Exhibit 10.28
OPTION AGREEMENT
(Tarpon Springs
Plaza)
THIS OPTION AGREEMENT (this
“Agreement”) is made as of August 16, 2004 by and
among, Kite Realty Group L.P., a Delaware limited partnership
(“Kite Realty”), Brentwood Land Partners, LLC, a
Delaware limited liability company (“Optionor”) and
Alvin E. Kite, Jr., John A. Kite, Paul W. Kite and Thomas K.
McGowan (each a “Member” and, collectively, the
“Members”).
R E C I T A L S
WHEREAS, Kite Realty, the general
partner of which is Kite Realty Group Trust, a Maryland real estate
investment trust (the “REIT”), and the REIT are
engaging in various related transactions pursuant to which, among
other things, (i) Kite Realty will acquire interests in various
entities that own or lease real estate properties in which certain
persons affiliated with the REIT, including the Members, have
interests, (ii) the REIT will acquire interests in certain service
businesses currently owned by persons affiliated with the REIT,
including certain of the Members and (iii) the REIT will
effect an initial public offering of its common shares and
contribute the proceeds therefrom for a like number of units of
partnership interest in Kite Realty (the
“Kite IPO,” and together with the other
transactions described above, the “Kite IPO
Transactions”);
WHEREAS, Optionor owns that certain
real property as described in Exhibit A hereto (the
“Land”);
WHEREAS, each Member currently owns
the ownership interest in Optionor set forth in Exhibit B
hereto (each an “Interest” and, collectively, the
“Interests”);
WHEREAS, the Property will be (i)
managed by KRG Management, LLC, the sole member of which is the
REIT (the “Manager”), pursuant to a separate property
management agreement between Optionor and the Manager (the
“Management Agreement”), and (ii) developed by Kite
Realty or an affiliated entity (the “Developer”)
pursuant to a separate development agreement between Optionor and
the Developer (the “Development Agreement”);
and
WHEREAS, As part of the Kite IPO
Transactions, Optionor desires to grant to Kite Realty an option to
acquire (in whole or in legally subdivided portions) all of
(i) Optionor’s interest in the Land and any buildings,
structures, and other improvements situated on the Land or
hereinafter constructed or acquired, (ii) any personal
property owned by Optionor, situated on the Land and used by
Optionor in connection with the use, operation or maintenance of
the Property and (iii) any intangible property owned by
Optionor and used solely in connection with the use, operation or
maintenance of the foregoing (the “Property”), on the
terms and conditions specified in this Agreement.
NOW, THEREFORE, in consideration of
the foregoing and the mutual covenants and conditions set forth
herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I – THE
OPTION
1.1
Grant of Option
. Optionor hereby grants to
Kite Realty an option to acquire all right, title and interest of
Optionor in the Property (or any legally subdivided portion
thereof) on an “as is” basis (subject to all matters of
record) on the terms and conditions set forth herein (the
“Option”).
1.2
Commencement of Option
. Kite Realty shall have the
right to exercise the Option at any time after the date upon which
the Property reaches 85% occupancy until the expiration of the
Option pursuant to Section 1.3. Notwithstanding the
foregoing, in the event the Kite IPO is not consummated prior to
January 1, 2005, this Agreement shall become null and void and no
party shall have any liability to the other parties hereunder with
respect to the transactions contemplated hereby.
1.3
Expiration of Option
. Subject to Section 6.1
hereof, the Option shall expire on the fourth anniversary of the
date of commencement of construction of the planned development on
the Property (the “Option Term”). Optionor shall
promptly notify Kite Realty in writing of such date of
commencement.
1.4
Partial Exercise of
Option . Kite
Realty may exercise the Option as to the entire Property or
(subject to Section 4.1) may, from time to time throughout the
Option Term, elect to acquire one or more legally subdivided
parcels of the Property (each, a “Portion”). If
Kite Realty elects to exercise the Option with respect to one or
more Portions, the remainder of the Property shall remain subject
to the Option; it being understood that the Option shall remain in
effect as to the remaining portion of the Property subject to
Section 6.1 hereof.
1.5
Consents . The consummation of the transactions
contemplated by this Agreement is subject to any consents required
under the “Existing Financings” and the “New
Financings” (as defined in Section 3.1), and (a) in the case
of the transfer of the Property, any other consents required to be
obtained prior to the transfer of the Property, or (b) in the case
of the transfer of the Interests pursuant to Section 5.3, any other
consents required to be obtained prior to the transfer of the
Interests.
1.6
Subordination
. The Option granted by this
Agreement and the rights of Kite Realty hereunder are and shall be
subordinate to any Existing Financings and New
Financings.
