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Exhibit 10.7

 
 
INCOME TARGET AGREEMENT
 
THIS INCOME TARGET AGREEMENT (this “Agreement”), is dated as of January 5, 2006,
by and among MAGUIRE MO MANAGER, LLC, a Delaware limited liability company (the
“Manager”), MACQUARIE OFFICE II, LLC, a Delaware limited liability company
(“MOF”), MAGUIRE PROPERTIES, L.P., a Maryland limited partnership (“Maguire”),
and MAGUIRE MACQUARIE OFFICE LLC, a Delaware limited liability company (the
“Company”). Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the LLC Agreement (as defined below).
 
W I T N E S S E T H :
 
WHEREAS, the Manager, MOF and Maguire have entered into that certain First
Amended and Restated Limited Liability Company Agreement, dated as of October
26, 2005, and amended and restated as of January 5, 2006, (as amended or
restated from time to time, the “LLC Agreement”), of the Company;
 
WHEREAS, in connection with entering into the LLC Agreement, the Manager, MOF
and Maguire have agreed that $7,500,000 of the distribution paid to Maguire
pursuant to Section 3.1(c) of the LLC Agreement will be deposited into an escrow
account (such amount, the “Income Support Escrow”); and
 
WHEREAS, the distribution of the Income Support Escrow is contingent upon
confirmation of certain assumptions made by Maguire about future net operating
income attributable to the Projects, other than the SG Project (each as defined
in the LLC Agreement) (the "Applicable Projects") and therefore, will be
distributed in accordance with this Agreement.
 
NOW, THEREFORE, in consideration of the premises hereof, and the mutual
promises, obligations and agreements contained herein, the parties hereto,
intending to be legally bound, do hereby agree as follows:
 
 
ARTICLE I
 
 

 
 
ESTABLISHMENT OF ESCROW ACCOUNT
 
The parties shall establish an escrow account for the Income Support Escrow
within 30 days after the date of this Agreement (the “Escrow Account”). The
Manager shall serve as escrow agent of the Escrow Account. The Escrow Account
shall be invested in cash equivalents
 
 

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or other low risk investments. Maguire shall be the owner of the Escrow Account
and interest on the Escrow Account shall be disbursed to Maguire (and allocated
to Maguire for income tax purposes) when and as the Income Support Escrow is
distributed to any of the parties hereunder.
 
 
ARTICLE II
 
 

 
 
DISTRIBUTIONS OF INCOME SUPPORT ESCROW
 
2.1 Year 1 Income Target.
 

 
(a)
In the event that the actual NOI (as defined below) of the Applicable Projects
for each of the quarters ending March 31, June 30, September 30 or December 31
(each a “Year 1 Quarter”) of the year ended December 31, 2006 (“Year 1”) is less
than US$18,967,500 (the “Year 1 Quarter Target NOI”), an amount equal to the
difference between the Year 1 Quarter Target NOI and the actual NOI of the
Applicable Projects for the such Year 1 Quarter, multiplied by 0.80, shall be
payable to MOF as of the last day of such Year 1 Quarter, and shall be
distributed to MOF from the Escrow Account on the 15th day after the last day of
each such Year 1 Quarter, but in no event shall the aggregate amount of such
distributions for each of the Year 1 Quarters be greater than US$7,500,000;
provided, that in the event the aggregate amount of the actual NOI allocable to
MOF for each of the Year 1 Quarters plus any payments received by MOF for the
first three Year 1 Quarters pursuant to this Section 2.1(a) is greater than
US$60,696,000, MOF shall not be entitled to any distribution with respect to the
Year 1 Quarter ending December 31, 2006, and MOF shall repay to the Escrow
Account an amount equal to the lesser of

 
(i) any distributions it has received pursuant to this Section 2.1(a) for any of
the Year 1 Quarters ending March 31, 2006, June 30, 2006 or September 30, 2006
and
 
(ii) (A) the sum of (1) the aggregate amount of the actual NOI allocated to MOF
for each of the Year 1 Quarters, plus (2) any payments received by MOF for the
first three Year 1 Quarters pursuant to this Section 2.1(a), minus (B)
US$60,696,000.
 

 

 
(b)
On the 15th day following the end of Year 1, an amount equal to US$2,500,000
less the aggregate amount of the distributions made to MOF for each Year 1
Quarter pursuant to Section 2.1(a) (taking into account any repayments MOF is
required to pay the Escrow Account pursuant thereto) shall be distributed to
Maguire from the Escrow Account; provided that Maguire hereby agrees and
covenants to repay and guaranty such amount (plus up to an additional $156,000)
to the Escrow

 

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Account to the extent that the Escrow Account is not sufficient to distribute
any amounts due to MOF pursuant to Section 2.2(a) or Section 2.3(a).
 

