Indemnity Escrow Agreement



 Exhibit 10.7 

INDEMNITY ESCROW AGREEMENT 

This INDEMNITY ESCROW AGREEMENT (this “Agreement”), dated as of September 13, 2010, is made by and among American Assets
Trust, Inc., a Maryland corporation (the “REIT”), American Assets Trust, L.P., a Maryland limited partnership and subsidiary of the REIT (the “Operating Partnership” and collectively with the REIT, the
“Consolidated Entities”), the REIT, acting in the capacity of escrow agent (the “Escrow Agent”), and the Ernest Rady Trust U/D/T March 10, 1983, as amended (the “Principal”). Capitalized terms
used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Indemnity Agreement (as defined below). 

WHEREAS, the REIT, the Operating Partnership and the Principal are parties to that certain Representation, Warranty and Indemnity
Agreement, dated as of September 13, 2010 and effective as of even date herewith (the “Indemnity Agreement”); 

WHEREAS, the Indemnity Agreement contains, among other things, certain representations and warranties of the Principal and indemnities
with respect thereto, and contemplates the deposit of the Indemnity Holdback Amount by the Principal into an Indemnity Holdback Escrow; 

WHEREAS, the indemnification procedures governing the indemnification obligations of the Principal are set forth in the Indemnity
Agreement; and 
 WHEREAS, the parties wish to establish the Indemnity Holdback Escrow pursuant to this Agreement, and the
Escrow Agent has agreed to hold and to release the Indemnity Holdback Amount (as reduced by any disbursements hereunder, the “Escrow Fund”) pursuant to the terms of this Agreement. 

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 

1. ESCROW FUND. In accordance with the Indemnity Agreement, the Principal shall deposit the Indemnity Holdback Amount into the Indemnity
Holdback Escrow on the Closing Date in the form of cash, REIT Shares and/or OP Units in escrow with the Escrow Agent. OP Units and REIT Shares constituting any portion of the Indemnity Holdback Amount and any other securities received by the Escrow
Agent in respect thereof are referred to herein as “Escrow Securities.” 
 2. INVESTMENT. The Escrow Agent
shall promptly invest any cash portion of the Escrow Fund not being disbursed, provided that such investments (i) shall be obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the
highest rating from either Moody’s Investors Services, Inc. or Standard & Poor’s Corporation, or in certificates of deposit, bank repurchase agreements or bankers acceptances of domestic commercial banks with equity capital
exceeding $500,000,000 (collectively “Permitted Investments”) or in money market funds which are invested solely in Permitted Investments and (ii) shall have maturities that will not prevent or delay payments to be made
pursuant to this Agreement and the Indemnity Agreement. 







 3. EARNINGS. Notwithstanding anything herein to the contrary, all interest and earnings on
the cash portion of the Escrow Fund and all dividends and distributions in respect of the Escrow Securities, whether in cash, additional OP Units or REIT Shares (including but not limited to REIT Shares received with respect to a dividend
reinvestment plan) or other property received by the Escrow Agent shall not be part of the Escrow Fund, but shall be the property of the Principal and shall be distributed currently to the Principal; provided, that stock dividends made to
effect stock splits or similar events in respect of any Escrow Securities shall be retained by the Escrow Agent as part of the Escrow Fund. In the event that Escrow Securities are reclassified or otherwise changed into or exchanged for other
securities, property or cash pursuant to any merger, consolidation, sale of assets and liquidation or other transaction, the securities, cash or other property received by the Escrow Agent in respect of the Escrow Securities shall be retained by it
as part of the Escrow Fund. The provisions of this Section 3 shall apply to successive distributions. Such stock dividends so made or any securities, property or cash so reclassified or exchanged in respect of an OP Unit or a REIT Share
shall be valued in the aggregate at the IPO Price, and any such successive stock dividends, reclassifications or exchanges shall be similarly valued. 