ARTICLE II – PROCESS FOR
EXERCISE OF THE OPTION
2.1
Exercise . Subject to Section 1.2 hereof, the
Option may be exercised during the Option Term by delivery of
written notice by Kite Realty to Optionor (the “Exercise
Notice”), stating that the Option is exercised on the terms
set forth in this Agreement. The Exercise Notice shall
specify the name of the First Appraiser (as defined in
Section 3.1(a)(ii)) and clearly identify whether it applies to
the entire Property or a Portion. The date upon which the
Exercise Notice is delivered by Optionor in accordance with this
Agreement is hereinafter referred to as the “Exercise
Date.” If the Option is timely exercised, subject to
Section 3.1(f), the Property or the Portion (as the case may be)
shall be conveyed, and the closing date of such acquisition,
transfer and conveyance (the
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“Closing Date”) shall occur within
the later of (a) 15 days after the last day of the month
immediately following the month in which the Exercise Notice is
delivered or (b) 45 days after the determination of the FMV (as
defined in Section 3.1) of the Property (or a Portion, as
applicable) at the time in accordance with Section 3.1. The
exercise (or partial exercise) of the Option is subject to the
approval of a majority of the “independent” members of
the Board of Trustees of the REIT (as defined in the REIT’s
Amended and Restated Bylaws), as general partner of Kite
Realty.
2.2
Inspection
. During the term of this
Agreement, Optionor agrees to permit Kite Realty and Kite
Realty’s agents to enter upon the Property, subject to the
rights of any tenants, at reasonable times to make such surveys,
inspections and tests as may reasonably be necessary in connection
with its examination of the Property. Kite Realty hereby
agrees to repair any damage it or its agents may cause to the
Property as a result of any such inspections or tests or any other
related damage caused by Kite Realty or its agents, and further
agrees to indemnify, defend and hold Optionor, Optionor’s
managers and the Members harmless from and against any and all
claims, losses, damages and expenses, including, without
limitation, reasonable attorneys’ fees, suffered by Optionor,
Optionor’s managers and/or the Members as a direct result of
the entry by Kite Realty or Kite Realty’s agents upon, or
acts upon, the Property in connection with any such inspections or
tests or any other related damage caused by Kite Realty or its
agents.
2.3
Information
. Optionor agrees to permit
Kite Realty and its agents to review all books, records and other
documentation reasonably requested by Kite Realty with respect to
Optionor or the Property, which are in Optionor’s possession
and control. Optionor will provide (or cause to be provided)
a report of the status of the Property, on a quarterly basis, which
report shall include unaudited financials, the Property’s
operating history and Optionor’s current estimate of
historical costs in the Property; it being understood that, to the
extent the Management Agreement remains in effect or Kite Realty or
any of its subsidiaries or affiliated companies is providing
administrative services to Optionor with respect to the Property
(including, without limitation, accounting and record-keeping
services), Optionor shall be deemed to have satisfied its
obligation under this Section 2.3 to the extent that the
information requested by this Section 2.3 is available to Kite
Realty or such subsidiaries or affiliated companies pursuant to the
Management Agreement or in connection with the performance of such
administrative services, and such information should be deemed to
have been delivered by Optionor to Kite Realty pursuant to this
Section 2.3 (notwithstanding any obligations with respect to such
information – confidential or otherwise – contained in
the Management Agreement or any agreement providing for the
performance of such administrative services).
ARTICLE III – ACQUISITION
PROCESS
3.1
Acquisition
Consideration .
(a)
The acquisition consideration to be
paid by Kite Realty for the Property or any Portion thereof (the
“Acquisition Consideration”) pursuant to an exercise of
the Option under Section 2.1 shall be equal to the lesser of
(i) Annualized NOI divided by 8.5% or (ii) the fair market value
(“FMV”) at the time, as determined in accordance with
this Section 3.1, of the Property or the Portion, respectively, at
the time; provided, however, that, with respect to the acquisition
of a Portion of the Property, for purposes of this
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Agreement, the Acquisition Consideration shall
mean an amount equal to the lesser of (i) the Acquisition
Consideration for the entire Property multiplied by the quotient
obtained by dividing (x) the portion of the Annualized NOI
attributable to such Portion by (y) the total Annualized NOI or
(ii) the FMV of the Portion. “Annualized NOI”
shall mean the annualized net operating income for the Property,
calculated as follows: the sum of (i) the net operating income for
the Property for the month immediately prior to the month in which
the Exercise Notice is delivered plus (ii) the net operating income
for the Property for the month in which the Exercise Notice is
delivered plus (iii) the net operating income for the Property for
the month immediately following the month in which the Exercise
Notice is delivered, annualized.
(i)
FMV for this purpose shall mean the
price at which a willing buyer would buy, and a willing seller
would sell, the Property or a Portion (as applicable) in an
arms-length transaction assuming the Property or the Portion (as
applicable) is sold in an orderly disposition and each of the buyer
and seller are aware of, and take into account, all relevant
factors which exist at the time.