 
(c)
For purposes of this Agreement, "NOI" means, with respect to any Applicable
Project for any period, the total rental income and other income (without
deduction for rent abatements to the extent of reserves therefore) from the
operation of such Applicable Project for such period, after deducting all
expenses and other proper charges incurred by the Company in connection with the
operation and maintenance of such Applicable Project during such period,
including, without limitation, management fees, real estate taxes and bad debt
expenses, but before payment or provision for debt service charges, income taxes
and depreciation, amortization and other non-cash expenses, in each case for
such period, all as determined in accordance with United States generally
accepted accounting principles.

 
2.2 Year 2 Income Target.
 

 
(a)
In the event that the actual NOI of the Applicable Projects for each of the
quarters ending March 31, June 30, September 30 or December 31 (each a “Year 2
Quarter”) of the year ended December 31, 2007 (“Year 2”) is less than
US$19,350,000 (the “Year 2 Quarter Target NOI”), an amount equal to the
difference between the Year 2 Quarter Target NOI and the actual NOI of the
Applicable Projects for such Year 2 Quarter, multiplied by 0.80, shall be
payable to MOF as of the last day of such Year 2 Quarter, and shall be
distributed to MOF from the Escrow Account on the 15th day after the last day of
each such Year 2 Quarter, but in no event shall the aggregate amount of such
distributions for each of the Year 2 Quarters plus the aggregate amount of
distributions made to MOF for the Year 1 Quarters pursuant to Section 2.1(a)
(taking into account any repayments MOF is required to pay the Escrow Account
pursuant thereto) be greater than US$7,656,000; provided, that in the event the
aggregate amount of the actual NOI allocable to MOF for each of the Year 2
Quarters plus any payments received by MOF for the first three Year 2 Quarters
pursuant to this Section 2.2(a) is greater than US$61,920,000, MOF shall not be
entitled to any distribution with respect to the Year 1 Quarter ending December
31, 2007, and MOF shall repay to the Escrow Account an amount equal to the
lesser of

 
(i) any distributions it has received pursuant to this Section 2.2(a) for any of
the Year 2 Quarters ending March 31, 2007, June 30, 2007 or September 30, 2007
and
 
(ii) (A) the sum of (1) the aggregate amount of the actual NOI allocated to MOF
for each of the Year 2 Quarters, plus (2) any payments
 

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received by MOF for the first three Year 2 Quarters pursuant to this Section
2.2(a), minus (B) US$61,920,000.
 

 
(b)
To the extent funds remain available for distribution from the Escrow Account
after the distributions set forth in Section 2.1, on the 15th day following the
end of Year 2, an amount equal to US$2,500,000 less the aggregate amount of the
distribution made to MOF for each Year 2 Quarter pursuant to Section 2.2(a)
(taking into account any repayments MOF is required to pay the Escrow Account
pursuant thereto) shall be distributed to Maguire from the Escrow Account;
provided that Maguire hereby agrees and covenants to repay and guaranty such
amount (plus, without duplication of the amount set forth in the parenthetical
in Section 2.1(b) up to an additional $156,000) to the Escrow Account to the
extent that the Escrow Account is not sufficient to distribute any amounts due
to MOF pursuant to Section 2.3(a).

 
2.3 Year 3 Income Target.
 

 
(a)
In the event that the actual NOI of the Applicable Projects for each of the
quarters ending March 31, June 30, September 30 or December 31 (each a “Year 3
Quarter”) of the year ended December 31, 2008 (“Year 3”) is less than
US$20,035,000 (the “Year 3 Quarter Target NOI”), an amount equal to the
difference between the Year 3 Quarter Target NOI and the actual NOI of the
Applicable Projects for such Year 3 Quarter, multiplied by 0.80, shall be
payable to MOF as of the last day of such Year 3 Quarter, and shall be
distributed to MOF from the Escrow Account on the 15th day after the last day of
each such Year 3 Quarter, but in no event shall the aggregate amount of such
distributions for each of the Year 3 Quarters plus the aggregate amount of
distributions made to MOF for the Year 1 Quarters pursuant to Section 2.1(a) and
for the Year 2 Quarters pursuant to Section 2.2(a) (in each case taking into
account any repayments MOF is required to pay the Escrow Account pursuant
thereto) be greater than US$7,656,000; provided, that in the event the aggregate
amount of the actual NOI allocable to MOF for each of the Year 3 Quarters plus
any payments received by MOF for the first three Year 3 Quarters pursuant to
this Section 2.3(a) is greater than US$64,112,000, MOF shall not be entitled to
any distribution with respect to the Year 3 Quarter ending December 31, 2008,
and MOF shall repay to the Escrow Account an amount equal to the lesser of

 
(i) any distributions it has received pursuant to this Section 2.3(a) for any of
the Year 3 Quarters ending March 31, 2008, June 30, 2008 or September 30, 2008
and
 
(ii) (A) the sum of (1) the aggregate amount of the actual NOI allocated to MOF
for each of the Year 3 Quarters, plus (2) any payments
 

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received by MOF for the first three Year 3 Quarters pursuant to this Section
2.3(a), minus (B) US$64,112,000.
 

