Exhibit 10.1

TAX PROTECTION AGREEMENT

This Tax Protection Agreement (this “Agreement”) is entered into as of
October 21, 2015, by and among Easterly Government Properties LP, a Delaware
limited partnership (“EGPLP”), and West Pleasanton Lab, LLC (“Contributor”), an
entity wholly-owned by Michael Ibe (“Ibe”), in connection with the contribution
of certain property (the “Property’) by Contributor to EGPLP or one  of its
subsidiaries in exchange for limited partnership units in EGPLP pursuant to the
Contribution Agreement (“Contribution Agreement”) between the Contributor and
EGPLP as of the date hereof.  This Agreement is being entered into for the
benefit of the WP Indemnified Parties (as defined below).  

Section 1    Definitions.

(a)“Applicable Tax Liability” shall mean, with respect to each WP Indemnified
Party, an amount equal to (i) in the case of a breach of Section 2(a), the
amount of Built-In Gain allocated to such WP Indemnified Party as a result of
such breach multiplied by the Effective Tax Rate, and (ii) in the case of a
breach of Section 2(c) or 2(d), the amount of Built-In Gain recognized by such
WP Indemnified Party as a result of such breach multiplied by the Effective Tax
Rate.  

(b)“Built-In Gain” shall mean, with respect to the Property: (i) the amount by
which the fair market value of the Property, as determined for federal income
tax purposes, exceeds the WP Limited Partners’ basis in the Property for federal
income tax purposes, immediately prior to the time the WP Limited Partners
contributed the Property to EGPLP, the amount of which is set forth on Annex A,
minus (ii) the amortization of such amount on account of the reductions in the
so-called “book‑tax” disparity properly attributable to the Property due to Code
Section 704(c) allocations and reverse Code Section 704(c) allocations described
in Treasury Regulations Section 1.704-3(a)(6).  For the avoidance of doubt,
Built-In Gain shall be reduced by any Built-In Gain that is recognized for
federal income tax purposes during the Protected Period, including, without
limitation, any Built-in Gain without duplication thereof, recognized by the WP
Indemnified Parties as a result of a prior breach by EGPLP of its obligations
under this Agreement provided the WP Indemnified Parties were properly
indemnified pursuant to Section 4(a) for such prior breach.

(c)“Closing Date” means the date on which the Property is contributed to
EGPLP.  

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

(e)“Effective Tax Rate” shall mean the highest effective federal, state and
local income tax rate applicable to individuals resident in San Diego,
California, taking into account the character and type of the income recognized
in the transaction giving rise to such taxes and the deductibility of state and
local taxes for federal income tax purposes (unless and to the extent that such
WP Indemnified Party demonstrates to the reasonable satisfaction of EGPLP that
such WP Indemnified Party is unable to deduct the state or local taxes for
federal income tax purposes either because it is actually subject to the Federal
alternative minimum tax for the relevant taxable year or because such deductions
are otherwise limited with respect to the WP

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Indemnified Party); provided, however, that if a WP Indemnified Party to whom
the Effective Tax Rate is being applied is a resident for state and local income
tax purposes in a city other than San Diego, California, then the state and
local income tax rate for purposes of determining the Effective Tax Rate for
such WP Indemnified Party shall be the rate applicable in the state and city in
which such WP Indemnified Party is resident.  

(f)“Government Entity” means any nation or government, any state, province or
other political subdivision thereof, and any agency, authority, department,
board, tribunal, commission or instrumentality thereof, and any person
exercising executive, legislative, judicial, regulatory or administration
functions of or pertaining to any of the foregoing.  

(g)“Initial Guarantee Loan” shall mean that certain loan from PNC Bank, National
Association in the maximum principal amount of Fifteen Million Seven Hundred
Thousand Dollars ($15,700,000).

(h)“OPUs” means any limited partnership interests in EGPLP that were received on
account of the contribution of the Property.  

(i)“Person” means an individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.

(j)“Protected Period” shall mean the period commencing on the Closing Date and
ending on the eighth (8th) anniversary of the Closing Date.  

