non-U.S. Taxes
and is a result of (I) SC-PG holding or disposing of any WAT Units
following exercise of a WAT Option Right with respect to such WAT Units and
(II) receiving any distributions paid on, or any economic appreciation in,
such WAT Units that occurs after the date on which SC-PG acquires such WAT
Units pursuant to the exercise of the WAT Option Right, unless (x) SC-PG
has delivered to Indemnitor an Officer's Certificate with respect to the
exercise of such WAT Option Right and (y) such Tax Loss or Tax Loan
Obligation occurs prior to the later of (i) the 10th anniversary of the
date hereof and (ii) 5 years after SC-PG's exercise of such WAT Option
Right;
(b) such Tax Loss or Tax Loan Obligation is a result of any U.S.
Income Tax imposed upon SC-PG in connection with a sale, exchange, or other
disposition of the WAT Option Right, WEA Shares or the WAT Units (or the
exercise of any rights provided to SC-PG by such WAT Option Right, WEA
Shares or WAT Units) to the extent such U.S. Income Tax would have been
imposed upon SC-PG if it had engaged in a sale, exchange, or other
disposition (or the exercise of any rights provided to SC-PG by such WAT
Option Right, WEA Shares or WAT Units) of its Original Shares on terms
(including, without limitation, terms relating to amount realized, timing,
and form of consideration) substantially identical to the terms in all
material respects surrounding such sale, exchange or other disposition of
such WAT Option Right, WEA Shares or WAT Units; for the avoidance of doubt,
the exclusion set forth in this Section 3(b) would
8
not apply, for example, to the Recapitalization, on the exchange of WEA
Shares for WAT Units pursuant to exercise of SC-PG's rights under the Deed
of Option (provided that SC-PG delivered to Indemnitor an Officer's
Certificate prior to the exchange of WEA Shares for WAT Units) or to the
conversion of the Series G Preferred Stock into WEA common stock;
(c) such Tax Loss or Tax Loan Obligation is a result of any U.S.
Income Tax attributable to the receipt or accrual by SC-PG of (i) any
payment provided for in, or with respect to any amount described in,
Section 3(a) of the Certificate of Designation, (ii) dividends payable on
any WEA common shares or (iii) distributions payable on the WAT Units;
(d) such Tax Loss or Tax Loan Obligation is attributable to SC-PG or
a controlled affiliate of SC-PG acquiring WAT Units as a direct result of a
transaction initiated by SC-PG or such controlled affiliate or pursuant to
which SC-PG or such controlled affiliate acquired WAT Units for cash or
stock of SC-PG after February 1, 2001 (other than as a result of SC-PG's
exercise of any of its rights pursuant to the Deed of Option or pursuant to
the Certificate of Designation);
(e) any U.S. Income Tax attributable to a sale of the WAT Option
Right (other than a sale of the WAT Option Right in connection with a sale
of the WEA Shares);
(f) such Tax Loss or Tax Loan Obligation is a result of any U.S.
Income Tax attributable to SC-PG exercising in part but not in whole as to
the Cash-Out Right (as defined in the Exchange Agreement), each Installment
Right (as defined in the Exchange Agreement), or its WEA Option Right and
such partial redemption being characterized as "essentially equivalent to a
dividend" or "not substantially disproportionate" pursuant to Section
302(b) of the Code as in effect on February 1, 2001, unless as a result of
a breach by WEA of any representation, warranty, covenant or agreement in
the Exchange Agreement or the Certificate of Designation; or
(g) such Tax Loss or Tax Loan Obligation is attributable to any
payments to SC-PG pursuant to Section 2 of the Transaction Agreement.
Section 4. CONTESTS PERTAINING TO TAX LOSSES.
(a) SC-PG shall promptly notify Indemnitor of the receipt by it from
the Internal Revenue Service of a written, proposed or final revenue
agent's report, a 30-day letter or a notice of deficiency (as described in
6212 of the Code) or similar written notice from a taxing authority outside
the United States (a "Tax Claim"), in which an adjustment is proposed or
determined to the Federal income taxes of SC-PG for which Indemnitor may be
required to indemnify SC-PG pursuant to this Agreement, which, if
sustained, would result in a Tax Loss or Tax Loan Obligation requiring an
Indemnity Payment by Indemnitor in excess of $100,000; PROVIDED, HOWEVER,
that any failure to provide such notice shall not relieve Indemnitor of
any obligation to indemnify SC-PG
9
hereunder unless such failure effectively precludes Indemnitor from
contesting such adjustment.