(ii)
In the Exercise Notice, Kite Realty
shall designate an appraiser (the “First Appraiser”) to
determine FMV for the Property or a Portion (as applicable).
Optionor then shall have 10 days after receiving such notice to
designate a second appraiser (the “Second Appraiser”)
by written notice to Kite Realty. If Optionor fails to timely
designate the Second Appraiser, FMV shall be determined by the
First Appraiser. The First Appraiser and the Second Appraiser
each shall separately determine FMV in accordance with Section
3.1(a) and shall provide a detailed written valuation report to
each of Optionor and Kite Realty within 45 days after the last
day for designating the Second Appraiser. The designation of
the First Appraiser shall be approved by a majority of the members
of the Board of Trustees of the REIT, which majority must include a
majority of “independent” trustees, as defined in the
REIT’s Amended and Restated Bylaws. If only one
appraiser timely submits a proper valuation report, its FMV
determination shall be final, binding and conclusive for purposes
of this Agreement. If both appraisers timely submit proper
valuation reports, and their FMV determinations vary by 10% or
less, FMV shall be equal to the average of the two FMV
determinations. If both appraisers timely submit proper
valuation reports, and their FMV determinations vary by more than
10%, the two appraisers shall promptly appoint a third appraiser
(the “Third Appraiser”), which shall independently
determine FMV in accordance with Section 3.1(a) and shall provide a
detailed written valuation report to each of Optionor and Kite
Realty within 45 days after its appointment. FMV shall then
be equal to the average of the two closest FMV determinations
submitted by the three appraisers. FMV as determined in
accordance with Section 3.1(a) shall be final, binding and
conclusive for purposes of this Agreement.
(iii) In preparing its FMV
determination, each appraiser shall be provided with the same
Property-specific source documents and information and the same
access to personnel. Each appraiser shall determine a single
point estimate of FMV, not a range of values. Only qualified
real estate appraisers with at least five years’ prior
experience in the valuation of properties comparable to the
Property in the area in which such Property is located, and that do
not have any financial interest in any entities affiliated with the
Members (excluding any existing or prior agreement or contractual
arrangement to provide advisory or appraisal services to any such
Members or any affiliates thereof), may be validly appointed to
serve as an appraiser hereunder. Subject to
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Section 3.1(f), each of Optionor and Kite Realty
shall pay all fees and costs of the appraiser designated by it and
one-half of all fess and costs of the Third Appraiser, if
any.
(b)
On the Closing Date, the Acquisition
Consideration shall be payable by Kite Realty, subject to Section
3.1(b)(i), first through the assumption of all outstanding Property
Indebtedness (including, without limitation, the payment of any
applicable prepayment, assumption or other fees, costs and
penalties) or, if Kite Realty so elects, the repayment thereof, and
second, with respect to any remaining unsatisfied portion of the
Acquisition Consideration, in the form of units of limited
partnership interest in Kite Realty (“Units”) or cash,
in the sole and absolute discretion of Kite Realty. For
purposes of this Section 3.1(b), subject to Section 3.1(b)(i),
the value of outstanding Property Indebtedness assumed by Kite
Realty shall be the principal amount thereof and any accrued and
unpaid interest, plus any related prepayment, assumption and other
fees, costs and penalties incurred by Kite Realty in connection
with Kite Realty’s assumption or repayment of such Property
Indebtedness. The value of Units shall be their “Market
Value” as defined in Section 3.1(b)(ii), and the number of
Units shall be rounded to the nearest whole number of Units to
avoid the issuance of fractional Units.
(i)
“Property Indebtedness”
shall mean (A) any outstanding financings or other
arrangements entered into by Optionor (or any affiliate of
Optionor) prior to the date hereof which relate to the Property or
the Portion (as applicable) (the “Existing
Financings”), and (B) any outstanding financings, or other
arrangements entered into by Optionor (or any affiliate of
Optionor) after the date hereof which relate to the Property or the
Portion (as applicable), including, without limitation, any
mezzanine or bridge financing, or amendments or extensions of the
Existing Financings (the “New Financings”).
Notwithstanding anything to the contrary contained herein,
“Property Indebtedness” shall not include any Existing
Financings or New Financings to the extent that the aggregate of
all Existing Financings and New Financings (plus accrued and unpaid
interest and any related prepayment, assumption or other fees,
costs and penalties) exceed the Acquisition Consideration.