(k)“Protected Property” shall mean each of (i) the Property, (ii) any direct or
indirect interest in any entity through which EGPLP owns a direct or indirect
interest in any Property, and (iii) any property received by EGPLP or any entity
in which EGPLP holds a direct or indirect interest as “substituted basis
property” as defined in Code Section 7701(a)(42) with respect to a Protected
Property.  

 

(l)“WP Indemnified Party” shall mean Ibe and any entities wholly-owned by Ibe
that are subject to U.S. federal income tax on the Built-In Gain.

(m)“WP Limited Partner” shall mean Ibe and any entities wholly-owned by Ibe that
hold OPUs.

 

Section 2Restrictions on Dispositions of Protected Properties and Debt
Protection.  

(a) Subject to Section 2(b), during the Protected Period, neither EGPLP nor any
entity in which EGPLP holds a direct or indirect interest will consummate,
directly or indirectly, a sale, transfer, exchange, or other disposition of any
Protected Property or any interest therein in a transaction that results in the
recognition by any WP Indemnified Party of all or any portion of the Built-In
Gain.  

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(b) Section 2(a) shall not apply to any sale or transfer as a result of the
condemnation or other taking of any Protected Property by a Government Entity in
an eminent domain proceeding or otherwise.   

(c)EGPLP shall make available to the WP Limited Partner and Ibe the opportunity
(a “Guarantee Opportunity”) to make, on or before the Closing Date, a guarantee
of the entire outstanding balance of the Initial Guarantee Loan, provided that
such guarantee shall be made in substantially the same form set forth in Exhibit
A hereto.  Subject to Section 4(b), (i) EGPLP shall not pay down any of the
initial principal amount on the Initial Guarantee Loan during the two year
period beginning on the date the Property is contributed to EGPLP pursuant to
the Contribution Agreement, and (ii) EGPLP shall maintain an outstanding balance
of at least $7,221,127 on the Initial Guarantee Loan for the entire Protected
Period, provided in the case of clause (ii) that EGPLP may refinance the Initial
Guarantee Loan in accordance with Section 2(d).

 

(d)Subject to Section 4(b), in the event that, during the Protected Period but
after the end of the two year period beginning on the date the Property is
contributed to EGPLP, EGPLP desires to refinance, repay or replace the Initial
Guarantee Loan or any indebtedness subsequently guaranteed pursuant to this
Section 2(d), or substitute another loan for the Initial Guarantee Loan or such
subsequently guaranteed indebtedness, EGPLP shall make available to each WP
Limited Partner and Ibe that has guaranteed such previous indebtedness a new
Guarantee Opportunity to make a guarantee of such new indebtedness in an amount
equal to at least $7,221,127; provided, however, that any Guarantee Opportunity
offered under this Section 2(d) shall be presented to the WP Limited Partner(s)
and Ibe no less than 10 business days prior to the date the previously
guaranteed indebtedness is refinanced, substituted or replaced.  

 

(e)EGPLP does not make any representation or warranty to WP Limited Partner or
any WP Indemnified Party that providing a guarantee entered into pursuant to
Section 2(c) or Section 2(d) will be respected for federal income tax purposes
as providing WP Limited Partner or any WP Indemnified Party with an allocation
of any such liability for purposes of Code Section 752 or as causing WP Limited
Partner or any WP Indemnified Party to be “at risk” with respect to such
liability for purposes of Code Section 465, including as a result of the
lender’s acceptance or non-acceptance of such guarantee; provided, however,
EGPLP shall report debt so guaranteed as allocable for such purposes unless,
solely as a result of a change in law occurring after the date hereof, EGPLP is
advised by Goodwin Procter LLP or other nationally recognized tax counsel that
EGPLP would not be permitted to take such reporting position under the Code, and
in such event, EGPLP shall provide prompt prior notice of such change in
reporting position to the WP Limited Partners, and if the WP Limited Partners
dispute the requirement that such change be made, the matter will be subject to
resolution under Section 4(d).

 

Section 3Elections.  During the Protected Period, EGPLP shall elect to use the
“traditional method” of making allocations under Code Section 704(c) with
respect to the Built-In Gain with respect to each Protected Property as provided
in Treasury Regulations Section 1.704-3(b).

 

 

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Section 4Indemnification; Liability. 

