Document:

exh_104.htm

Exhibit 10.4

 

CONTRIBUTION AGREEMENT

 

 

THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made as of September 27, 2013, by and among Retail Opportunity Investments Corp., a Maryland corporation (the “REIT”), Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (“ROIP”) and each person or entity identified as a signatory on Schedule I (each such person or entity a “Seller” and, collectively, the “Sellers”).  Capitalized terms used herein but not otherwise defined in this Agreement shall have the respective meanings ascribed to them in the Purchase Agreement, as defined below.

 

 

WITNESSETH

 

WHEREAS, pursuant to the terms and provisions of that certain Agreement for Sale and Purchase of Partnership Interests dated as of August 15, 2013 by and among the REIT and the Sellers signatory thereto (the “Purchase Agreement”), ROIP intends to purchase all of the remaining general partner and limited partnership interests in Terranomics Crossroads Associates Limited Partnership, a California limited partnership (the “Company”) held by the Sellers that ROIP has not yet acquired (the “Company Interests”);

 

WHEREAS, in connection with the Purchase Agreement, the REIT and, ROIP shall enter into this Agreement with each Seller electing to receive OP Units (as defined in the First Amended and Restated Agreement of Limited Partnership of ROIP (the “Partnership Agreement”)) in exchange for their Company Interests in accordance with the terms of the Purchase Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, agreements and other terms contained in this Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1. Contribution.

 

	
a.  

	
Seller.  By executing the signature page to this Agreement, subject to the terms and conditions hereof, the Seller, if Seller is an Accredited Investor (as defined herein) who certifies as to such status by executing and timely delivering the accredited investor questionnaire (each an “Eligible Seller”), hereby agrees to subscribe for and receive, and ROIP agrees to issue, the OP Units to the undersigned Eligible Seller in exchange for the consideration set forth in paragraph (b) of this section.

 

	
b.  

	
Consideration.  The OP Units to be issued to each Seller payable upon the consummation of the transactions contemplated by the Purchase Agreement (the “Closing”) shall equal the amount of cash payable to such Seller pursuant to the Purchase Agreement for the Company Interests divided by the Fair Market Value (as defined below) of one OP Unit (the “Consideration”). The Fair Market Value of one OP Unit shall equal the product of (a) the average closing price of the shares of common stock of the REIT (the “Common Stock”) on the principal market on which the shares of Common Stock trades during the 10 calendar days immediately preceding the third day before the Closing (the “Stock Price”) and (b) 1.05 (except that with respect to the OP Units issued to the persons listed on Schedule II attached hereto the Fair Market Value shall be the Stock Price).  If the Common Stock is not listed on an exchange then the Stock Price shall be determined in good faith by the board of directors of REIT.

 

  

 

  

2. Registration Rights.  Simultaneously herewith, the REIT and Sellers shall enter into a registration rights agreement (the “Registration Rights Agreement”) which shall provide for the registration under the Securities Act of 1933, as amended (the “Securities Act”) for resale by the Sellers of certain shares of Common Stock which may be issued to Sellers in accordance with the provisions of the Partnership Agreement, upon the presentation of the OP Units for redemption.

 

3. Closing.

 

a.           Conditions Precedent.

 

	
i.  

	
Conditions to Each Parties Obligations.  No government or agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign (collectively, a “Governmental Authority”) shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of any of the transactions contemplated in this Agreement (which condition may not be waived by any party) nor shall any of the same brought by a Governmental Authority of competent jurisdiction be pending that seeks the foregoing.

 

	
ii.  

	
Conditions to Obligations of the REIT and ROIP.  The obligations of the REIT and ROIP to effect the actions contemplated by this Agreement are further subject to satisfaction of the following conditions (any of which may be waived by the REIT and ROIP, in whole or in part, in their sole discretion):

 

(1) Representations and Warranties.  Except as would not have a material adverse effect, the representations and warranties of each Seller contained in this Agreement, shall be true and correct at the Closing.

 

(2) Performance by the Sellers.  Each Seller shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing.

 

  

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(3) Consents, Etc.  All necessary consents and approvals of Governmental Authorities or third parties (including lenders) for each Seller to consummate the transactions contemplated hereby (except for those the absence of which would not have a material adverse effect on the ability of such Seller to consummate the transactions contemplated by this Agreement) shall have been obtained.

 

(4) No Material Adverse Change.  There shall have not occurred between the date hereof and the Closing any material adverse change in any of the assets, business, financial condition, results of operation or prospects of the Company.

 

(5) Bankruptcy.  There shall not have been a bankruptcy or similar insolvency proceeding with respect to the Company.

 

	
iii.  

	
Conditions to Obligations of the Sellers.  The obligation of each Seller to effect the actions contemplated by this Agreement are further subject to satisfaction of the following conditions:

 

(1) Representations and Warranties.  Except as would not have a material adverse effect, the representations and warranties of the REIT and ROIP contained in this Agreement shall be true and correct at the Closing.

 

(2) Performance by the REIT and ROIP.  The REIT and ROIP shall have performed in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing.