(b) SC-PG shall use reasonable efforts to contest any such Tax
Claim in accordance with the terms in this Section 4(b), PROVIDED,
HOWEVER, SC-PG shall not be required to contest a Tax Claim unless it
has received on a timely basis (x) a legal opinion (setting forth in
reasonable detail the facts and analysis upon which such opinion is
based) of independent counsel selected by SC-PG reasonably acceptable to
Indemnitor (the cost of which shall be borne by Indemnitor) that there
is a reasonable basis that SC-PG will prevail on the merits of the case
and (y) a written notice (an "Indemnitor's Acknowledgement") from
Indemnitor in which Indemnitor acknowledges (i) that such Tax Claim, if
sustained in a Final Determination, is subject to the obligation
hereunder to indemnify SC-PG, except to the extent that the contest is
resolved on a clearly articulated basis which establishes that
Indemnitor is not liable to SC-PG hereunder, and (ii) that Indemnitor is
liable to pay all reasonable costs and expenses incurred by SC-PG in
connection with any contest, including, without limitation, all
reasonable legal and other documented out-of-pocket expenses, and shall
have provided SC-PG with adequate assurances for the payment thereof.
Failure of Indemnitor to deliver an Indemnitor's Acknowledgement to
SC-PG within thirty (30) days after Indemnitor's receipt of written
notice of a Tax Claim shall result in Indemnitor's waiver of any
obligation to contest a Tax Claim, and SC-PG shall be entitled to
concede or settle such Tax Claim in its sole and absolute discretion and
Indemnitor shall indemnify SC-PG for any Tax Loss or Tax Loan Obligation
suffered by SC-PG. In contesting any Tax Claim pursuant to this Section
4(b), SC-PG shall conduct such contest with its own counsel and the
reasonable contest costs (including without limitation accountant's
fees, investigatory fees, and fees and disbursements of counsel)
incurred by SC-PG in good faith in contesting the Tax Claim shall be
borne by Indemnitor.
Subject to the foregoing provisions of this Section 4(b), SC-PG shall
control the conduct of the contest of any such claim including any and all
administrative appeals, proceedings, hearings and conferences with any tax
authority in respect of any such claim, considering, however, in good faith
such requests as Indemnitor and its counsel shall make concerning the
prudent manner in which to contest such claim. SC-PG shall keep Indemnitor
reasonably informed as to the progress of such contest and shall give
Indemnitor and its counsel opportunity to review and comment in advance in
all material written submissions and filings relevant to the substantive
issues which would potentially give rise to a Tax Loss (after making
appropriate redactions to preserve the confidentiality of all matters not
directly related to such substantive issues). Indemnitor and its counsel
shall maintain confidentiality with respect to all such information. SC-PG
shall be required to proceed beyond the administrative level to court only
if Indemnitor delivers to SC-PG a legal opinion (setting forth in
reasonable detail the facts and analysis upon which such opinion is based)
of independent counsel selected by SC-PG
10
reasonably acceptable to Indemnitor (the cost of which shall be borne by
Indemnitor), which opinion concludes that there is Substantial Authority
that SC-PG will prevail on the merits of the case. SC-PG shall be required
to appeal an adverse decision of such court only if Indemnitor delivers a
legal opinion (setting forth in reasonable detail the facts and analysis
upon which such opinion is based) of independent counsel selected by SC-PG
reasonably acceptable to Indemnitor (the cost of which shall be borne by
Indemnitor) which opinion concludes that, after taking into account
conclusions of fact and law contained in the lower court's decision, it is
more likely than not that SC-PG will prevail on appeal. In no event shall
SC-PG be required to appeal an adverse determination beyond the first
appeal.