(a)Indemnification for Breach.  If a breach by EGPLP of any of its obligations
or agreements under this Agreement during the Protected Period results in any WP
Indemnified Party recognizing all or any portion of the Built-In Gain for income
tax purposes, then EGPLP shall indemnify, defend, hold harmless and, not later
than 90 days following such breach, pay to such WP Indemnified Party an amount
equal to the sum of (1) the Applicable Tax Liability, plus (2) an amount equal
to the aggregate federal, state, and local income taxes payable by the WP
Indemnified Party as a result of the receipt of any payment required under
clause (1) and this clause (2) of this Section 4(a) (the “Gross-up Amount”),
calculated by applying the Effective Tax Rate to any such additional income. The
amount of the payments due under this Section 4(a), including the Gross-up
Amount, shall be computed without regard to any losses, credit, or other tax
attributes that such WP Indemnified Party might have that would reduce its
actual tax liability.

(b)Exclusive Remedy.  The parties hereto agree and acknowledge that the
indemnity, defense and hold harmless obligations of EGPLP pursuant to Section
4(a) hereof shall constitute liquidated damages for any breach by EGPLP of this
Agreement, and shall be the sole remedy of the WP Indemnified Parties or WP
Limited Partners for any such breach of this Agreement.  No WP Indemnified Party
or WP Limited Partner shall bring any claim for specific performance under this
Agreement for any breach of this Agreement, other than a claim for performance
of the payment obligations set forth in this Section 4.

(c)Limitations.  

(i)For the avoidance of doubt, EGPLP shall not be liable to any WP Indemnified
Party for any income or gain (i) allocated to such WP Indemnified Party with
respect to OPUs that is not the result of a breach by EGPLP of its obligations
or agreements under this Agreement, or (ii) resulting from distributions by
EGPLP made with respect to the class of limited partnership units in EGPLP that
includes the OPUs that are made to all holders of units of such class.

(ii)No officer, director, limited partner or employee of EGPLP or any of its
affiliates (other than the general partner of EGPLP) shall have any liability
for any breach of the obligations and agreements of EGPLP under this Agreement.

(d)Process for Resolving Disputes.  If EGPLP has breached or violated any of the
covenants set forth in this Agreement (or a WP Indemnified Party or a WP Limited
Partner asserts that EGPLP has breached or violated any of the covenants set
forth in this Agreement), EGPLP, the WP Limited Partners and the WP Indemnified
Party agree to negotiate in good faith to resolve any disagreements regarding
any such breach or violation and the amount of damages, if any, payable to such
WP Indemnified Party under Section 4(a).  If any such disagreement cannot be
resolved by EGPLP and such WP Limited Partner and such WP Indemnified Party
within sixty (60) days after the receipt of a notice of disagreement from either
party, EGPLP and the WP Indemnified Party and WP Limited Partner shall jointly
retain a nationally recognized independent public accounting firm (an
“Accounting Firm”) to act as an arbitrator to resolve as expeditiously as
possible all points of any such disagreement (including, without limitation,

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whether a breach of any of the covenants set forth in this Agreement has
occurred and, if so, the amount of damages to which the WP Indemnified Party is
entitled as a result thereof, determined as set forth in Section 4(a)).  All
determinations made by the Accounting Firm with respect to the resolution of any
breach or violation of any of the covenants set forth in this Agreement and the
amount of damages payable to the WP Indemnified Party under Section 4(a) shall
be final, conclusive and binding on EGPLP and the WP Indemnified Party and WP
Limited Partner.  The fees and expenses of any Accounting Firm incurred in
connection with any such determination shall be shared 50% by EGPLP and 50% by
the WP Indemnified Party and WP Limited Partners, provided that if the amount
determined by the Accounting Firm to be owed by EGPLP to the WP Indemnified
Party (i) is equal to or greater than the amount proposed by the WP Indemnified
Party or WP Limited Partner prior to the submission of the matter to the
Accounting Firm, then all of the fees and expenses of any Accounting Firm
incurred in connection with any such determination shall be paid by EGPLP or
(ii) is equal to or less than the amount proposed by the EGPLP prior to the
submission of the matter to the Accounting Firm, then all of the fees and
expenses of any Accounting Firm incurred in connection with any such
determination shall be paid by the WP Indemnified Party and WP Limited Partner. 