 

(3) Consents, Etc.  All necessary consents and approvals of Governmental Authorities or third parties (including lenders) for the Sellers to consummate the transactions contemplated hereby (except for those the absence of which would not have a material adverse effect on the ability of the Sellers to consummate the transactions contemplated by this Agreement) shall have been obtained.

 

(4) Registration Rights Agreement. The REIT and ROIP shall have entered into the registration rights agreement substantially in the form attached as Exhibit M to the Purchase Agreement.  This condition may not be waived by any party.

 

	
b.  

	
Time and Place.  Subject to satisfaction or waiver of the conditions in set forth in paragraph (3)(a) of this section, the closing of the transactions contemplated hereby shall occur on the Closing.  The closing shall take place at the offices of the Escrow Agent (as defined in the Purchase Agreement) or such other place as determined by agreement of the parties.

 

	
c.  

	
Delivery of OP Units.  The issuance of the OP Units shall be evidenced by an amendment to the Partnership Agreement.  On the Closing, (or as soon as reasonably practicable thereafter), ROIP shall deliver or cause to be delivered to each Seller an executed copy of such amendment.

 

  

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d.  

	
Closing Deliveries.  On the Closing, the parties shall make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered through the attorney-in-fact or the power of attorney (both as described and set forth in the Partnership Agreement) any other documents reasonably requested by the REIT and ROIP or reasonably necessary or desirable to assign, transfer, convey, contribute and deliver the Company Interests, free and clear of all pledges, claims, liens, charges, restrictions, controls, easements, rights of way, exceptions, reservations, leases, licenses, grants, covenants and conditions, encumbrances and security interests of any kind or nature whatsoever (collectively, “Liens”) and to effectuate the transactions contemplated hereby.

 

	
e.  

	
Tax Withholding.  The REIT and ROIP shall be entitled to deduct and withhold, from the Consideration payable pursuant to this Agreement to any Seller, such amounts as the REIT or ROIP is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated or issued thereunder (the “Code”) or any provision of federal, state, local or foreign tax law.  To the extent that amounts are so withheld by the REIT or ROIP, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Seller in respect of which such deduction and withholding was made by the REIT or ROIP.

 

4. Representations, Warranties and Covenants of Seller.  Each Seller, severally and not jointly, hereby represents and warrants to, and covenants with the REIT and ROIP as of the date hereof as follows:

 

	
a.  

	
Organization; Authority.  If such Seller is an individual, such Seller has the legal capacity and authority to execute, deliver and perform its obligations under this Agreement, and no individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity (collectively, a “Person”) has any community property rights, by virtue of marriage or otherwise, with respect to such Company Interests (unless the person holding such rights is also a signatory hereto).  If such Seller is a Person other than an individual, such Seller has been duly organized, is validly existing and in good standing under the applicable laws, statutes, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies of any Governmental Authority (collectively, the “Laws”) of its jurisdiction of organization, and has all requisite power and authority to enter this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby.

 

	
b.  

	
Due Authorization and Enforceability.  If such Seller is a Person other than an individual, the execution, delivery and performance of this Agreement by such Seller has been duly and validly authorized by all necessary action required of such Seller.  This Agreement and each agreement, document and instrument executed and delivered by or on behalf of such Seller pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of such Seller, each enforceable against such Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

 

  

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c.  

	
Ownership of Interest.  Such Seller is the record owner of the Company Interests owned by it as set forth on Schedule I, and has the power and authority to transfer, sell, assign and convey to the REIT or ROIP, as applicable, such Company Interests, free and clear of any Liens and, upon delivery of the Consideration for such Company Interests as provided herein, the REIT or ROIP, as applicable, will acquire good and valid title thereto, free and clear of any Liens.  Except as provided for or contemplated by this Agreement or the other applicable documents, there are no rights, subscriptions, warrants, options, conversion rights, preemptive rights, agreements, instruments or understandings of any kind outstanding (i) relating to the Company Interests owned by such Seller or (ii) to purchase, transfer or to otherwise acquire, or to in any way encumber, any of the interests which comprise such Company Interests or any securities or obligations of any kind convertible into any of the interests which comprise such Company Interests, or other equity interests or profit participation of any kind in the Company.

 

	
d.  

	
Consents and Approvals.  No consent, waiver, approval, authorization, order, license, certificate or permit of, or filing or registration with a Person or any Governmental Authority or under any Laws is required to be obtained by such Seller in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

	
e.  

	
No Violation.  None of the execution, delivery or performance of this Agreement, any agreement contemplated hereby between the parties to this Agreement and the transactions contemplated hereby between the parties to this Agreement does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right under, (A) the organizational documents, if any, of such Seller, (B) any agreement, document or instrument to which such Seller is a party or by which such Seller is bound, (C) does not and will not violate any Laws applicable to or binding upon the Seller, or (D) any term or provision of any judgment, order, writ, injunction, or decree binding on such Seller is (or its assets or properties).

 

	
f.  

	
Non Foreign Person.  Such Seller is a United States person (as defined in the Code) and is, therefore, not subject to the provisions of the Code relating to the withholding of sales or exchange proceeds to foreign persons.

 

	
g.  

	
Taxes.  Such Seller has paid all taxes relating to its Company Interests required to be paid by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so).