4. VOTING. The Principal shall have the right to vote all of the amount of the Escrow Securities. The Escrow Agent will forward to the
Principal all notices of shareholders’ meetings, proxy statements and reports to shareholders received by the Escrow Agent in respect of (x) the Escrow Securities or (y) the Principal and will either (i) vote the Escrow
Securities only in accordance with written instructions received from the Principal or (ii) forward to the Principal a signed proxy (with power of substitution) enabling the Principal to vote such Escrow Securities. 

5. DISBURSEMENTS OF ESCROW FUND. From time to time, the Escrow Agent shall disburse all or part of the Escrow Fund in accordance with any
written instruction from the REIT or the Operating Partnership (which shall include the amounts of each form of consideration to be disbursed, the person(s) to whom the disbursement is to be made), provided that an officer of the REIT or the
Operating Partnership certifies that such disbursement instructions (i) have been approved in accordance with Section 4.03 of the Indemnity Agreement, or (ii) represent a distribution to the Principal in accordance with
Section 4.04 of the Indemnity Agreement. To the extent a disbursement is made in REIT Shares or OP Units, such disbursement shall be determined at a price per REIT Share or OP Unit equal to the IPO Price. To the extent that any
disbursement is made pursuant to this Agreement in the form of Escrow Securities, the Consolidated Entities will purchase (at the IPO Price) such number of the securities as will permit the Escrow Agent to distribute cash in lieu of any fractional
shares or OP Units. Prior to disbursing all or part of the Escrow Fund, the Escrow Agent will (i) notify the Principal in writing of the amount of the proposed disbursement and the portion thereof which is to be comprised of cash, REIT Shares
or OP Units and (ii) provide the Principal with the opportunity for at least ten (10) Business Days to (A) deposit an amount of cash, REIT Shares and/or OP Units into the Indemnity Holdback Escrow in exchange for an amount of cash,
REIT Shares and/or OP Units from the Indemnity Holdback Escrow of equal aggregate value and (B) direct the Escrow Agent to pay the proposed disbursement with an amount of cash, REIT Shares and/or OP Units equal in value to the originally
proposed disbursement, but in such proportions as the Principal shall designate to avoid adverse tax consequences. For purposes of the preceding sentence, the value of all REIT Shares and/or OP Units shall be determined at a price








 
per REIT Share or OP Unit equal to the IPO Price. In the event that the Principal directs the Escrow Agent to pay any proposed disbursement with proportions of cash, REIT Shares or OP Units that
differ from those certified by the REIT or the Operating Partnership (and to the extent necessary, the Principal has deposited the necessary amounts of cash, REIT Shares and/or OP Units into the Indemnity Holdback Escrow to make such disbursement),
the Escrow Agent shall pay such disbursement in accordance with the proportions of cash, REIT Shares and/or OP Units directed by the Principal rather than in accordance with such proportions certified by the REIT or the Operating Partnership.

 6. TERMINATION OF ESCROW FUND. Upon distribution of the entire amount of the Escrow Fund, the Indemnity Holdback Escrow shall
terminate, and the Escrow Agent shall give the Consolidated Entities notice to such effect. 
 7. LIABILITY AND COMPENSATION OF
ESCROW AGENT. 
 (a) The duties and obligations of the Escrow Agent hereunder shall be determined solely by the express
provisions of this Agreement, and no implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall, in determining its duties hereunder, be under no obligation to refer to any other documents
between or among the parties related in any way to this Agreement (except to the extent that this Agreement specifically refers to or incorporates by reference provisions of any other document, including the Indemnity Agreement). The Consolidated
Entities shall indemnify and hold the Escrow Agent harmless from and against any and all liability and expense which may arise out of any action taken or omitted by the Escrow Agent, except such liability and expense as may result from the gross
negligence or willful misconduct of the Escrow Agent. The reasonable costs and expenses of the Escrow Agent to enforce its indemnification rights under this Section 7(a) shall also be paid by the Consolidated Entities. The Escrow
Agent’s indemnification rights under this Section 7 shall survive the termination of this Agreement and removal or resignation of the Escrow Agent. With respect to any claims or actions against the Escrow Agent which are indemnified
by the Consolidated Entities under this Section 7, the Consolidated Entities shall have the right to retain sole control over the defense, settlement, investigation and preparation related to such claims or actions; provided, that
(i) the Escrow Agent may employ its own counsel to defend such a claim or action if it reasonably concludes, based on the advice of counsel, that there are defenses available to it which are different from or additional to those available to
the Consolidated Entities, and (ii) neither the Consolidated Entities, on the one hand, nor the Escrow Agent, on the other hand, shall settle or compromise any such claim or action without the consent of the other, which consent shall not be
unreasonably withheld or delayed. 
 (b) The Escrow Agent shall not be liable to any person by reason of any error of judgment
or for any act done or step taken or omitted by it, or for any mistake of fact or law or anything which it may do or refrain from doing in connection herewith, unless caused by or arising out of its own gross negligence or willful misconduct.

