Exhibit 10.2

 

Tax Protection Agreement

 

This TAX PROTECTION AGREEMENT (this “Agreement”) is entered into as of March 10,
2016, by and among Retail Opportunity Investments Corp., a Delaware corporation
(the “REIT”), Retail Opportunity Investments Partnership, L.P., a Delaware
limited partnership (the “Operating Partnership”), and each Protected Partner
identified as a signatory on Schedule I, as amended from time to time.

 

RECITALS

 

WHEREAS, pursuant to that certain Purchase and Sale Agreement dated December 4,
2015, between the REIT, the Operating Partnership and the Seller signatory
thereto (the “Purchase Agreement”), the REIT intends cause the Operating
Partnership to purchase the real property and improvements commonly known as
Casitas Property and Magnolia Property (each as defined in the Purchase
Agreement and collectively referred to as the “Property”) from the Seller;

 

WHEREAS, in connection with the Purchase Agreement, the REIT and the Operating
Partnership shall enter into this Agreement with Buyer, who is electing to
receive common units of partnership interest in the Operating Partnership (“OP
Units”) in exchange for a portion of the purchase price for the Property
pursuant to the Purchase Agreement;

 

NOW, THEREFORE, 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:

ARTICLE I - DEFINED TERMS

 

Capitalized terms employed herein and not otherwise defined shall have the
meanings assigned to them in the Purchase Agreement. Otherwise, for purposes of
this Agreement the following definitions shall apply:

 

Section 1.1 “Affiliate” means, with respect to any Person, any Person directly
or indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, “control” when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms “controlling” and “controlled” have meanings correlative to the foregoing.

Section 1.2 “Agreement” has the meaning set forth in the preamble.

 

Section 1.3 “Closing Date” means the closing of the Operating Partnership’s
purchase of the Property pursuant to the Purchase Agreement.

 

Section 1.4 “Code” means the United States Internal Revenue Code of 1986, as
amended.

 

 

 

Section 1.5 “Collateral” has the meaning set forth in Section 1.24 under the
definition of “Qualified Liability.”

 

Section 1.6 "Debt Gross Up Amount” has the meaning set forth in Section 1.15
under the definition of “Make Whole Amount.”

 

Section 1.7 “Debt Notification Event” means, with respect to a Qualified
Liability for which a Guaranty Partner has previously executed a guaranty, any
transaction in which such liability shall be refinanced, otherwise repaid
(excluding for this purpose, scheduled payments of principal occurring prior to
the maturity date of such liability), or guaranteed by any of the REIT, the
Operating Partnership, or one or more of their Affiliates, or guaranteed by one
or more partners of the Operating Partnership.

 

Section 1.8 “Exchange” has the meaning set forth in Section 2.1(b) of this
Agreement.

 

Section 1.9 “Fundamental Transaction” means a merger, consolidation or other
combination of the Operating Partnership with or into any other entity, a
transfer of all or substantially all of the assets of the Operating Partnership,
any reclassification, recapitalization or change of the outstanding equity
interests of the Operating Partnership, or a conversion of the Operating
Partnership into another form of entity. Notwithstanding the above, a
Fundamental Transaction shall not include any transaction to the extent that a
Protected Party is provided with an opportunity to participate in such
transaction in a manner that does not result in the recognition of taxable
income or gain by such Protected Partner under Section 704(c) of the Code,
regardless of whether such Protected Partner elects to participate in such
transaction in such manner or otherwise.

 

Section 1.10 “Transfer Gross Up Amount” has the meaning set forth in Section
1.15 under the definition of “Make Whole Amount.”

 

Section 1.11 “Guaranteed Liability” means any Qualified Liability that is
guaranteed, in whole or in part, by one or more Guaranty Partners in accordance
with Section 2.4(b) of this Agreement.

 

Section 1.12 “Guaranty Opportunity” has the meaning set forth in Section 2.4(b).

 

Section 1.13 “Guaranty Partner” means: (i)  each signatory on Schedule II
attached hereto, as amended from time to time; (ii) any person who holds OP
Units and who acquired such OP Units from another Guaranty Partner in a
transaction in which such person’s adjusted basis in such OP Units, as
determined for U.S. Federal income tax purposes, is determined, in whole or in
part, by reference to the adjusted basis of the other Guaranty Partner in such
OP Units; and (iii) with respect to a Guaranty Partner that is Pass Through
Entity, and solely for purposes of computing the amount to be paid under Section
2.4 with respect to such Guaranty Partner, any person who (y) holds an interest
in such Guaranty Partner, either directly or through one or more Pass Through
Entities, and (z) is required to include all or a portion of the income of such
Guaranty Partner in its own gross income.

 

 

 

Section 1.14 “Guaranty Permissible Liability” means a liability with respect to
which the lender with respect to such liability permits a guaranty.

 

Section 1.15 “Make Whole Amount” means, (a) with respect to any Protected
Partner that recognizes gain under Section 704(c) of the Code as a result of a
Tax Protection Period Transfer, the sum of (i) the product of (x) the income and
gain recognized by such Protected Partner under Section 704(c) of the Code in
respect of such Tax Protection Period Transfer (taking into account any
adjustments under Section 743 of the Code to which such Protected Partner is
entitled) multiplied by (y) the Make Whole Tax Rate, plus (ii) an amount equal
to the combined Federal, applicable state and local income taxes (calculated
using the Make Whole Tax Rate) imposed on such Protected Partner as a result of
the receipt by such Protected Partner of a payment under Section 2.2 (the
“Transfer Gross Up Amount”); and

 

(b) with respect to any Guaranty Partner that recognizes gain as a result of a
breach by the Operating Partnership of the provisions of Section 2.4 hereof, the
sum of (i) the product of (x) the income and gain recognized by such Guaranty
Partner by reason of such breach, multiplied by (y) the Make Whole Tax Rate,
plus (ii) an amount equal to the combined Federal, applicable state and local
income taxes (calculated using the Make Whole Tax Rate) imposed on such Guaranty
Partner as a result of the receipt by such Guaranty Partner of a payment under
Section 2.4 (the “Debt Gross Up Amount”).