 

  

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h.  

	
Solvency.  Such Seller has been and will be solvent at all times prior to and for the ninety (90) day period following the transfer of its Company Interests to ROIP.

 

	
i.  

	
Litigation.  There is no litigation or proceeding, either judicial or administrative, pending or threatened, affecting all or any portion of Seller’s Company Interests or Seller’s ability to consummate the transactions contemplated hereby which, if adversely determined, would adversely affect the Seller’s ability to consummate the transactions contemplated hereby.  Seller has not received notice of any, and to its knowledge there is no, outstanding order, writ, injunction or decree of any Governmental Authority against or affecting all or any portion of its Company Interests, which in any such case would impair Seller’s ability to enter into and perform all of its obligations under this Agreement.

 

	
j.  

	
Seller’s Investment Representations and Warranties.  Seller represents and warrants to the REIT and  ROIP as follows:

 

	
i.  

	
Upon the issuance of OP Units to Seller, (i) Seller shall become subject to, and shall be bound by, the terms and provisions of the Partnership Agreement (a copy of which Seller acknowledges having received and reviewed), including the terms of the power of attorney contained therein, and (ii) Seller agrees to execute a counterpart signature page to the Partnership Agreement.

 

	
ii.  

	
Such Seller is knowledgeable, sophisticated and experienced in business and financial matters; such Seller has previously invested in securities similar to the OP Units or Common Stock, as applicable, and fully understands the limitations on transfer imposed by the federal securities Laws.  Such Seller has received and carefully reviewed this Agreement and the other applicable documents as well as all information and documents about or pertaining to the REIT or ROIP, as applicable, and the business and prospects of the REIT or ROIP, as applicable, and the issuance of the OP Units and the Common Stock, as applicable, as such Seller deems necessary or desirable, and has been given the opportunity to obtain, and has obtained, any additional information or documents and to ask questions and receive answers about such information and documents, the REIT or ROIP, as applicable, and the business and prospects of the REIT or ROIP, as applicable, which such Seller deems necessary or desirable to evaluate the merits and risks related to its investment (including, making an informed business decision) in the OP Units or the Common Stock, as applicable; and such Seller understands and has taken cognizance of all risk factors related to the purchase of the OP Units and the Common Stock, as applicable.  Such Seller is relying upon its own independent analysis and assessment (including with respect to taxes), and the advice of such Seller’s advisors (including tax advisors), and not upon that of the REIT or ROIP, as applicable, or any of the REIT’s or ROIP’s, as applicable, affiliates, for purposes of evaluating, entering into, and consummating the transactions contemplated hereby. Seller is capable of bearing the economic risks of the transactions contemplated herein.

 

  

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iii.  

	
The OP Units to be issued to Seller, and any Common Stock issued upon redemption thereof, will be acquired by Seller solely for his, her or its own account for investment only and not as a nominee agent for any other person and not with a view to, or with any intention of, an offer, distribution or resale thereof, in whole or in part, or the grant of any participation therein, in each case, in violation of any applicable securities laws.

 

	
iv.  

	
Seller is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) (“Accredited Investor”). Such Seller will, upon request, execute and/or deliver any additional documents deemed by the REIT or ROIP to be necessary or desirable to confirm such Seller’s Accredited Investor status.

 

	
v.  

	
Seller acknowledges that (A) the OP Units to be issued to Seller have not been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws, (B) ROIP’s reliance on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of Seller contained herein, (C) such OP Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no, and there is not expected to be any, public market for the OP Units, and (E) ROIP has no obligation or intention to register such OP Units for resale under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws.  Seller further acknowledges that because of the restrictions on transfer or assignment of such OP Units to be issued hereunder which are set forth in the Partnership Agreement, Seller may have to bear the economic risk of the investment commitment evidenced by this Agreement and any OP Units acquired hereby for an indefinite period of time.

 

	
vi.  

	
Seller acknowledges that the OP Units to be issued to Seller hereunder may not be redeemed for shares of Common Stock for a period of one-year from the date of Closing.

 

	
vii.  

	
Seller acknowledges that (A) any shares of Common Stock issued upon redemption of the OP Units may not have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws, (B) such Common Stock, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, and (C) there may be no public market for the Common Stock.  Seller further acknowledges that because of the restrictions on transfer or assignment of any Common Stock to be issued upon redemption of the OP Units which are set forth in the Partnership Agreement, Seller may have to bear the economic risk of the investment commitment evidenced by this Agreement and any Common Stock acquired upon redemption of OP Units for an indefinite period of time.

 

  

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viii.  

	
Seller agrees to the imprinting of the legend on certificates, if any, on any shares of Common Stock issued upon redemption thereof as set forth in the Partnership Agreement.

 

	
ix.  

	
Each Seller agrees that it will execute all documents which the REIT or ROIP may reasonably request at such time as the REIT or ROIP may reasonably request in order to satisfy themselves that the offer and sale of the OP Units and, in the future, any shares of Common Stock have been conducted in such manner as to qualify for an exemption from registration under the Securities Act, as a private placement under Section 4(2) thereof and/or Regulation D promulgated thereunder, as determined by the REIT and/or ROIP.