(c) SC-PG shall not make payment of any claim for at least thirty
(30) days after giving written notice of such claim to Indemnitor if such
forbearance is permitted by law. If the conduct of the contest requires
SC-PG to pay the tax claimed and file or xxx for a refund, Indemnitor shall
advance to SC-PG, on an interest-free basis with no additional net
after-tax cost to SC-PG, sufficient funds to pay the tax and any interest,
penalties and additions to tax payable with respect thereto (to the extent
such amount is subject to Indemnitor's indemnity obligations hereunder).
SC-PG shall immediately use such funds to pay such tax, interest, penalties
or additions to tax, as the case may be.
(d) If SC-PG receives a formal, written settlement offer from the
Internal Revenue Service or similar written notice from a taxing
authority outside the United States with respect to a claim for which
SC-PG seeks indemnity from Indemnitor, SC-PG shall promptly inform
Indemnitor of the receipt of such settlement offer. If Indemnitor
recommends acceptance of such settlement offer, but SC-PG declines to
accept such offer in writing within 30-days (i) the obligation of
Indemnitor to make indemnity payments under this Agreement as the result
of any such contest or proceedings shall equal the obligation that it
would have had if such contest had been settled or proceeding terminated
on the basis of the formal, written settlement offer the acceptance of
which was recommended by Indemnitor and (ii) Indemnitor shall have no
further liability for costs or other expenses in respect of such
contest. SC-PG shall not settle any claim without Indemnitor's consent;
PROVIDED, that SC-PG shall not be required to contest any proposed
adjustment and may settle any such proposed adjustment if, (i) SC-PG
shall waive its right to indemnity with respect to such adjustment and
shall pay to Indemnitor any amount previously paid or advanced by
Indemnitor with respect to such adjustment or the contest of such
adjustment, or (ii) the subject of such contest has previously been
resolved in a Final Determination for a prior taxable year adversely to
SC-PG, unless Indemnitor shall have provided SC-PG with an opinion of
independent tax counsel, selected by SC-PG and reasonably satisfactory
to Indemnitor, at the cost of Indemnitor, setting forth in reasonable
detail the facts and analysis upon which such opinion is based (a copy
of which is delivered to SC-PG), that as a result of a Tax Law Change or
change in fact, the prior Final Determination is no longer determinative
of the issue.
Section 5. If Indemnitor shall have requested SC-PG to contest such claim
as above provided and shall have duly complied with all the terms of this
Section 4, Indemnitor's liability for indemnification shall, at Indemnitor's
election, be deferred (subject to the provisions of Section 4(c) hereof) until a
Final Determination of the liability of SC-PG. At such time, Indemnitor shall
become obligated for the payment of any indemnification hereunder resulting from
the outcome of such contest, and SC-PG shall become obligated to refund to
Indemnitor any amount received as a refund by SC-PG or credited to SC-PG
attributable to advances by Indemnitor hereunder. Within thirty (30) days
following such Final Determination, any amounts due hereunder shall be paid
first by set off against each other and either (a) Indemnitor shall pay
11
to SC-PG any excess of the full amount due hereunder over the amount of any
advances previously made by Indemnitor and applied against Indemnitor's
indemnity obligation as aforesaid or (b) SC-PG shall repay to Indemnitor any
excess of such advances over such full amount due hereunder, together with any
interest received by SC-PG that is properly attributable to such excess amount
of such advances during the period such advances were outstanding, and, if
Indemnitor shall have indemnified SC-PG with respect to the adverse tax
consequences of any advances or payments hereunder, the amount of any tax
savings resulting from any payment pursuant to this sentence.
Section 6. COOPERATION.
(a) SC-PG agrees to consider in good faith any action (including
filing claims for refund and amended Tax returns) which it is reasonably
requested to take by Indemnitor that would minimize the net amount of any
indemnity payment due from Indemnitor hereunder provided, however, that
SC-PG shall not be required to take any action that SC-PG believes in its
sole discretion would place SC-PG in a materially worse tax or economic
position than SC-PG would have been in if such action were not taken.
(b) SC-PG shall promptly notify Indemnitor of the commencement of any
audit or examination of SC-PG by any taxing authority and shall keep
Indemnitor reasonably informed as to the status of such audit or
examination and any proceedings relating thereto; provided, however, that
in no event shall SC-PG's failure to comply with this Section 6(b) in any
way affect Indemnitor's obligations pursuant to this Agreement.