 

For purposes of calculating the amount of Section 704(c) gain that is allocated
to a Protected Partner, any “reverse Section 704(c) gain” allocated to such
partner pursuant to Treasury Regulations § 1.704-3(a)(6) shall not be taken into
account. The total amount of 704(c) gain and income taken into account for
purpose of calculating the Make Whole Amount under the preceding clause (a)
shall not exceed the initial Section 704(c) gain amount of the relevant
Protected Partner as of the Closing Date (as set forth on Exhibit A), and the
total amount of gain and income taken into account for purpose of calculating
the Make Whole Amount under the preceding clause (b) shall not exceed the
Required Liability Amount of the relevant Guaranty Partner as of the Closing
Date (as set forth on Exhibit B).

 

Section 1.16 “Make Whole Tax Rate” means, with respect to a Protected Partner
who is entitled to receive a payment under Section 2.2, and with respect to a
Guaranty Partner who is entitled to receive payment under Section 2.4, the
highest combined statutory Federal, state and local tax rate in respect of the
income or gain that gave rise to such payment, taking into account the character
of the income and gain in the hands of such Protected Partner or Guaranty
Partner, as applicable (reduced, in the case of Federal taxes, assuming a full
deduction is allowed for income taxes paid to a state or locality), for the
taxable year in which the event that gave rise to such payment under Section 2.2
or Section 2.4 occurred.

 

Section 1.17 “OP Agreement” means the Agreement of Limited Partnership of Retail
Opportunity Investments Partnership, L.P., as amended from time to time.

 

Section 1.18 “Partners’ Representative” means Hollman Property Company and its
successors or permitted assigns.

 

 

 

Section 1.19 “Pass Through Entity” means a partnership or grantor trust for U.S.
Federal income tax purposes.

 

Section 1.20 “Permitted Disposition” means a sale, exchange or other disposition
of OP Units (i) by a Protected Partner or Guaranty Partner: (a) to such
Protected Partner’s or Guaranty Partner’s children, spouse or issue; (b) to a
trust for such Protected Partner or Guaranty Partner or such Protected Partner’s
or Guaranty Partner’s children, spouse or issue; (c) in the case of a trust
which is a Protected Partner or Guaranty Partner, to its beneficiaries, or any
of them, whether current or remainder beneficiaries; (d) to a revocable inter
vivos trust of which such Protected Partner or Guaranty Partner is a trustee;
(e) in the case of any partnership or limited liability company which is a
Protected Partner or Guaranty Partner, to its partners or members; and/or (f) in
the case of any corporation which is a Protected Partner or Guaranty Partner, to
its shareholders, and (ii) by a party described in clauses (a), (b), (c) or (d)
to a partnership, limited liability company or corporation of which the only
partners, members or shareholders, as applicable, are parties described in
clauses (a), (b), (c) or (d); provided, that for purposes of the definition of
Tax Protection Period, such Protected Partner or Guaranty Partner shall be
treated as continuing to own any OP Units which were subject to a Permitted
Disposition unless and until there has been a sale, exchange or other
disposition of such OP Units by a permitted transferee which is not another
Permitted Disposition.

 

Section 1.21 “Person” means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.

 

Section 1.22 “Protected Partner” means: (i) each signatory on Schedule I
attached hereto, as amended from time to time; (ii) any person who holds OP
Units and who acquired such OP Units from another Protected Partner in a
transaction in which such person’s adjusted basis in such OP Units, as
determined for Federal income tax purposes, is determined, in whole or in part,
by reference to the adjusted basis of the other Protected Partner in such OP
Units; and (iii) with respect to a Protected Partner that is Pass Through
Entity, and solely for purposes of computing the amount to be paid under Section
2.2 with respect to such Protected Partner, any person who (y) holds an interest
in such Protected Partner, either directly or through one or more Pass Through
Entities, and (z) is required to include all or a portion of the income of such
Protected Partner in its own gross income.

 

Section 1.23 “Protected Property” means (x) that certain project commonly known
as Magnolia in the City of Santa Barbara, County of Santa Barbara, State of
California, with street address of 5186 Hollister Avenue, and related personal
property, and any property acquired in Exchange for the Protected Property as
set forth in Section 2.1(b) and (y) that certain project commonly known as
Casitas in the City of Santa Barbara, County of Santa Barbara, State of
California, with street address of 5412 Carpinteria Avenue, and related personal
property related personal property, and any property acquired in Exchange for
the Protected Property as set forth in Section 2.1(b).