 

	
k.  

	
Continuing Efforts.  Subject to the terms and conditions herein provided, such Seller covenants and agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper and/or appropriate to consummate and make effective the transactions contemplated by this Agreement.

 

	
l.  

	
No Brokers or Finders.  The Seller has not entered into any agreement and is not otherwise liable or responsible to pay any brokers’ or finders’ fees or expenses to any person similar agent or firm with respect to this Agreement or the issuance of any OP Units contemplated hereby, except for any such person or similar agent or firm the fees and expenses for which such Seller shall be solely responsible for and pay.

 

	
m.  

	
No Claims.  Each Seller represents and warrants that it does not have any claims against the Company or any of its officers, directors or agents for breach of fiduciary obligations, breach of the terms of applicable organizational documents, fraud, self-dealing or any other similar cause of action.

 

	
n.  

	
No Other Representations or Warranties.  Other than the representations and warranties expressly set forth in this section, no Seller shall be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.

 

	
o.  

	
Survival of Representations and Warranties of the Seller.  Each Seller agrees and acknowledges that (a) the representations and warranties set forth in paragraph (j) shall survive indefinitely and (b) all other representations and warranties set forth in this section shall survive for a period of one-year following the Closing.

 

  

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5. Representations, Warranties and Covenants of the REIT and ROIP.  The REIT and ROIP hereby represent and warrant to, and covenant with, each Seller as of the date hereof as follows:

 

	
a.  

	
Organization; Authority.

 

	
i.  

	
The REIT is a corporation duly organized, validly existing and in good standing under the Laws of the State of Maryland.  The REIT has all requisite power and authority to enter this Agreement and the other applicable documents and to carry out the transactions contemplated hereby and thereby.

 

	
ii.  

	
ROIP is a limited partnership duly organized, validly existing and in good standing under the Laws of the State of Delaware.  ROIP has all requisite power and authority to enter this Agreement and the other applicable documents and to carry out the transactions contemplated hereby and thereby.

 

	
b.  

	
Due Authorization.  This Agreement and each agreement, document and instrument executed and delivered by or on behalf of the REIT or ROIP pursuant to this Agreement or the other applicable documents in connection with the exercise of the Buyer's Purchase Option constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the REIT or ROIP, each enforceable against the REIT or ROIP in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

 

	
c.  

	
Consents and Approvals.  No consent, waiver, approval or authorization of, or filing with, any Person or Governmental Authority or under any applicable Laws is required to be obtained by the REIT or ROIP in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

	
d.  

	
No Violation.  None of the execution, delivery or performance of this Agreement, the other applicable documents in connection with the exercise of the Buyer's Purchase Option, any agreement contemplated hereby between the parties to this Agreement and the transactions contemplated hereby between the parties to this Agreement does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under (a) the organizational documents of the REIT or ROIP, (b) any term or provision of any judgment, order, writ, injunction, or decree binding on the REIT or ROIP, or (c) any other agreement to which the REIT or ROIP is a party thereto.

 

	
e.  

	
No Other Representations or Warranties.  Other than the representations and warranties expressly set forth in this section, the REIT and ROIP shall not be deemed to have made any other representation or warranty in connection with this Agreement or the transactions contemplated hereby.

 

  

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f.  

	
Partnership Agreement.  ROIP has furnished to Seller a true, correct and complete copy of the Partnership Agreement.

 

	
g.  

	
Issuance of OP Units.  At the Closing: (i) the OP Units issued by ROIP to Seller will be duly authorized by the REIT or ROIP, as applicable, and, when issued against Consideration therefor, will be validly issued by the REIT or ROIP, fully paid and non-assessable; and (ii) Seller will be admitted as a limited partner of the Partnership entitled to all of the rights, privileges and other benefits of limited partners holding similar interests under the Partnership Agreement.

 

	
h.  

	
Reservation and Listing of Common Stock.  The shares of Common Stock to be issued by the REIT upon redemption of the OP Units will be reserved for issuance and the REIT will use commercially reasonable efforts to list such Common Stock on the NASDAQ Stock Market or on any other similar exchange where the REIT has shares of Common Stock listed (subject to official notice of issuance) prior to the date upon which any of the OP Units becomes redeemable for shares of Common Stock.

 

	
i.  

	
No Broker's or Finders.  The REIT and ROIP have not entered into any agreement and are not otherwise liable or responsible to pay any brokers' or finders' fees or expenses to any person or similar agent or firm with respect to this Agreement or the purchase and issuance of any OP Units contemplated hereby.

 

6. Tax Cooperation.

 

The REIT, ROIP and each Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of tax returns related to the transactions pursuant to this Agreement and any audit, litigation or administrative, judicial or other inquiry or proceeding with respect to taxes related to the transactions pursuant to this Agreement.  Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such action or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

 

7. Indemnification.

 

	
a.  