 (c) The Escrow Agent shall be entitled to rely on, and shall be protected in acting in reliance upon, any instructions or
directions furnished to it in writing signed by the REIT or the Operating Partnership (so long as the instructions include a certificate signed by an officer that the instruction or direction has been given in compliance with any approval

  

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procedures required under the Indemnity Agreement) and shall be entitled to treat as genuine, and as the document it purports to be, any letter, paper or other document furnished to it by the
REIT or the Operating Partnership, and believed by the Escrow Agent to be genuine and to have been signed and presented by the proper party or parties. In performing its obligations hereunder, the Escrow Agent may consult with its counsel and shall
be entitled to rely on, and shall be protected in acting in reliance upon, the advice or opinion of such counsel. 
 (d) The
Escrow Agent shall not be entitled to compensation for the services to be rendered by the Escrow Agent hereunder nor shall the Escrow Agent be reimbursed for any costs or expenses incurred by it in connection with the performance of such services.

 (e) The Escrow Agent may resign at any time by giving sixty (60) days written notice to the Consolidated Entities;
provided that such resignation shall not be effective unless and until a successor Escrow Agent has been appointed and accepts such position pursuant to the terms of this Section 7; and provided further that any such
successor agent shall be entitled to customary fees and reimbursement of expenses for providing its services hereunder. In such event, the Consolidated Entities (with the approval of the Principal) shall appoint a successor Escrow Agent or, if the
Consolidated Entities do not do so within sixty (60) days after such notice, the Escrow Agent shall be entitled to (i) appoint its own successor, provided that such successor is reasonably acceptable to the Consolidated Entities or
(ii) at the expense of the Consolidated Entities, petition any court of competent jurisdiction for the appointment of a successor Escrow Agent. Such appointment, whether by the Consolidated Entities or the Escrow Agent shall be effective on the
effective date of the aforesaid resignation (the “Indemnity Transfer Date”). On the Indemnity Transfer Date, all right title and interest to the Escrow Fund, including interest thereon, shall be transferred to the successor Escrow
Agent and this Agreement shall be assigned by the Escrow Agent to such successor Escrow Agent, and thereafter, the resigning Escrow Agent shall be released from any further obligations hereunder. The Escrow Agent shall continue to serve until its
successor is appointed, accepts this Agreement and receives the transferred Escrow Fund. 
 (f) The Escrow Agent shall not have
any right, claim or interest in any portion of the Escrow Fund except in its capacity as Escrow Agent hereunder. 
 8. TAXES.
The parties agree to treat the Escrow Fund, and all amounts earned on the Escrow Fund, as owned or earned, as applicable, by the Principal and not the REIT or the Operating Partnership and to file all tax returns on a basis consistent with such
treatment. All earnings, dividends, distributions, interest and gains earned or realized (“Earnings”) on the Escrow Fund shall be distributed to the Principal as provided in Section 3. All voting rights with respect to
the Escrow Securities shall be exercised by the Principal as provided in Section 4. The Escrow Agent shall be entitled to deduct and withhold from the amounts distributable pursuant to this Agreement to the Principal such amounts
required to be deducted and withheld with respect to the making of such distributions under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been distributed to the Principal. 
  