 
(b)
In the event that the NOI of the Applicable Projects for the one-year period
ended December 31, 2008 is greater than US$80,140,000 (the “Year 3 Target NOI”),
and distributions were previously made from the Escrow Account to MOF pursuant
to Section 2.2(a) (taking into account any repayments MOF is required to pay the
Escrow Account pursuant thereto), an amount equal to the lesser of (x) the
amounts previously distributed to MOF from the Escrow Account pursuant to
Section 2.2(a), (y) an amount equal to the product of (i) 0.80 and (ii) the
difference between the Year 3 Target NOI and the actual NOI of the Applicable
Projects for Year 3 and (z) $760,000, shall be paid by MOF to Maguire on January
20, 2009.

 
2.4 Payment of Remaining Funds. Any portion of Income Support Escrow that is not
paid or distributed to MOF or Maguire pursuant to Section 2.1, Section 2.2 or
Section 2.3 of this Agreement shall be paid to Maguire out of the Escrow Account
on January 30, 2009.
 
2.5 Treatment of Income Support Payments. Any portion of the Income Support
Escrow paid to MOF pursuant Section 2.1, Section 2.2, or Section 2.3 of this
Agreement shall be deemed to be capital contributions to the Company by Maguire.
Items of deduction shall be specially allocated to Maguire in an amount equal to
such capital contributions.
 
 
ARTICLE III
 
 

 
 
MISCELLANEOUS
 
3.1 Amendments. This Agreement may not be amended, altered or modified except by
a writing signed by all the parties hereto.
 
3.2 Binding Provisions. The covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, the successors and permitted assigns
of the respective parties hereto. No other person shall have any rights or
remedies hereunder.
 
3.3 Severability. Each provision of this Agreement shall be considered separable
and if for any reason any provision or provisions hereof are determined to be
illegal or invalid and contrary to any existing or future law, such illegality
or invalidity shall not impair the operation of, or affect, those portions of
this Agreement which are legal and valid.
 
3.4 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be an original and all of which together shall constitute
one agreement binding on all parties hereto, notwithstanding that all the
parties may not have signed the same counterpart.
 
 

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3.5 Applicable Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware applicable to agreements to be performed
solely within the State of Delaware.
 
3.6 Complete Agreement. This Agreement, together with the exhibits which are
incorporated as if expressly set forth herein, constitutes the entire agreement
between the parties and supersedes all agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof, and neither party hereto shall be bound by nor
charged with any oral or written agreements, representations, warranties,
statements, promises or understandings not specifically set forth in this
Agreement or the exhibits hereto.
 
3.7 Notices. Any Notification (as defined in the LLC Agreement) to any party
with respect to any matter relating to this Agreement shall be sent in the
manner set forth in the LLC Agreement.
 
 

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IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto as of the date of this Agreement set forth above.
 

 

 
MAGUIRE MACQUARIE OFFICE, LLC, 
 
a Delaware limited liability company
 
By: Maguire MO Manager, LLC,
a Delaware limited liability company,
its manager

By:Maguire Properties, L.P.,
a Maryland limited partnership,
its sole member

By:Maguire Properties, Inc.,
a Maryland corporation,
its general partner
 
 
By:    /s/ Mark Lammas                                                 
 
Name:    Mark Lammas                                                 
 
Its           Senior Vice President                                      
 

 

 

 
MAGUIRE PROPERTIES, L.P.,
 
a Maryland limited partnership
 
By: Maguire Properties, Inc.,
a Maryland corporation,
its general partner

By:    /s/ Mark Lammas                                                 
 
Name:    Mark Lammas                                                 
 
Its           Senior Vice President                                      

 

 

 

 

 
 

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MACQUARIE OFFICE II LLC,
 
a Delaware limited liability company
 
By: Macquarie Office (US) Corporation,
 
a Maryland corporation,
 
its manager
 
By:     /s/ Rena X. Pulido                                                 
 
Name:     Rena X. Pulido                                                 
 
Its            Vice President                                                 
 

 
MAGUIRE MO MANAGER, LLC
a Delaware limited liability company

By:Maguire Properties, L.P.,
a Maryland limited partnership,
its sole member

By:Maguire Properties, Inc., a Maryland corporation, its general partner

By:    /s/ Mark Lammas                                                 
 
Name:    Mark Lammas                                                 
 
Its           Senior Vice President