	
Indemnification.  For a period of one (1) year from and after the Closing, each Seller, severally and not jointly, agrees to indemnify, hold harmless, and defend the REIT, ROIP and their successors and assigns (collectively, the “REIT’s Indemnified Persons”) from and against, and reimburse each of the REIT’s Indemnified Persons with respect to, any and all losses, damages, liabilities, costs, and expenses, including interest from the date of such loss to the time of payment, penalties, and reasonable attorney fees (collectively, the “Damages”) incurred by any of the REIT’s Indemnified Persons by reason of or arising out of or in connection with:

 

  

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(1) Any breach or inaccuracy of any representation or warranty of such Seller made in this Agreement or any Subscription Document;

 

(2) Any failure by such Seller to perform any covenant required to be performed by such Seller pursuant to this Agreement or any Subscription Document; and

 

(3) Any claim, demand, cause of action, complaint or action arising out of any facts or circumstances that occurred prior to Closing, regardless of fault.

 

This indemnification extends to any Damages suffered by any of REIT’s Indemnified Persons, whether or not a claim is made against any of REIT’s Indemnified Persons by any third party.  Nothing contained herein shall make a person who is subject to the foregoing indemnification obligation liable for more than the aggregate Purchase Price for such Seller’s Company Interests.

 

	
b.  

	
Defense of Claim.  If any claim is asserted against a party that would give rise to a claim by that party against the other party for indemnification, the party to be indemnified will promptly give written notice to the indemnifying party concerning such claim and the indemnifying party will, at no expense to the indemnified party, defend the claim.

 

8. Benefit of Agreement: Successors and Assigns; Assignment.  This Agreement is only for the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns and is not intended to be for the benefit of any third party, creditor or other person to whom any debts, liabilities or obligations are owed by (or who otherwise has any claim against) any party hereto; and no such third party, creditor or other person shall obtain any right under this Agreement against any party hereto by reason of any debt, liability or obligation (or otherwise).  This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto, and their respective heirs, executors, administrators, and permitted successors and assigns.

 

This Agreement may not be assigned, in whole or in part, by any party hereto without the consent of all of the other parties hereto.

 

9. Entire Agreement Amendments.  This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all agreements and understandings (written and oral) with respect to such subject matter.  No amendment or termination of this Agreement or any provision of this Agreement shall be effective unless it is in writing and signed by each of the parties hereto.  No waiver hereunder shall be valid unless in writing, executed by the party against whom such waiver is sought to be enforced.

 

10. Severability.  Each provision of this Agreement will be interpreted so as to be effective and valid under applicable Law, but if any provision is held invalid, illegal or unenforceable under applicable Law in any jurisdiction, then such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been included herein.

 

  

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11. Equitable Remedies.  The parties agree that irreparable damage would occur to the REIT and ROIP in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the REIT and ROIP shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by a Seller and to enforce specifically the terms and provisions hereof in any federal or state court located in New York, this being in addition to any other remedy to which the REIT and ROIP is entitled under this Agreement or otherwise at law or in equity.  Notwithstanding the foregoing, this Agreement shall not bar any equitable remedies otherwise available to the Seller pursuant to the terms and provisions contained in section.

 

12. Further Assurances.  The Sellers will, from time to time, execute and deliver to the REIT or ROIP all such other and further instruments and documents and take or cause to be taken all such other and further action as the REIT or ROIP may reasonably request in order to effect the transactions contemplated by this Agreement.  Notwithstanding the foregoing, the REIT or ROIP may request from the Seller such additional information as it may deem necessary to evaluate the eligibility of such Seller to acquire the OP Units, and may request from time to time such information as it may deem necessary to determine the eligibility of such Seller to hold OP Units or to enable ROIP or the REIT to determine the Seller’s compliance with applicable regulatory requirements or tax status, and such Seller shall provide such information as may reasonably be requested.

 

13. Time of the Essence.  Time is of the essence with respect to all obligations under this Agreement.

 

14. Descriptive Headings.  The descriptive headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

 

15. No Personal Liability Conferred.  This Agreement shall not create or permit any personal liability or obligation on the part of any officer, director, partner, employee or stockholder of the REIT or ROIP.

 

16. Notices.  All notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally, (b) five (5) days (any day that is not a Saturday, Sunday or legal holiday in the State of California, each such day a  “Business Day”) after being mailed by certified mail, return receipt requested and postage prepaid, (c) one (1) Business Day after being sent by a nationally recognized overnight courier or (d) transmitted by facsimile if confirmed within 24 hours thereafter by a signed original sent in the manner provided in clause (a), (b) or (c) to the parties at the following addresses (or at such other address for a party as shall be specified by notice from such party):

 

  

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If to the REIT or ROIP:

 

Renaissance Towne Centre–La Jolla

8905 Towne Center Drive, 108

San Diego, CA 92122

Attn:  Chief Financial Officer

 

With a copy to:

 

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Attention:  Jay Bernstein

Facsimile:  (212) 878-8375

 

If to a Seller:

 

To the address indicated for such Seller on the Schedule I to this Agreement.

 

17. Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Washington, without reference to conflicts of law principles thereof.

 

18. Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one Agreement binding on all parties hereto, notwithstanding that not all parties shall have signed the same counterpart.

 

19. Special Redemption Right.  Notwithstanding any provision of the Partnership Agreement or this Agreement to the contrary, the Sellers listed on Schedule II attached hereto shall have the right to redeem that certain number of OP Units set forth opposite the Sellers name on Schedule II attached hereto at any time after issuance thereof in exchange solely for cash (and not common stock of the REIT).