 

 

 

Section 1.24 “Qualified Liability” means either:

 

(a)                        A direct or indirect liability of the Operating
Partnership (or of an entity whose separate existence from the Operating
Partnership is disregarded for Federal income tax purposes) with respect to
which all of the following requirements are satisfied:

(i)                 the liability is secured by real property or other assets
(the “Collateral”) owned directly or indirectly by the Operating Partnership (or
by an entity whose separate existence from the Operating Partnership is
disregarded for Federal income tax purposes);

(ii)               on the date on which the Operating Partnership designated
such liability as a Qualified Liability, the fair market value (as reasonably
determined in good faith by the Operating Partnership) of the Collateral was at
least 1.5 times the outstanding principal amount (and any accrued and unpaid
interest) of the liability and any other Qualified Liabilities secured by such
Collateral at such time, provided that if interest on such liability is not
required to be paid at least annually or if the documents evidencing such
liability permit the borrower to borrow additional amounts that are secured by
the Collateral, the outstanding principal amount of such liability shall include
the maximum amount that could be so added to the principal amount of such
liability without a default;

(iii)             no other person has executed any guaranties with respect to
such liability other than: (A) guaranties by the Guaranty Partners under this
Agreement or by partners in the Operating Partnership who have rights similar to
Guaranty Partners under any other tax protection agreement entered into by the
REIT or the Operating Partnership; (B) guaranties by Affiliates of the Operating
Partnership, provided that each applicable Guaranty Partner indemnifies each
such Affiliate against any liability of such Affiliate (to the extent such
liability does not exceed such Guaranty Partner’s Required Liability Amount)
arising solely from the existence or performance of such guaranty; and (C)
recourse carve out guaranties (i.e., bad-boy guaranties); and

(iv)             the Collateral does not provide security for another liability
(other than another Qualified Liability) that ranks senior to, or pari passu
with, the liability described in clause (i) above.

For purposes of determining whether clause (ii) has been satisfied in situations
where one or more potential Qualified Liabilities are secured by more than one
item of Collateral, the Operating Partnership shall allocate such liabilities
among such items of Collateral in proportion to their relative fair market
values (as reasonably determined in good faith by the Operating Partnership);

(b)                        A direct liability of the Operating Partnership that:

(i)                 is not secured by any of the assets of the Operating
Partnership and is a general, recourse obligation of the Operating Partnership,
and

(ii)               is not provided by a lender that has an interest in the
Operating Partnership or is related to the Operating Partnership within the
meaning of Section 465(b)(3)(C) or the Code; or

 

 

(c) Any other indebtedness approved by the Partners' Representative (or its
successor or designee) in its sole and absolute discretion.

(d) Notwithstanding any other provision in this Agreement to the contrary, the
parties hereby agree that as of the date hereof each of (i) the loan from
Minnesota Life Insurance Company secured by the Casitas Plaza Shopping Center
and (ii) the loan from The Variable Annuity Life Insurance Company secured by
the Magnolia Shopping Center, each of which are intended to be assumed by the
Operating Partnership in connection with the acquisition of the Protected
Property, shall constitute a Qualified Liability.

Section 1.25 “Required Liability Amount” means, with respect to each Guaranty
Partner, such Guaranty Partner’s estimated “negative tax capital account” as of
the Closing Date, as set forth on Exhibit B hereto for each such Guaranty
Partner.

Section 1.26 “Section 2.4 Notice” has the meaning set forth in Section 2.4(c).

Section 1.27 “Tax Protection Period” means, ten (10) years; provided, however,
that such period shall end with respect to any Protected Partner or Guaranty
Partner to the extent that such Partner owns less than fifty percent (50%) of
the OP Units originally owned by the Protected Partner or Guaranty Partner as of
the Closing Date, disregarding the sale, exchange or other disposition of any
such OP Units sold, exchanged or otherwise disposed of by the Protected Partner
or Guaranty Partner in a Permitted Disposition.

 

Section 1.28 “Tax Protection Period Transfer” has the meaning set forth in
Section 2.1(a) of this Agreement.

 

Section 1.29 “Transfer” means any direct or indirect sale, exchange, transfer or
other disposition, whether voluntary or involuntary.

 

Section 1.30 “Treasury Regulations” means the income tax regulations under the
Code, whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).

 

ARTICLE II - TAX PROTECTIONS

 

Section 2.1 Taxable Transfers.

 

(a) Unless the Partners' Representative expressly consents in writing to a Tax
Protection Period Transfer, during the Tax Protection Period, the Operating
Partnership shall indemnify the Protected Partners as set forth in Section 2.2
if the Operating Partnership or any entity in which the Operating Partnership
holds a direct or indirect interest shall cause or permit: (i) any Transfer of
all or any portion of the Protected Property (including any interest in the
Protected Property or in any entity owning, directly or indirectly, an interest
in the Protected Property, other than the Operating Partnership) in a
transaction that results in the recognition of taxable income or gain by any
Protected Partner under Section 704(c) of the Code with respect to the Protected
Property; or (ii) any Fundamental Transaction that results in the recognition of
taxable income or gain by any Protected Partner under Section 704(c) of the Code
with respect to the Protected Property (such a Transfer or Fundamental
Transaction, a “Tax Protection Period Transfer”).

 

 

 

(b) Section 2.1(a) shall not apply to any Tax Protection Period Transfer of the
Protected Property (including any interest therein or in the entity owning,
directly or indirectly, the Protected Property): (i) in a transaction in which
no gain is required to be recognized by a Protected Partner (an “Exchange”),
including a transaction qualifying under Section 1031, Section 1033 or Section
721 (or any successor statutes) of the Code; provided, however, that any
property acquired by the Operating Partnership in the Exchange shall remain
subject to the provisions of this Article II in place of the exchanged Protected
Property for the remainder of the Tax Protection Period; (ii) as a result of the
condemnation or other taking of the Protected Property by a governmental entity
in an eminent domain proceeding or otherwise, provided that the Operating
Partnership shall use commercially reasonable efforts to structure such
disposition as either a tax-free like-kind exchange under Section 1031 or a
tax-free reinvestment of proceeds under Section 1033, provided that in no event
shall the Operating Partnership be obligated to acquire or invest in any
property that it otherwise would not have acquired or invested in.

 

Section 2.2 Indemnification for Taxable Transfers.