Section 5.  Tax Treatment and Reporting; Tax Proceedings.

(a)Appointment of Representative.  Each WP Indemnified Party that is or becomes
a beneficiary to this Agreement, as a condition to becoming a beneficiary to
this Agreement, agrees for EGPLP’s benefit that Michael P. Ibe (the
“Representative”) alone will represent and act on behalf of the WP Indemnified
Parties (and each hereby irrevocably appoints the Representative as his, her, or
its representative) for the purpose of giving any notice, consent, approval or
waiver required or contemplated in this Agreement, and each agrees that EGPLP
shall be fully entitled to rely conclusively on any such notice, consent,
approval, waiver or other determination by the Representative as an action by
the appointed and authorized representative of the WP Indemnified Parties.  In
addition, each WP Indemnified Party acknowledges and agrees that wherever, in
this Agreement, EGPLP is required to make a payment to any of the WP Indemnified
Parties, so long as EGPLP has delivered the payment in question to the
Representative or an account designated by the Representative in writing for the
benefit of the WP Indemnified Parties, as applicable, EGPLP shall be deemed to
have fully satisfied the payment obligation in question.

(b)Tax Treatment of Transaction.  For U.S. federal income tax purposes, each of
the parties hereto shall treat the contribution of the Property to EGPLP as a
tax free contribution under Code Section 721 to the extent made in exchange for
the OPUs, and a taxable exchange to the extent made for cash.  No party hereto
shall, at any time during or with respect to the Protected Period, take any
contrary or inconsistent position in any federal or state income tax returns or
for any income tax purposes, except pursuant to a final determination (as
defined in Code Section 1313(a)) with a Government Entity.

(c)Notice of Tax Audits.  If any claim, demand, assessment (including a notice
of proposed assessment) or other assertion is made with respect to taxes against
any WP Indemnified Party, WP Limited Partner or EGPLP the calculation of which
involves a matter covered in this Agreement (“Tax Claim”) or if EGPLP, a WP
Indemnified Party or a WP Limited Partner receives any notice from any
jurisdiction with respect to any current or future

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audit, examination, investigation or other proceeding (“Proceeding”) involving
the WP Indemnified Parties, WP Limited Partners or EGPLP that otherwise could
involve a matter covered in this Agreement, then EGPLP, the WP Limited Partners
or the WP Indemnified Parties, as applicable, shall promptly notify the other
parties of such Tax Claim or Proceeding. 

(d)Participation in Tax Proceedings.  EGPLP shall have the right to participate,
at its own expense, in any tax audits or proceedings of the WP Limited Partners
and WP Indemnified Parties that relate to a matter that is covered by this
Agreement, and the WP Limited Partners or WP Indemnified Parties (as applicable)
shall not settle or otherwise resolve any such matter without EGPLP’s prior
written consent, which consent shall not be unreasonably withheld or
delayed.  The WP Limited Partners and the WP Indemnified Parties (as applicable)
shall keep EGPLP reasonably informed of the details and status of any such tax
audits and proceedings (including providing EGPLP with copies of all written
correspondence regarding such matter).

Section 7Miscellaneous.

1.

(a)Assignment.  No WP Limited Partner or WP Indemnified Party shall assign this
Agreement or its rights hereunder to any Person without the prior written
consent of EGPLP, which consent EGPLP may grant or withhold in its sole
discretion, and any such assignment undertaken without such consent shall be
null and void; provided, however, that a WP Limited Partner or WP Indemnified
Party may assign its rights hereunder to any other WP Limited Partner or WP
Indemnified Party without the consent of EGPLP.  

(b)Integration, Waiver.  This Agreement (including any Annex hereto) and that
certain Contribution Agreement, dated as of October 7, 2015, entered into by and
among, inter alia, EGPLP and the Contributor, embody and constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede all prior agreements, understandings, representations and
statements, whether oral or written.  Neither this Agreement nor any provision
hereof may be waived, modified, amended, discharged or terminated except by an
instrument signed by the party against whom the enforcement of such waiver,
modification, amendment, discharge or termination is sought, and then only to
the extent set forth in such instrument. No waiver by a party hereto of any
failure or refusal by any other party to comply with its obligations hereunder
shall be deemed a waiver of any other or subsequent failure or refusal to so
comply.