Section 7. REIT REQUIREMENTS.
(a) Notwithstanding anything to the contrary in this Agreement
(except Section 7(b)), in no event shall any amount payable to SC-PG by
Indemnitor pursuant to this Agreement exceed the Total Payment. As used in
this Agreement, "Total Payment" shall be an amount equal to the lesser of
(i) the Indemnity Amount and (ii) the sum of (A) the maximum amount than
can be paid to SC-PG without causing SC-PG to fail to meet the requirements
of Sections 856(c)(2) and (3) of the Code determined as if the payment of
such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to SC-PG, and (B) in the event SC-PG
receives a letter from outside counsel (the "Total Payment Tax Opinion")
indicating that SC-PG's receipt of the Indemnity Amount would either
constitute Qualifying Income or would be excluded from gross income of
SC-PG within the meaning of Sections 856(c)(2) and (3) of the Code (the
"REIT Requirements") or that the receipt by SC-PG of the remaining balance
of the Indemnity Amount would not be deemed constructively received prior
thereto, the Indemnity Amount less the amount paid under clause (A) above.
Indemnitor's obligation to pay any unpaid portion of the Total Payment
shall terminate ten years from the date of written notice from SC-PG
pursuant to Section 2(c) that amounts are due and owing hereunder. In the
event that SC-PG is not able to receive the full Indemnity Amount,
Indemnitor shall retain the unpaid amounts and shall not pay over any
portion thereof to SC-PG unless and until Indemnitor receives either one of
the following: (i) a letter from SC-PG's independent accountants indicating
the maximum amount that can be paid at
12
that time to SC-PG without causing SC-PG to fail to meet the REIT
Requirements or (ii) a Total Payment Tax Opinion, in either of which events
Indemnitor shall pay to SC-PG the lesser of the unpaid Indemnity Amount or
the maximum amount stated in the letter referred to in (B) above.
(b) In the event that (x) SC-PG incurs a Tax Loss that Indemnitor has
a liability to indemnify SC-PG and (y) amounts payable to SC-PG with
respect to such indemnity obligation are not currently payable to SC-PG as
a result of the operation of Section 7(a) of this Agreement, Indemnitor
shall at the Option of SC-PG either (i) advance to SC-PG, on an
interest-free basis with no additional net after-tax cost to SC-PG, an
amount equal to the unpaid portion of the Total Payment or (ii) place such
amount in escrow. At such time that the unpaid portion of the Total Payment
is required by Section 7(a) to be paid over to SC-PG, SC-PG shall pay to
Indemnitor with respect to amounts previously advanced by Indemnitor an
amount equal to the amount previously advanced by Indemnitor less any
amounts previously repaid by SC-PG. Indemnitor agrees that it shall enter
into a subordination and non-disturbance agreement with any senior lenders
of SC-PG, with such subordination and non-disturbance agreement being in
form and substance satisfactory to such lenders.
Section 8. REPORTING. Indemnitor and SC-PG shall, and (to the extent
necessary) shall cause any entity over which they have control to, report the
Recapitalization on any tax return as a reorganization within the meaning of
Section 368(a)(1)(E) of the Code; provided that, except with respect to
reporting the Recapitalization as a reorganization within the meaning of Section
368(a)(1)(E), SC-PG shall not be obligated to report any transaction as not
resulting in a Tax Loss or Tax Loan Obligation unless SC-PG shall have received
on a timely basis a legal opinion (setting forth in reasonable detail the facts
and analysis upon which such opinion is based) of independent counsel selected
by SC-PG and reasonably acceptable to Indemnitor (the cost of which shall be
borne by Indemnitor) that there is a reasonable basis for reporting no Tax Loss
or Tax Loan Obligation and provided further that in no event shall SC-PG's
agreement in the Exchange Agreement to treat the fair market value of the
Preferred Stock and the WAT Options as not exceeding $125,000,000 in any way
affect Indemnitor's obligations pursuant to this Agreement.
Section 9. NOTICES. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms of this Agreement shall be given in the same manner as
in the Preferred Stock Transaction Agreement.