 

(a) In the event of a Tax Protection Period Transfer described in Section
2.1(a), each Protected Partner shall receive from the Operating Partnership an
amount of cash equal to the Make Whole Amount applicable to such Tax Protection
Period Transfer. Any Make Whole Payments required under this Section 2.2(a)
shall be made to each Protected Partner on or before April 15 of the year
following the year in which the Tax Protection Period Transfer took place;
provided that, if the Protected Partner is required to make estimated tax
payments that would include such gain, the Operating Partnership shall make
payment to such Protected Partner on or before the due date for such estimated
tax payment and such payment from the Operating Partnership shall be in an
amount that corresponds to the estimated tax being paid by the Protected Partner
at such time.

 

(b) Notwithstanding any provision of this Agreement to the contrary, the sole
and exclusive rights and remedies of any Protected Partner under Section 2.1(a)
shall be a claim against the Operating Partnership for the Make Whole Amount as
set forth in this Section 2.2, and no Protected Partner shall be entitled to
pursue a claim for specific performance of the covenants set forth in Section
2.1(a) or bring a claim against any person that acquires the Protected Property
from the Operating Partnership in violation of Section 2.1(a).

 

Section 2.3 Section 704(c) Gains. The initial amount of Section 704(c) gain
allocable to each Protected Partner as of the Closing Date is set forth on
Exhibit A hereto. The parties acknowledge that the initial amount of such
Section 704(c) gain may be adjusted over time as required by Section 704(c) of
the Code and the Regulations promulgated thereunder.

 

Section 2.4 Debt Maintenance and Allocation.

(a)                        During the Tax Protection Period, the Operating
Partnership shall: maintain on a continuous basis an amount of Qualified
Liabilities at least equal to the Required Liability Amount. For the avoidance
of doubt, and notwithstanding any other provision of this Agreement, the
Operating Partnership shall not be required to maintain any amount of Qualified
Liabilities in excess of the aggregate Required Liability Amount of all Guaranty
Partners.

 

 

(b)                        (i) At the Closing Date and during the Tax Protection
Period as described in Section 2.4(c), the Operating Partnership shall provide
each Guaranty Partner with the opportunity to execute a guaranty, substantially
in the form attached hereto as Exhibit C or otherwise in a form and manner that
is reasonably acceptable to each of the Partners' Representative and the
Operating Partnership, of one or more Qualified Liabilities that are Guaranty
Permissible Liabilities in an amount up to such Guaranty Partner’s Required
Liability Amount (each such opportunity and each opportunity required by Section
2.4(c), a “Guaranty Opportunity”); provided, however, that the aggregate amount
of all guaranties required to be made available by the Operating Partnership for
execution by all Guaranty Partners need not exceed the aggregate Required
Liability Amount of all Guaranty Partners. The Operating Partnership shall have
the discretion to identify the Qualified Liability or Qualified Liabilities that
shall be made available for guaranty by each Guaranty Partner. Each Guaranty
Partner and its indirect owners may allocate the Guaranty Opportunity afforded
to such Guaranty Partner in any manner they choose. The Operating Partnership
agrees to file its tax returns allocating any debt subject to a Guaranty to the
applicable Guaranty Partners; provided that the Operating Partnership shall not
be required to make such allocations to the extent it determines in good faith
that there may not be “substantial authority” (within the meaning of Section
6662(d)(2)(B)(i) of the Code) for such allocations and so notifies the Guaranty
Partner. Each Guaranty Partner shall bear the costs incurred by it in connection
with the execution of any guaranty to which it is a party. To the extent a
Guaranty Partner executes a guaranty, the Guaranty Partner and the Operating
Partnership shall jointly deliver a copy of such guaranty to the lender under
the Guaranteed Liability.

(c)                        During the Tax Protection Period, the Operating
Partnership shall not allow a Debt Notification Event to occur unless the
Operating Partnership provides at least thirty (30) days’ written notice (a
“Section 2.4 Notice”) to each Guaranty Partner that may be affected thereby. The
Section 2.4 Notice shall describe the Debt Notification Event and designate one
or more Qualified Liabilities that may be guaranteed by the Guaranty Partners
pursuant to Section 2.4(b) of this Agreement in an amount equal to the amount of
the refinanced or repaid Qualifying Debt that was guaranteed by such Guaranty
Partner immediately prior to the date of the refinancing or repayment. Any
Guaranty Partner that desires to execute a guaranty following the receipt of a
Section 2.4 Notice shall provide the Operating Partnership with notice thereof
within fifteen (15) days after the date of the Section 2.4 Notice.

(d)                       Provided the Operating Partnership satisfies its
obligations under Section 2.4(a), (b) and (c) of this Agreement, it shall have
no liability under Section 2.4(e) for breach of Section 2.4, whether or not such
Guaranty Partner accepts such Guaranty Opportunity. In the event a Guaranty
Partner does not accept a Guaranty Opportunity, such person shall no longer be a
Guaranty Partner and shall have no further rights to be offered subsequent
Guaranty Opportunities. Furthermore, the Operating Partnership makes no
representation or warranty to any Guaranty Partner concerning the treatment or
effect of any guaranty under Federal, state, local, or foreign Tax law, and
bears no responsibility for any Tax liability of any Guaranty Partner or
Affiliate thereof that is attributable to a reallocation, by a taxing authority,
of debt subject to a guaranty (other than an act or omission that is
indemnifiable under Section 2.4(e) of this Agreement).