 

  

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dated first set forth above.

RETAIL OPPORTUNITY INVESTMENTS CORP.,

a Maryland corporation

 

 

By:  ________________________

Name:  Michael B. Haines

Title:    Chief Financial Officer

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP,

a Delaware limited partnership

 

	
  

	
By:

	
Retail Opportunity Investments GP, LLC,

	
  

	
its general partner

 

 

By:  ________________________

Name:  Michael B. Haines

Title:    Authorized Person

 

  

  

  

SELLERS:

 

TCA HOLDINGS, LLC, a Washington

limited liability company

 

 

By:   ARGUS GROUP, LTD., a Washington corporation, its Manager

 

By: ________________________

Name: ______________________

Title: _______________________

 

 

SHER GP, INC., a Washington corporation

 

By: ________________________

Name: ______________________

Title: _______________________

 

 

 

ESTATE OF DORIS BLUM

 

_______________________________________

Personal Representative of the Estate of Doris Blum

 

_______________________________________

BLUM FAMILY TRUST

 

_______________________________________

Trustee of the Blum Family Trust

 

 

JOSEPH BLUM IRREVOCABLE TRUST

 

_______________________________________

Trustee of the Joseph Blum Irrevocable Trust

 

_______________________________________

Ari Blum

 

_______________________________________

Morgan Blum

 

  

  

  

_______________________________________

Thomas Bomar

 

 

TRUST B UNDER THE HARRIS TRUST

U/A DATED 7/22/88

 

_______________________________________

Trustee of Trust B under the Harris Trust u/a

dated 7/22/88

 

 

RAWSON, BLUM & COMPANY

By:  ____________________________________

Name: __________________________________

Title: ___________________________________

RAWSON LIVING TRUST

_______________________________________

Trustee of the Rawson Living Trust

ARGUS GROUP, LTD.

By: ____________________________________

Name: __________________________________

Title: ___________________________________

EUGENE E. AND KATHLEEN B. CLAHAN REVOCABLE TRUST U/A DATED 11/11/88

_______________________________________

Trustee of the Eugene E. and Kathleen B. Clahan Revocable Trust u/a dated 11/11/88

 

 

  

  

  

MERRITT AND PAMELA SHER LIVING TRUST

 

_______________________________________

Trustee of the Merritt and Pamela Sher Living Trust

ESTATE OF SYLVIA SHER

_______________________________________

Personal Representative of the

Estate of Sylvia Sher

SYDNEY SHER MARITAL TRUST

_______________________________________

Trustee of the Sydney Sher Marital Trust

TERRANOMICS INVESTMENT

PARTNERSHIP

By: ____________________________________

Name: __________________________________

Title: ___________________________________

TERRANOMICS, a California corporation

By: ____________________________________

Name: __________________________________

Title: ___________________________________

RONALD SHER

_______________________________________

Ronald Sher

 

  

  

  

Schedule I

	

Sellers

	

Address

	

Number of Company Interests

	

Number of Company Units

	

Number of

OP Units

	
TCA Holdings, LLC

	
10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
37.431126%

	
2,361.19391

	
1,931,813

	
Sher GP, INC.,

	
c/o Ronald Sher

10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
0.081310%

	
5.12912

	
4,196

	
Estate of Doris Blum

	
505 Sansome Street, Suite 450

San Francisco, CA 94111

 

	
0.142514%

	
8.98990

	
7,723

	
Blum Family Trust

	
c/o Rawson, Blum & Co.

505 Sansome Street, Suite 450

San Francisco, CA 94111

 

	
0.930250%

	
58.68110

	
48,010

	
Joseph Blum Irrevocable Trust

	
c/o Rawson, Blum & Co.

505 Sansome Street, Suite 450

San Francisco, CA 94111

 

	
0.089165%

	
5.62460

	
4,602

	
Ari Blum

	
68 Madrone Avenue

Larkspur, CA 94939

 

	
0.276881%

	
17.46570

	
14,290

	
Morgan Blum

	
3678 23rd Street

San Francisco, CA 94110

 

	
0.276881%

	
17.46570

	
14,290

	
Thomas Bomar

	
71 Reed Ranch Road

Tiburon, CA 94920

 

	
0.469594%

	
29.62250

	
24,236

	
Trust B under the Harris Trust u/a dated 7/22/88

	
David R. Harris, Trustee

12636 Indio Ct.

Saratoga, CA 95070

 

	
0.090094%

	
5.68320

	
4,882

	
Rawson, Blum & Company

	
c/o Rawson, Blum & Co.