Section 10. RESPONSIBLE ENTITY'S LIMITATION OF LIABILITY. Except as
otherwise provided in this Section 10 because WAML enters into this Agreement
only in its capacity as responsible entity and trustee of WAT, WAML is liable
under this Agreement only up to the extent to which it is actually indemnified
out of the assets of WAT. WAML is only personally liable to the extent that it
is not actually indemnified because it is fraudulent, negligent, or in breach of
trust. If WAML is not personally liable, the parties other than WAML must not
xxx WAML personally or seek to wind it up to recover any outstanding money, and
WAML is entitled to plead this clause as a bar to the taking of any such
proceedings. Nothing contained in Section 10 limits the right of any party to
bring action for performance by WAML or limit any
13
party's right to recover damages from the assets of WAT to the extent that WAML
is liable under this Agreement.
Section 11. ACQUISITION RIGHT. (a) Subject to Section 11(d) below, if SC-PG
delivers an Officer's Certificate to WAT, WAT, at its option, may elect to
acquire 100%, but not less than 100%, of the WEA Shares held by SC-PG which are
the subject of the Officer's Certificate at a price per WEA Share payable in
cash equal to the greater of (i)(a), in the case of Shares of Series G Preferred
Stock to be acquired, (I) 110% of the Liquidation Preference per share of Series
G Preferred Stock to be acquired, plus (II) 100% of all accrued and unpaid
dividends as provided in paragraph (b) below or (b), in the case of Common Stock
to be acquired, 110% of the Conversion Price (as defined in the Certificate of
Designation) as of the Call Date per share of Common Stock to be acquired and
(ii)(I) 110% of the Converted Value per WEA Share plus (II) 100% of all accrued
and unpaid dividends as provided in paragraph (b) below.
(b) Upon any acquisition of Series G Preferred Stock pursuant to this
Section 11, WAT shall pay an additional amount equal to all accrued and
unpaid dividends, if any, thereon to the Call Date, without interest. If
the Call Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series G Preferred
Stock at the close of business on such dividend payment record date shall
be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding any acquisition of such shares before
such Dividend Payment Date. For the avoidance of doubt, SC-PG shall not be
entitled to be paid twice in respect of any accrued and unpaid dividends.
(c) Notice of the acquisition of any WEA Shares under this Section 11
shall be sent by internationally recognized overnight courier to SC-PG at
the address of SC-PG as shown on WAT's records, not less than 10 days after
WAT's receipt of an Officer's Certificate. Each such sent notice shall
state, as appropriate: (1) the Call Date (which shall be a date not more
than 30 days after SC-PG's delivery of an Officer's Certificate); and (2)
the acquisition price.
(d) Notwithstanding Section 11(a), if within 10 days after SC-PG's
receipt of WAT's notice of acquisition pursuant to Section 11(c), SC-PG
notifies WAT that it is electing not to have WAT acquire its WEA Shares
pursuant to this Section 11, WAT shall not acquire SC-PG's WEA Shares which
are the subject of the Officer's Certificate and SC-PG may convert its WEA
Shares into WAT Units pursuant to the Special Option. In the event that
SC-PG elects not to have WAT acquire its WEA Shares pursuant to this
Section 11, the obligations of WAT under this Agreement shall terminate as
to all claims with respect to (i) the WEA Shares which are the subject of
the Officer's Certificate, (ii) the WAT Units into which such WEA Shares
are convertible pursuant to the Deed of Option and (iii) the WAT Option
Right with respect to such WEA Shares arising on or after conversion by
SC-PG of such WEA Shares into WAT Units.
(e) In addition, on March 1 of the year following the year in which
an acquisition described in this Section 11 occurs, WAT shall pay to the
holder whose WEA Shares are acquired hereunder an additional amount equal
to the True-Up Dividend Amount (as defined in the Certificate of
Designation) in respect of such acquired WEA
14
Shares, if any, for the period from the beginning of the year in which such
acquisition occurred until the date on which the acquisition occurred. The
True-Up Dividend Amount payable for such period shall be computed by
dividing the number of days in which the holder of such WEA Shares held
such WEA Shares during the applicable calendar year by 365 and multiplying
the result by the True-Up Dividend Amount determined in accordance with
Section 3(a) of the Certificate of Designation.