 

 

(e)                        If the Operating Partnership shall fail to comply
with any provision of this Section 2.4, the Operating Partnership shall pay a
Make Whole Payment to each Guaranty Partner who recognizes income or gain as a
result of such failure equal to the estimated Make Whole Amount applicable to
such failure. Any Make Whole Payments required under this Section 2.4(e) shall
be made to each Guaranty Partner on or before March 15 of the year following the
year in which such failure took place; provided that, if the Guaranty Partner is
required to make estimated tax payments that would include such gain, the
Operating Partnership shall make payment to such Guaranty Partner on or before
the due date for such estimated tax payment and such payment from the Operating
Partnership shall be in an amount that corresponds to the estimated tax being
paid by the Guaranty Partner at such time.

(f)                         Notwithstanding any provision of this Agreement to
the contrary, the sole and exclusive rights and remedies of any Guaranty Partner
for a breach or violation of the covenants set forth in Section 2.4 shall be a
claim against the Operating Partnership for the Make Whole Amount as set forth
in Section 2.4(e), and no Guaranty Partner shall be entitled to pursue a claim
for specific performance of the covenants set forth in Section 2.4.

Section 2.5 Dispute Resolution. Any controversy, dispute, or claim of any nature
arising out of, in connection with, or in relation to the interpretation,
performance, enforcement or breach of this Agreement (and any closing document
executed in connection herewith) shall be governed by Section 18.13 of the
Purchase Agreement.

ARTICLE III - GENERAL PROVISIONS

 

Section 3.1 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 OP
Agreement.

 

Section 3.2 Titles and Captions. All Article or Section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
“Articles” and “Sections” are to Articles and Sections of this Agreement.

 

Section 3.3 Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.

 

 

Section 3.4 Further Action. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement.

 

 

 

Section 3.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.

 

Section 3.6 Creditors. Other than as expressly set forth herein, none of the
provisions of this Agreement shall be for the benefit of, or shall be
enforceable by, any creditor of the Operating Partnership.

 

Section 3.7 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any covenant, duty, agreement or
condition. Notwithstanding the foregoing, upon written request by the Operating
Partnership, the Protected Partner, in its sole discretion, may waive the
payment of any damages that is otherwise payable to such Protected Partner
pursuant to Article II hereof. Such a waiver shall be effective only if obtained
in writing from the affected Protected Partner.

 

Section 3.8 Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all of the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.

 

Section 3.9 Applicable Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of California, without
regard to the principles of conflicts of law.

 

Section 3.10 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
or enforceability of other remaining provisions contained herein shall not be
affected thereby.

 

Section 3.11 Entire Agreement. This Agreement contains the entire understanding
and agreement among the Partners with respect to the subject matter hereof and
amends, restates and supersedes the OP Agreement and any other prior written or
oral understandings or agreements among them with respect thereto.

 

Section 3.12 No Rights as Stockholders. Nothing contained in this Agreement
shall be construed as conferring upon the holders of the OP Units any rights
whatsoever as stockholders of the REIT, including, without limitation, any right
to receive dividends or other distributions made to stockholders of the REIT or
to vote or to consent or to receive notice as stockholders in respect of any
meeting of stockholders for the election of directors of the REIT or any other
matter.

 

 

 

Section 3.13 Tax Advice and Cooperation. Each party hereto acknowledges and
agrees that it has not received and is not relying upon tax advice from any
other party hereto, and that it has and will continue to consult its own tax
advisors. Each party hereto agrees to cooperate to the extent reasonably
requested by any other party in connection with the filing of any tax returns or
any audit, litigation or other proceeding related to taxes associated with the
matters described herein, such cooperation shall include the retention and, upon
request, provision of records and information that are relevant to such matters,
and making employees available on a mutually convenient basis to provide such
additional information as may reasonably be requested.

 

[Remainder of Page Left Blank Intentionally]

 

 

 

 

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

REIT:

RETAIL OPPORTUNITY INVESTMENTS CORP.,

a Maryland corporation

 

 

By: /s/ Michael B. Haines     Name: Michael B. Haines     Title: Chief Financial
Officer                 OPERATING PARTNERSHIP:     RETAIL OPPORTUNITY
INVESTMENTS PARTNERSHIP, LP,   a Delaware limited partnership             By:
Retail Opportunity Investments GP, LLC,         a Delaware limited liability
company,         its general partner                   By: Retail Opportunity
Investments Corp.,           a Maryland corporation,           its sole member  
                                By: /s/ Michael B. Haines           Name:
Michael B. Haines           Title: Chief Financial Officer                

 

 

 

 

 

 

[Signature Page to Tax Protection Agreement]

 

 

 

 

PROTECTED PARTNERS:           Hollman Property Company,     a California
corporation,             By: /s/ Robert R. Hollman     Name: Robert R. Hollman  
  Title: President              

 

 

[Signature Page to Tax Protection Agreement]

 

 

 

SCHEDULE I

PROTECTED PARTNERS

Hollman Property Company

 

 

 

 

 

 

 

 

 

 

 

 

SCHEDULE II

GUARANTY PARTNERS

Hollman Property Company

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

ALLOCATIONS OF SECTION 704(c) GAIN

 

  Total 704c Partners   Gain Hollman Property Company   $56,735,372            

 

 

 

 

 

 

 

EXHIBIT B

REQUIRED LIABILITY AMOUNT

 

Guaranty Partners Required Liability Amount Hollman Property Company $10,838,775

 

 

 

 

 

 

 

 

EXHIBIT C

FORM OF GUARANTY

FORM OF GUARANTY AGREEMENT

THIS GUARANTY (this “Guaranty”) is made as of [●], 2016, by and among the
guarantors identified on Exhibit A attached hereto (collectively, the
“Guarantors”) and ROIC Magnolia Center, LLC, a Delaware limited liability
company (the "Borrower") in favor of The Variable Annuity Life Insurance Company
(the "Lender").