505 Sansome Street, Suite 450

San Francisco, CA 94111

 

	
0.014188%

	
0.89500

	
732

	
Rawson Living Trust

	
c/o David Rawson

2744 Green Street

San Francisco, CA 94123

 

	
1.541606%

	
97.24610

	
79,562

 

  

  

  

	
Argus Group, Ltd.

	
c/o Ronald Sher

10500 NE 8th Street, Suite 850

Bellevue, WA 98004

	
0.483618%

	
30.50710

	
24,959

	
Eugene E. and Kathleen B. Clahan Revocable Trust u/a dated 11/11/88

	
c/o Eugene Clahan

16 Meadow Avenue

Kentfield, CA 94904

 

	
0.907587%

	
57.25150

	
46,840

	
Merritt and Pamela Sher Living Trust

	
c/o Sher Partners

10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
2.258326%

	
142.45765

	
116,552

	
Estate of Sylvia Sher

	
c/o Ronald Sher

10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
1.343570%

	
84.75380

	
72,808

	
Sydney Sher Marital Trust

	
Ronald Sher, Trustee

10500 NE 8th St., Suite 850

Bellevue, WA 98004

	
1.343570%

	
84.75380

	
72,808

	

Terranomics Investment Partnership

	
c/o Metrovation

10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
0.707780%

	
44.64750

	
36,528

	
Terranomics

	
c/o Sher Partners

10500 NE 8th St., Suite 850

Bellevue, WA 98004

 

	
0.028647%

	
1.80710

	
1,478

	
Ronald Sher

	
10500 NE 8th St., Suite 850

Bellevue, WA 98004

	
2.583293%

	
162.95685

	
133,323

 

  

  

  

Schedule II

Sellers Entitled to Special Redemption Right

	

Sellers

	

Number of

OP Units

	  	  
	
Estate of Doris Blum

 

	
7,723

	
Trust B under the Harris Trust u/a dated 7/22/88

 

	
4,882

	
Sydney Sher Marital Trust

 

	
72,808

	
Estate of Sylvia Sher

	
72,808exh_105.htm

Exhibit 10.5

 

TAX PROTECTION AGREEMENT

 

This TAX PROTECTION AGREEMENT (this “Agreement”) is entered into as of September 27, 2013, 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”), each Protected Partner identified as a signatory on Schedule I, as amended from time to time, and each Guaranty Partner identified as a signatory on Schedule II, as amended from time to time.

 

RECITALS

 

WHEREAS, pursuant to that certain Agreement for Sale and Purchase of Partnership Interests, effective as of August __, 2013, between the Operating Partnership and the “Sellers” signatory thereto (the “Purchase Agreement”), the Operating Partnership intends to purchase all of the membership interests in SARM Five Points Plaza, LLC, a Washington limited liability company (the “Company”) from the Sellers;

 

WHEREAS, in connection with the Purchase Agreement, the REIT and the Operating Partnership shall enter into this Agreement with each Seller electing to receive common units of partnership interest in the Operating Partnership (“OP Units”) in exchange for such Seller’s ownership interests in the Company 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 Buyer’s acquisition of ownership interests in the Company 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 “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 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.

 

  

2

  

Section 1.14 “Guaranty Permissible Liability” means a liability with respect to which the lender 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 “Gross Up Amount”); provided, however, that the Gross Up Amount shall be computed without regard to any losses, credit, or other tax attributes that such Protected Partner might have that would reduce its actual tax liability; 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”); provided, however, that the Debt Gross Up Amount shall be computed without regard to any losses, credit, or other tax attributes that a Guaranty Partner might have that would reduce its actual tax liability.

 

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) that is treated as reverse 704(c) gain solely as a result of the revaluation of assets of the Company in connection with or prior to the acquisition of interests in the Company by the Operating Partnership pursuant to the Purchase Agreement shall be taken into account; and any "reverse 704(c) gain" resulting from any subsequent revaluation (including a revaluation resulting in an increase in the book value of any asset following a revaluation resulting in a decrease in the book value of such asset) shall not be taken into account; and the total amount of 704(c) gain and income taken into account for purpose of calculating the Make Whole Amount shall not exceed the initial Section 704(c) gain amount as of the Closing Date (as set forth on Exhibit A).

 

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.

 

  

3

  

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 Ron Sher and his executors, administrators or permitted assigns.

 

Section 1.19 “Pass Through Entity”  means a partnership, grantor trust, or S corporation for 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”  mean that certain project commonly known as Five Points Plaza Shopping Center in the City of Huntington Beach, County of Orange, State of California, with street address 18593 Main St  Huntington Beach, CA 92648, and related personal property, and any property acquired in Exchange for the Protected Property as set forth in ‎Section 2.1(b).

 

  

4

  

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) the liability constitutes “qualified nonrecourse financing” as defined in Section 465(b)(6) of the Code with respect to the Operating Partnership;

 

(iv) no other person has executed any guaranties with respect to such liability other than: (A) guaranties by the Guaranty Partners; (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

 

(v) 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

 

  

5

  

(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 his successor or designee) in his sole and absolute discretion.

 

Section 1.25 “Required Liability Amount” means, with respect to each Guaranty Partner, 110% of such Guaranty Partner’s estimated “negative tax capital account” as of the Closing Date, a current estimate of which is 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, twelve (12) 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”).

 

  

6

  

(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 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: (i) maintain on a continuous basis an amount of Qualified Liabilities at least equal to the Required Liability Amount; and (ii) provide the Partners’ Representative, thirty (30) days prior to the Closing Date, with a description of the nature and amount of any Qualified Liabilities that are available to be guaranteed by the Guaranty Partners pursuant to ‎Section 2.4‎(b) of this Agreement.  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.