Notwithstanding anything to the contrary contained herein,
“Property Indebtedness” for purposes of a transfer of a
Portion shall include the outstanding balance (including, without
limitation, all applicable prepayment, assumption or other fees,
costs and penalties) of all Existing Financings and New Financings
which, by their terms or as may otherwise be required by the
lenders thereunder, must be assumed, prepaid or repaid upon a
transfer of such Portion by Optionor as contemplated by this
Agreement. Any financings or other arrangements relating to
the Property in excess of the amount of the Acquisition
Consideration shall be the responsibility of Optionor and shall be
prepaid or repaid at or prior to the Closing Date. Optionor
shall provide Kite Realty with notice of any known default under
any of the Existing Financings or New Financings and shall provide
copies of any written default notices Optionor may receive from the
lenders of such financings.
(ii)
The term “Market Value”
shall mean the average closing price of the common shares of
beneficial interest, $0.01 par value per share, of the REIT (or any
successor thereto) (“Common Shares”) for the 10
consecutive trading days immediately preceding (but not including)
the Closing Date. For purposes of determining Market Value,
one Unit shall equal one Common Share, subject to any adjustments
required under the Amended and Restated Agreement of Limited
Partnership of Kite
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Realty, as may be amended and/or restated from
time to time (the “Partnership Agreement”), or to
reflect stock splits, reclassifications, dividends in-kind and the
like.
(c)
On the Closing Date, all reserves
held by or on behalf of Optionor as required by applicable lenders
or otherwise with respect to the Property or the Portion (as
applicable) shall either be (i) retained by or returned to
Optionor, or (ii) transferred to Kite Realty in which event a
credit shall be applied to increase the Acquisition Consideration
by the amount of such transferred reserves.
(d)
In exercising the Option, Kite
Realty will use reasonable commercial efforts to cooperate with
Optionor and the Members to minimize any taxes, fees or prepayment
penalties payable in connection with such exercise or the
assumption or repayment of indebtedness relating to the Property;
provided that, except as otherwise set forth in this Agreement,
such cooperation shall not require Kite Realty to unreasonably
delay the Closing Date or require Kite Realty to assume additional
liabilities or incur any material amount of out-of-pocket
expenses.
(e)
Pursuant to the Partnership
Agreement, Units are exchangeable into Common Shares. It is
currently anticipated that such Common Shares will be entitled to
certain registration rights consistent with the REIT’s
practice at the time such Units are issued and subject to any
restrictions or agreements affecting such rights to which the REIT
or Kite Realty is bound.
(f)
Kite Realty may decide at any time
after delivery of an Exercise Notice, but before the Closing Date,
not to proceed with the acquisition of the Property or the Portion
(as applicable) as specified in the Exercise Notice; provided, that
if Kite Realty revokes such Exercise Notice following the date on
which the Second Appraiser is appointed pursuant to Section
3.1(a)(ii), Kite Realty shall bear all of the costs and expenses of
the appraisers incurred up to the date on which Kite Realty
notifies Optionor and such appraisers of such revocation; and,
provided further, that if a final FMV determination is made
in accordance with Section 3.1 prior to Kite Realty’s
revocation of such Exercise Notice, such FMV determination shall be
deemed to constitute the FMV of the Property or Portion (as
applicable) for purposes of subsequent exercises of the Option for
a period of six months following the date of such revocation; it
being understood that any such decision not to proceed shall not
result in the termination of this Agreement (including, without
limitation, the Option).
3.2
Acquisition
Documentation . On
or prior to the Closing Date (subject to Section 3.1(f)), Optionor
and Kite Realty shall acknowledge, execute, deliver and/or file (as
the case may be) the closing documentation described on
Exhibit C hereto (the “Closing
Documentation”). Optionor and Kite Realty shall
thereafter additionally acknowledge, execute, deliver and/or file
(as the case may be) any and all other documents, agreements or
instruments reasonably necessary or appropriate to effectuate the
acquisition, transfer and conveyance of the Property (or a Portion,
as applicable) in accordance with the terms of this
Agreement.
3.3
Withholding
. Optionor shall execute upon
the conveyance of the Property or any Portion (as applicable) such
certificates or affidavits reasonably necessary to document the
inapplicability of any federal or state tax withholding provisions,
including,
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without limitation, those referred to in
Section 7.4 below. If Optionor fails to provide such
certificates or affidavits, Kite Realty may withhold a portion of
the Acquisition Consideration as required by the Internal Revenue
Code of 1986, as amended (the “Code”) or applicable
state law.
3.4
Taxes . If the transactions contemplated by this
Agreement are consummated, then the following shall
apply:
(a)
Acquisition is Treated as
Contribution . If
the Acquisition Consideration consists in whole or in part of
Units, the transfer, assignment and exchange contemplated by this
Agreement shall constitute a “Capital Contribution” to
Kite Realty pursuant to Article IV of the Partnership
Agreement and is intended to be governed by Section 721(a) of
the Code, and the parties agree to report this tr