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 9. REPRESENTATIONS AND WARRANTIES. Each of the REIT and the Operating Partnership represents
and warrants to the other parties hereto that it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that it has the power and authority to execute and deliver this Agreement and to perform
its obligations hereunder; that the execution, delivery and performance of this Agreement has been duly authorized and approved by all necessary action; that this Agreement constitutes its legal, valid and binding obligation, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights and general principles of equity; and that the execution, delivery and performance of this Agreement will
not result in a breach of or loss of rights under or constitute a default under or a violation of any trust (constructive or other), agreement, judgment, decree, order or other instrument to which it is a party or it or its properties or assets may
be bound. 
 10. BENEFIT; SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns but shall not be assignable by any party hereto without the written consent of all of the other parties hereto; provided, however, that the Escrow Agent may assign its rights
hereunder to a successor Escrow Agent appointed hereunder in accordance with Section 7. Except for the persons specified in the preceding sentence, this Agreement is not intended to confer on any person not a party hereto any rights or
remedies hereunder. 
 11. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given
when actually received and shall be given by a nationally recognized overnight courier delivery service, certified first class mail or by facsimile (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice): 
  

			
	If to the Escrow Agent:
	
	 American Assets Trust, Inc.

11455 El Camino Real, Suite 200
 San Diego,
California 92130
 Attention: Chief Executive Officer

	 Facsimile:
	 	 (858) 350-2600

	 Telephone:
	 	 (858) 350-2620

	
	 If to the REIT or the Operating Partnership, to it at:

	
	 American Assets Trust, Inc.

11455 El Camino Real, Suite 200
 San Diego,
California 92130
 Attention: Lead Director

	 Facsimile:
	 	 (858) 350-2600

	 Telephone:
	 	 (858) 350-2620



Any party may designate such other address in writing to all the other parties hereto. 

 

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 12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the
laws of the State of California without reference to conflict of laws principles. 
 13. COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

14. HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. 
 15. SEVERABILITY. Wherever possible, each provision hereof shall be interpreted
in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be
ineffective in the jurisdiction involved to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable. 
 16. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This
Agreement and the Indemnity Agreement embody the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede any and all prior agreements and understandings relating to the subject matter
hereof. Notwithstanding the preceding sentence, the parties hereto acknowledge that the Escrow Agent is not a party to nor is it bound by the Indemnity Agreement. No amendment, modification or waiver of this Agreement shall be binding or effective
for any purpose unless (i) it is made in a writing signed by the Escrow Agent, the REIT and the Operating Partnership, and (ii) an officer of the Consolidated Entities certifies in writing that the amendment has been approved by the
Principal. No course of dealing between the parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. No delay by any party to or any beneficiary of this Agreement in the exercise
of any of its rights or remedies shall operate as a waiver thereof, and no single or partial exercise by any party to or any beneficiary of this Agreement of any such right or remedy shall preclude any other or further exercise thereof. A waiver of
any right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. 

[SIGNATURE PAGE FOLLOWS] 
  

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

			
	CONSOLIDATED ENTITIES
	
	 AMERICAN ASSETS TRUST, INC.

a Maryland corporation

		
	By:	 	 /s/ John W. Chamberlain

	Name:	 	John W. Chamberlain
	Title:	 	President
	
	 AMERICAN ASSETS TRUST, L.P.

a Maryland limited partnership

		
	By:	 	 American Assets Trust, Inc.

a Maryland corporation

		 	Its General Partner
		
	By:	 	 /s/ John W. Chamberlain

	Name:	 	John W. Chamberlain
	Title:	 	President
	
	ESCROW AGENT
	
	 AMERICAN ASSETS TRUST, INC.

a Maryland corporation

		
	By:	 	 /s/ John W. Chamberlain

	Name:	 	John W. Chamberlain
	Title:	 	President
	
	PRINCIPAL
	
	 ERNEST RADY TRUST U/D/T MARCH 10,

1983, AS AMENDED

		
	By:	 	 /s/ Ernest S. Rady

	Name:	 	Ernest S. Rady
	Title:	 	Trustee


 [Signature Page to
Idemnity Escrow Agreement]