RECITALS

Pursuant to that certain Loan Agreement dated September 25, 2003, by and among
Hollman Property Company and Lender (the “Loan Agreement”), the Lender made a
loan to the Hollman Property Company in the original amount of $[●] (the
"Loan"), which Loan is secured by, among other collateral, a security interest
in certain real property known as Magnolia Center, located at 5186 Hollister
Avenue, City of Santa Barbara, Santa Barbara County, California, and related
personal property (the foregoing, collectively, the “Property” and together with
any other property securing the Loan, if any, the “Collateral”). The documents
which evidence the Loan or the Collateral, including, without limitation, the
Deed of Trust, are collectively referred to herein as the “Loan Documents.”
Effective as of the date hereof, the Loan has been assumed by Borrower.

In order to assure the Borrower's payment of its obligations under the Loan and
the performance of the Borrower's obligations under the Loan Documents, the
Guarantors are willing to guarantee a portion of the amounts due under the Loan
on the terms set forth below.

NOW, THEREFORE, in consideration of the foregoing recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantors hereby agree as follows:

1.                  Guaranty.

(a)                If (i) an event of a default which permits the Lender to
accelerate the repayment of the obligations of the Borrower to the Lender
secured by the Deed of Trust (collectively, the “Obligations”) has occurred
(such default and repayment obligation referred to hereinafter as a “Default”),
and (ii) the Lender has accelerated the Loan as a result of such Default, then
each Guarantor, severally and not jointly, absolutely and unconditionally
guarantees and promises to pay directly to the Lender on behalf of the Borrower
in lawful money of the United States of America an amount equal to such
Guarantor's Guaranty Percentage (as defined below) of the Obligations; provided
that no demand shall be made under this Guaranty for payment by any Guarantor as
a result of a Default (x) until such time as the Lender shall have fully and
completely exercised (and not waived) all rights, powers, and remedies it has
with respect to foreclosure on the Property and pursued all of its available
rights and remedies against other assets of the Borrower which secure the Loan,
if any, and any recoveries from such actions have been applied to reduce the
amount of the Obligations or (y) following the date any such Default is cured.
Notwithstanding the foregoing, each Guarantor's maximum liability hereunder
shall in no event be greater than the "Maximum Liability" listed opposite the
Guarantor's name on Exhibit A attached hereto, and under no circumstances shall
a Guarantor be obligated to pay an aggregate amount under this Guaranty in
excess of such Guarantor's Maximum Liability. Each Guarantor's “Guaranty
Percentage” shall equal the Guaranty Percentage listed opposite such Guarantor's
name on Exhibit A attached hereto. The obligations of each Guarantor hereunder
are separate and distinct from the obligations of any other Guarantor hereunder
and are not joint and several.

Form of Guaranty Agreement

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(b)               Notwithstanding any provision to the contrary in this
Guaranty, no Guarantor shall have any obligation to make any payment pursuant to
this Guaranty to the extent that the Default occurs as a result of, or in
connection with "material uninsured damage" to the Property caused by an
earthquake or act of war or terrorism. For purposes of this Guaranty, the term
"material uninsured damage" shall refer to damage to the Property that is not
compensated for by insurance and which is in an amount greater than twenty
percent (20%) of the original principal amount of the Loan.

2.                  Term of Guaranty. This Guaranty, as well as all of the
rights, duties, requirements and obligations created hereunder, shall expire and
be of no further force or effect with respect to each Guarantor as of the
earlier of (a) the date on which the Obligations under the Loan are satisfied in
full, or (b) the Termination Date with respect to such Guarantor. The
“Termination Date” with respect to a Guarantor shall be the effective date set
forth in a written notice from such Guarantor to the Borrower and the Lender,
stating that such Guarantor is terminating its obligations under this Guaranty,
provided that (i) such date shall not be earlier than the earlier of (x) three
(3) months after the date such Guarantor has disposed of all of its equity
interest in Retail Opportunity Investments Partnership, LP, a Delaware limited
Partnership (the "Operating Partnership") or (y) six (6) months after such
Guarantor has given written notice to the Operating Partnership that he wishes
to be released from his obligations under this Guaranty, and (ii) the fair
market value of the Collateral (as reasonably determined by the Guarantor)
exceeds the outstanding balance of the Obligations, including accrued and unpaid
interest, as of the Termination Date. Notwithstanding the foregoing, the
obligations of a Guarantor hereunder shall continue after the Termination Date
with respect to such Guarantor to the extent of any claims that are attributable
fully and solely to an event or action that occurred on or before the
Termination Date with respect to such Guarantor.

3.                  Remedies. If a Guarantor fails to promptly perform his
obligations under this Guaranty, the Lender may from time to time bring an
action at law or in equity, or both, to compel such Guarantor to perform his
obligations hereunder, and to collect in any such action compensation for all
loss, cost, damage, injury and expense sustained or incurred by the Lender as a
consequence of the failure of such Guarantor to perform his obligations together
with interest thereon at the rate of interest applicable to the principal
balance of the Loan.

4.                  Rights of the Lender. Without in any manner limiting the
generality of the foregoing, the Borrower, the Lender, or any subsequent holder
of the Loan or beneficiary of the Deed of Trust may, from time to time, without
notice to or consent of the Guarantors, agree to any amendment, waiver,
modification or alteration of the Loan or the Deed of Trust relating to the
Borrower and its rights and obligations thereunder (including, without
limitation, renewal, waiver or variation of the maturity of the indebtedness
pursuant to the Loan, increase or reduction of the rate of interest payable
under the Loan, release, substitution or addition of any guarantor or endorser
and acceptance of any security for the Loan). The Loan may be extended one or
more times without notice to or consent from the Guarantors, and the Guarantors
shall remain at all times bound to its obligations under this Guaranty,
notwithstanding such extensions.