(f) All payments to SC-PG under this Section 11 shall be made by wire
transfer of immediately available funds to an account previously indicated
by SC-PG.
Section 12. MISCELLANEOUS.
(a) Indemnitor agrees that the information provided by SC-PG pursuant
to the Officer's Certificate will be used solely for the purpose of
evaluating the validity of SC-PG's exercise of the WAT Option Right and
that such information will be kept strictly confidential by Indemnitor;
provided that the foregoing obligation of Indemnitor shall not (a) relate
to any information that (i) is or becomes generally available other than as
a result of unauthorized disclosure by Indemnitor or by persons to whom
Indemnitor has made such information available, or (ii) is or becomes
available to Indemnitor on a non-confidential basis from a third party that
is not, to Indemnitor's knowledge, bound by any other confidentiality
agreement with SC-PG or its subsidiaries, or (b) prohibit disclosure of any
information if required by law, rule, regulation, court order, any
regulatory or self-regulatory organization, any securities exchange on
which any of the Indemnitor's securities are then listed or to which
Indemnitor has applied for listing of its securities or other legal or
governmental process.
(b) Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, including without limitation,
Section 5-1401 of the New York General Obligation Laws.
(d) All disputes, litigation, proceedings or other legal actions by a
party to this Agreement in connection with or relating to this Agreement or
any matters described or contemplated in this Agreement shall be instituted
in the courts of the State of New York sitting in New York County, New York
or of the United States sitting in the Southern District of New York. Each
party to this Agreement irrevocably submits to the exclusive jurisdiction
of the courts of the State of New York sitting in New York County, New York
and of the United States sitting in the Southern District of New York in
connection with any such dispute, litigation, action or proceeding arising
out of or relating to this Agreement or the transactions contemplated by
this Agreement. Each party further agrees that any service of process or
summons in connection with any such dispute,
15
litigation, action or proceeding may be served on it by mailing a copy of
such process or summons to it at its address set forth, and in the manner
provided, in Section 7, with such service deemed effective on the fifteenth
day after the date of such mailing.
Each party to this Agreement irrevocably waives to the fullest extent
permitted by applicable law, any defense or objection it may now or
hereafter have to the laying of venue of any proceeding relating to this
Agreement or the transactions contemplated by this Agreement brought in the
courts of the State of New York sitting in New York County, New York or of
the United States sitting in the Southern District of New York and any
claim that any proceeding under this Agreement brought in any such court
has been brought in an inconvenient forum.
EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT,
ANY RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR
THEREIN, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO
EFFECT SUCH WAIVER.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) The title and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
(g) Except as described in SECTION 4 above, each party shall pay all
costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. If any action at law
or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.
(h) Any term of this Agreement may be amended, and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
the written consent of SC-PG and Indemnitor.
(i) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with
its terms.
(j) The parties agree that only SC-PG shall be entitled to make
claims against Indemnitor hereunder and the direct and indirect holders of
the stock of SC-PG shall not be entitled to make claims against Indemnitor
hereunder.
16
(k) At SC-PG's request, WAML agrees to exercise its right of
indemnity out of the assets of WAT in the event of a failure to make any
payment hereunder when due and payable.
(l) WAML undertakes not to create or allow to exist any encumbrance
over its right of indemnity out of the assets of WAT.
Section 13. TERM. The term of this Agreement shall be from the date hereof
until such time as the applicable statute of limitations bars a claim by the
Internal Revenue Service or relevant foreign, state or local taxing authority
for a Tax Loss or Tax Loan Obligation otherwise indemnifiable under this
Agreement.
* * * * * *
17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SECURITY CAPITAL PREFERRED
GROWTH INCORPORATED
By: /s/ XXXXX XXXXXXXXX
------------------------------------
Name: Xxxxx Xxxxxxxxx
Its: Senior Vice President
WESTFIELD AMERICA TRUST
By: WESTFIELD AMERICA MANAGEMENT
LIMITED
By: /s/ XXXXX X. XXXX
------------------------------------
Name: Xxxxx X. Xxxx
------------------------------------
Its: Director
------------------------------------
18