(c)Governing Law.  This Agreement shall be governed by, and construed in
accordance with, the law of the State of Delaware, without regard to principles
of conflicts of laws.

(d)Captions Not Binding; Annexes.  The captions in this Agreement are inserted
for reference only and in no way define, describe or limit the scope or intent
of this Agreement or of any of the provisions hereof.  All Annexes attached
hereto shall be incorporated by reference as if set out herein in full.

(e)Binding Effect.  This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

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(f)Severability.  If any term or provision of this Agreement or the application
thereof to any Persons or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law. 

(g)Notices.  Any notice to be given hereunder by any party to the other shall be
given in writing by either (i) personal delivery, (ii) registered or certified
mail, postage prepaid, return receipt requested, or (iii) facsimile transmission
(provided such facsimile is followed by an original of such notice by mail or
personal delivery as provided herein), and any such notice shall be deemed
communicated as of the date of delivery (including delivery by overnight
courier, certified mail or facsimile). Mailed notices shall be addressed as set
forth below, but any party may change the address set forth below by written
notice to other parties in accordance with this paragraph.

As to EGPLP:

c/o Easterly Government Properties, Inc.

2101 L Street NW, Suite 750

Washington, DC 20037
Attention:  William C. Trimble, III

Phone:  (202) 595-9500
Facsimile: (617) 581-1440

 

 

 

And to:

Goodwin Procter LLP
53 State Street
Boston, Massachusetts 02109-2802
Attention:  Mark S. Opper, Esq.

Phone: 617-570-1000
Facsimile: 617-523-1231

 

 

As to Contributor, Representative and

WP Limited Partners:

Michael P. Ibe

c/o Western Devcon, Inc.

10525 Vista Sorrento Parkway, Suite 110

San Diego, California 92121

Phone: (858) 587-9999

Facsimile: (858) 587-1954

 

            And to:

Seltzer Caplan McMahon Vitek

750 B Street, Suite 2100

San Diego, California 92101

Attention: David J. Dorne, Esq.

Phone: (619) 685-3027

Facsimile: (619) 702-6806

 

 

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(h)Counterparts.  This Agreement may be executed in counterparts, each of which
shall be an original and all of which counterparts taken together shall
constitute one and the same agreement. The signature page of any counterpart may
be detached therefrom without impairing the legal effect of the signature(s)
thereon provided such signature page is attached to any other counterpart
identical thereto except having additional signature pages executed by other
parties to this Agreement attached thereto. 

(i)Construction.  The parties acknowledge that each party and its counsel have
reviewed and revised this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendment
or Annex hereto.

(j)Attorneys’ Fees.  In the event that it becomes necessary for either party to
employ counsel in connection with any action arising out of this Agreement, the
prevailing party shall be entitled to receive all reasonable costs and expenses
(including reasonable attorneys’ fees) incurred by such prevailing party in
connection with such action or proceeding.  A party entitled to recover costs
and expenses under this Section shall also be entitled to recover all costs and
expenses (including reasonable attorneys’ fees) incurred in the enforcement of
any judgment or settlement obtained in such action or proceeding and provision
(and in any such judgment provision shall be made for the recovery of such
post-judgment costs and expenses).

 

[signature page follows]

 

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

EASTERLY GOVERNMENT PROPERTIES LP, a Delaware limited partnership

 

 

By:

Easterly Government Properties, Inc.,
a Maryland corporation, its general partner

 

 

By:/s/ William C. Trimble, III

       Name: William C. Trimble, III

                             Title: Chief Executive Officer and President

 

 

[Signatures continue on following page]

[Signature Page to Tax Protection Agreement]

 

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“CONTRIBUTOR”

 

WEST PLEASANTON LAB, LLC,

a California limited liability company

 

By:  /s/ Michael P. Ibe

       Name:  Michael P. Ibe
       Title:    Sole Member

 

 

Michael Ibe

/s/ Michael Ibe

[Signature Page to Tax Protection Agreement]

 

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ANNEX A

PROTECTED PROPERTY

 

Protected Property

 

Tax Basis

Built-In Gain Immediately prior to Contribution

DEA - Pleasanton

$19,767,434

$12,232,566