  

7

  

 

(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 the Partners’ Representative, 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”), and (ii) after the Tax Protection Period, and for so long as a Guaranty Partner is a partner in the Operating Partnership, the Operating Partnership shall use commercially reasonable efforts to make Guaranty Opportunities available to each Guaranty Partner, provided that in the case of this clause (ii), the Operating Partnership shall not be required to incur any indebtedness that it would not otherwise have incurred, as determined by the Operating Partnership in its reasonable discretion; provided, however, that in the case of clauses (i) and (ii) 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.

 

  

8

  

(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, within thirty (30) days of such failure, 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 April 15 of the year following the year in which the Tax Protection Period Transfer 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 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 18.11 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.

 

  

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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 form 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.

 

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.

 

  

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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]

 

  

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

 

 

	 	 
	 	REIT:	 
	 	 	 	 
	 	
RETAIL OPPORTUNITY INVESTMENT CORP.,

	 	
a Delaware corporation

	 	 	 	 
	 	
By:

	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 	 	 	 

 

	 	OPERATING PARTNERSHIP:
	 	 	 	 
	 	
RETAIL OPPORTUNITY INVESTMENT PARTNERSHIP, L.P.,

	 	
a Delaware limited partnership

	 	 	 	 
	 	
By:

	
RETAIL OPPORTUNITY INVESTMENT CORP.

	 	 	a  Delaware corporation,	 
	 	 	 	 
	 	 	By:	 	 
	 	 	 	Name:	 	 
	 	 	 	Title:	 	 
	 	 	 	 

 

 

	 	 
	 	
PROTECTED PARTNERS:

	 
	 	 	 	 
	 	

SARM ENTERPRISES,

	 	

a California general partnership

	 	 	 	 
	 	
By:

	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 
	 	 	 	 
	 	
Abby Sher

	 	 
	 	 	 	 
	 	 	 	 
	 	
Circe A. Sher

	 	 

 

Signature Page to Tax Protection Agreement

  

  

  

 

	 	 
	 	

RACHEL SHER

	 
	 	 	 	 
	 	
By:

	 	 
	 	 	Ronald Sher, her attorney in fact	 
	 	 	 	 

 

	 	 	 
	 	Lacey L. Sher	 
	 	 	 
	 	 	 
	 	Rebecca C. Wellington	 
	 	 	 
	 	 	 
	 	
Justin W. Sher

	 

 

 

	 	 
	 	

NIGEL I. SHER

	 
	 	 	 	 
	 	
By:

	 	 
	 	 	Ronald Sher, her attorney in fact	 
	 	 	 	 
	 

 

Signature Page to Tax Protection Agreement

  

  

  

SCHEDULE I

 

PROTECTED PARTNERS

 

	
1.  

	
SARM Enterprises

	
2.  

	
Abby Sher

	
3.  

	
Nigel Sher

	
4.  

	
Circe Sher

	
5.  

	
Rachel Sher

	
6.  

	
Lacey Sher

	
7.  

	
Rebecca Wellington

	
8.  

	
Justin Sher

 

 

Schedule I-1

  

  

  

SCHEDULE II

 

GUARANTY PARTNERS

 

	
1.  

	
SARM Enterprises

	
2.  

	
Abby Sher

	
3.  

	
Nigel Sher

	
4.  

	
Circe Sher

	
5.  

	
Rachel Sher

	
6.  

	
Lacey Sher

	
7.  

	
Rebecca Wellington

	
8.  

	
Justin Sher

Schedule II-1

  

  

  

EXHIBIT A

 

ALLOCATIONS OF SECTION 704(c) GAIN1

 

 

	 	 	Total 704c	 
	
Partners

	 	
Gain

	 
	
SARM Enterprises

	 	$	9,764,593	 
	
Abby Sher

	 	 	422,482	 
	
Nigel Sher

	 	 	197,247	 
	
Circe Sher

	 	 	198,325	 
	
Rachel Sher

	 	 	147,914	 
	
Lacey Sher

	 	 	149,186	 
	
Rebecca Wellington

	 	 	196,358	 
	
Justin Sher

	 	 	196,234	 
	
     Total

	 	$	11,272,339	 

 

 

	
1 Amounts listed do not reflect adjustments under Code Section 743(b).

Exhibit A-1

  

  

  

EXHIBIT B

 

 

 

REQUIRED LIABILITY AMOUNT

 

	 	 	
Required

	 
	
Partners

	 	
Liability

	 
	
SARM Enterprises

	 	$	2,353,000	 
	
Abby Sher

	 	 	109,000	 
	
Nigel Sher

	 	 	55,000	 
	
Circe Sher

	 	 	56,000	 
	
Rachel Sher

	 	 	39,000	 
	
Lacey Sher

	 	 	41,000	 
	
Rebecca Wellington

	 	 	54,000	 
	
Justin Sher

	 	 	54,000	 
	
     Total

	 	 $	2,761,000	 

 

 

Exhibit B-1

  

  

  

EXHIBIT C

 

FORM OF GUARANTY

 

 

 

 

 

 

Exhibit C-1

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