Form of Guaranty Agreement

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5.                  Guarantors' General Waivers. Until the Obligations are paid
in full, each Guarantor waives: (a) any defense now existing or hereafter
arising based upon any legal disability or other defense of the Borrower, such
Guarantor or any other guarantor or other Person (as defined below), or by
reason of the cessation or limitation of the liability of the Borrower, such
Guarantor or any other guarantor or other Person from any cause other than full
payment and performance of all obligations due under the Loan Documents; (b) any
defense based upon any lack of authority of the officers, directors, partners or
agents acting or purporting to act on behalf of the Borrower or any other
Person, or any defect in the formation of the Borrower or any other Person; (c)
the unenforceability or invalidity of any security or guarantee or the lack of
perfection or continuing perfection, or failure of priority of any security for
the obligations guarantied hereunder; (d) subject to Section 1(a), any and all
rights and defenses arising out of an election of remedies by the Lender, even
though that election of remedies, such as a non-judicial foreclosure with
respect to security for a guaranteed obligation, has destroyed such Guarantor's
rights of subrogation and reimbursement against the principal by the operation
of the laws of the State of California or otherwise (or any other comparable
laws of any other State applicable to this Guaranty or the security for the
Loan); (e) any defense based upon the Lender's failure to disclose to such
Guarantor any information concerning Borrower's or any other Person's financial
condition or any other circumstances bearing on the Borrower's or any other
Person's ability to pay and perform all obligations due under the Loan or any of
the other Loan Documents; (f) any failure by the Lender to give notice to the
Borrower, such Guarantor or any other Person of the sale or other disposition of
security held for the Loan, and any defect in notice given by the Lender in
connection with any such sale or disposition of security held for the Loan; (g)
any failure of the Lender to comply with applicable laws in connection with the
sale or disposition of security held for the Loan, including, without
limitation, any failure by the Lender to conduct a commercially reasonable sale
or other disposition of such security; (h) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in any other respects more burdensome than that of a
principal, or that reduces a surety's or guarantor's obligations in proportion
to the principal's obligation; (i) any use of cash collateral under Section 363
of the Federal Bankruptcy Code; (j) any defense based upon the Lender's
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section 1111(b)(2) of the Federal Bankruptcy Code or any
successor statute; (k) any defense based upon any borrowing or any grant of a
security interest under Section 364 of the Federal Bankruptcy Code; and (1) any
defense based upon the application by the Borrower of the proceeds of the Loan
for purposes other than the purposes represented by the Borrower to the Lender
or intended or understood by the Lender or such Guarantor. Each Guarantor agrees
that the payment and performance of all obligations due under the Loan or any of
the other Loan Documents or any part thereof or other act which tolls any
statute of limitations applicable to the Loan or the other Loan Documents shall
similarly operate to toll the statute of limitations applicable to such
Guarantor's liability hereunder. Without limiting the generality of the
foregoing or any other provision hereof, and subject to the proviso in Section
1(a), each Guarantor further waives any and all rights and defenses that such
Guarantor may have because the Borrower's debt is secured by real property; this
means, among other things, that if the Lender forecloses on any real property
collateral, including the Property, pledged by the Borrower, then the Lender may
collect from such Guarantor in accordance with the terms of this Guaranty even
if the Lender, by foreclosing on the real property collateral, has destroyed any
right such Guarantor may have to collect from the Borrower. Subject to Section
1(a), the foregoing sentence is an unconditional and irrevocable waiver of any
rights and defenses such Guarantor may have because the Borrower's debt is
secured by real property. Without limiting the generality of the foregoing or
any other provision hereof, until the Obligations are paid in full (and subject
to the provisos set forth in Paragraph 6), and subject to the proviso in Section
1(a), each Guarantor expressly waives to the extent permitted by law any and all
rights and defenses, including without limitation any rights of subrogation,
reimbursement, indemnification and contribution, which might otherwise be
available to such Guarantor under the laws of the State of California or any
other jurisdiction to the extent the same are applicable to this Guaranty or the
agreements, covenants or obligations of such Guarantor hereunder (or any other
comparable laws of any other State applicable to this Guaranty or the security
for the Loan).

Form of Guaranty Agreement

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6.                  Waiver of Rights of Subrogation. Subject to Section 1(a),
this is a guarantee of payment and not of collection, and the obligations of the
Guarantors hereunder shall be in addition to and shall not limit or in any way
affect the obligations of the Guarantors under any other existing or future
guaranties unless said other guaranties are expressly modified or revoked in
writing. Each Guarantor expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Guarantor may now or hereafter have against the Borrower or any other
Person directly or contingently liable for the payment or performance of the
Loan or Deed of Trust (including, without limitation, any property
collateralizing the Obligations), arising solely from the existence or
performance of this Guaranty. Each Guarantor further agrees that it will not
enter into any agreement providing, directly or indirectly, for contribution,
reimbursement or repayment by the Borrower or any other Person on account of any
payment by such Guarantor and further agrees that any such agreement, whether
existing or hereafter entered into, would be void. In furtherance, and not in
limitation, of the preceding waiver, each Guarantor, the Borrower and the
Operating Partnership by their acceptance hereof agree that (i) any payment to
the Lender or any Indemnified Party by such Guarantor pursuant to this Guaranty
shall be treated as a contribution by such Guarantor to the capital of the
Operating Partnership, followed by a contribution of such capital to the
Borrower, or, if the Operating Partnership owns Borrower through one or more
entities, as a contribution by the Operating Partnership to the Capital of
Borrower through successive contributions through each such entity, and any such
payment shall not cause such Guarantor to be a creditor of the Operating
Partnership, the Borrower or any partner or affiliate thereof, and (ii) such
Guarantor shall not be entitled to, and shall not receive, the return of any
such capital contribution or receive any consideration in exchange therefor
(including, but not limited to, any distribution from the Operating Partnership
with respect to such contribution or interests or units in the Operating
Partnership).

7.                  Unsecured Obligations. This Guaranty is not secured and
shall not be deemed to be secured by any security instrument unless such
security instrument expressly recites that it secures this Guaranty.
Notwithstanding the foregoing, in no event shall the Deed of Trust secure this
Guaranty.

 

Form of Guaranty Agreement

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8.                  Understanding With Respect to Waivers. Each Guarantor
warrants and agrees that each of the waivers set forth in this Guaranty are made
with such Guarantor's full knowledge of their significance and consequences, and
that under the circumstances the waivers are reasonable and not contrary to
public policy or law. If any of said waivers shall hereafter be determined by a
court of competent jurisdiction to be contrary to any applicable law or against
public policy, such waivers shall be effective only to the maximum extent
permitted by law.

9.                  Rules of Construction. The term “Borrower” as used herein
shall include the Borrower and any other Person at any time assuming or
otherwise becoming primarily liable for all or any part of the obligations of
the Borrower under the Loan or any of the other Loan Documents. The term
“Person” as used herein shall include any individual, corporation, partnership,
limited liability company, trust or other legal entity of any kind whatsoever.
When the context and construction so require, all words used in the singular
herein shall be deemed to have been used in the plural and vice versa. All
headings appearing in this Guaranty are for convenience only and shall be
disregarded in construing this Guaranty.

10.              Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAWS. EACH GUARANTOR AND ALL PERSONS AND ENTITIES IN
ANY MANNER OBLIGATED TO THE LENDER UNDER THIS GUARANTY CONSENT TO THE
JURISDICTION OF ANY FEDERAL OR STATE COURT WITHIN THE STATE OF CALIFORNIA AND
ALSO CONSENT TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA OR
FEDERAL LAW (OR THE LAW OF ANY OTHER STATE APPLICABLE TO THIS GUARANTY OR THE
SECURITY FOR THE LOAN).

11.              Disclosure. The Borrower shall furnish a copy of this Guaranty
to the Lender at the closing of the Loan.

12.              No Assignment. None of the parties shall be entitled to assign
their rights or obligations under this Guaranty to any other Person without the
written consent of the other parties.

13.              Entire Agreement. The undersigned parties agree that this
Guaranty contains the entire understanding and agreement between them with
respect to the subject matter hereof and cannot be amended, modified or
superseded, except by an agreement in writing signed by all of such parties in
accordance with Paragraph 15.

14.              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 partnership agreement of the Operating Partnership, as amended and
restated from time to time.

15.              Amendments. This Guaranty shall not be modified, amended or
(except as expressly provided herein) terminated in a manner which is materially
adverse to the Lender, the Borrower or any Indemnified Party without the written
consent of such party.

Form of Guaranty Agreement

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16.              Miscellaneous. The provisions of this Guaranty shall bind and
benefit, the heirs, executors, administrators, legal representatives, successors
and assigns of each Guarantor, the Borrower, the Lender and the Indemnified
Parties. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.

17.              Counterparts. This Guaranty may be executed in counterparts
(including by scan or facsimile) with the same effect as if all parties hereto
had signed the same document. All such counterparts shall be deemed an original,
shall be construed together and shall constitute one and the same instrument.

18.              Condition of the Borrower. The Guarantors are not relying in
any manner upon any representation or statement of the Lender or any other
Person. Each Guarantor hereby represents and warrants that it is not relying
upon or expecting the Lender to furnish to it any information now or hereafter
in the Lender's possession concerning the same or any other matter. By executing
this Guaranty, each Guarantor knowingly accepts the full range of risks
encompassed within a contract of this type, which risks it acknowledges. The
Guarantors shall have no right to require the Lender to obtain or disclose any
information with respect to the Obligations, the financial condition or
character of the Property, the Borrower's ability to pay or perform the
Obligations, the existence or non-existence of any guaranties of all or any part
of the Obligations, any action or non-action on the part of the Lender, the
Borrower or any other Person, or any other matter, fact or occurrence
whatsoever.

[Signature page follows]

 

 

Form of Guaranty Agreement

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IN WITNESS WHEREOF, the Guarantors have duly authorized and executed this
Guaranty as of the date first above written.

  GUARANTORS:           PROTECTED PARTNERS:           Hollman Property Company,
    a California corporation,           By:       Name:       Title:          

 

[Signature Page to Guaranty Agreement]

 

 

 

  BORROWER:           ROIC Magnolia Center, LLC,     a Delaware limited
liability company,           By: Retail Opportunity Investments Partnership, LP,
    a Delaware limited partnership,     its sole member               By: Retail
Opportunity Investments GP, LLC,         a Delaware limited liability company,  
      its general partner                   By: Retail Opportunity Investments
Corp.,           a Maryland corporation,           its sole member              
                    By:           Name: Michael B. Haines           Title: Chief
Financial Officer  

 

 

[Signature Page to Guaranty Agreement]

 

 

 

Exhibit A

Guarantors

 

Maximum Liability

Current Guaranty Percentage Hollman Property Company $[●] 100.00% Total $[●]
100.00%                                                                        
                       

 

 

 

1 – EXHIBIT A

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