Exhibit 10.1
TAX PROTECTION AGREEMENT
THIS TAX PROTECTION AGREEMENT (this “Agreement”) is made and entered into, as of April 4, 2023 and effective as of November 23, 2022 (the “Effective Date”) by and among Broad Street Realty, Inc., a Delaware corporation (the “Company”), Broad Street Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), the persons listed on Schedule 1 hereto (each an “Initial Protected Partner” and, together, the “Initial Protected Partners”), and any substitute or additional Protected Partners becoming a party hereto after the date hereof and in accordance with the terms hereof. Each of the parties to this Agreement is individually referred to herein as a “Party” and collectively as the “Parties”.
WHEREAS, the Initial Protected Partners together owned 100% of the membership interests in BSV Lamont Investors LLC, a Delaware limited liability company (the “Property LLC”),
WHEREAS, the Property LLC directly or indirectly holds a fee simple interest in the property known as “Lamar Station Plaza” located at 6601-6781 Colfax Avenue, Lakewood, Colorado (the “Underlying Property”);
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of May 28, 2019, by and among the Company, the Operating Partnership, BSV Lamont Merger Sub LLC and the Property LLC (the “Merger Agreement”), the Property LLC was merged with and into BSV Lamont Merger Sub LLC on the Effective Date, with the Property LLC being the surviving entity (the “Merger”), and all of the outstanding membership interests in the Property LLC were converted into the right to receive units of limited partnership interest in the Operating Partnership (the “OP Units”); and
WHEREAS, the Parties desire to enter into this Agreement to account for certain U.S. federal and state income tax (“Tax”) consequences in connection with any future direct or indirect disposition of the Underlying Property by the Operating Partnership, and certain indebtedness of the Operating Partnership and its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein and in the Merger Agreement, the parties hereto hereby agree as follows:
DEFINITIONS
To the extent not otherwise defined herein, capitalized terms used in this Agreement shall have the meanings ascribed to them in the Merger Agreement.
“Accounting Firm” has the meaning set forth in Section 4.2.
“Affiliate” of a person means any other person Controlling, Controlled by, or under common Control with such person.
“Agreement” has the meaning set forth in the recitals.
“Business Day” means any day except a Saturday, a Sunday, or other day on which commercial banks in the City of New York are authorized or obligated by law to close.
“Cash Consideration” has the meaning set forth in Section 2.3(ii).
“Code” means the Internal Revenue Code of 1986, as amended.
“Control,” including the terms “Controlling,” “Controlled by,” and “under common Control with,” means possession, directly or indirectly (through one or more intermediaries), of the power to direct or cause the direction of the management or policies (whether through ownership of voting securities, by contract or otherwise) of a person.
“Deficit Restoration Obligation” or “DRO” means a written obligation by a Protected Partner, entered into in accordance with the provisions of Article III, pursuant to which such Protected Partner undertakes to restore a limited amount (equal to the DRO Amount of such DRO) of any deficit in its Capital Account balance in the Operating Partnership in accordance with any applicable requirements of Treasury Regulations Section 1.704-1(b)(2)(ii)(c). For the avoidance of doubt, such an obligation shall be treated as a DRO only to the extent that the corresponding DRO Amount is recognized as a limited deficit restoration obligation of the Protected Partner with respect to the Operating Partnership for purposes of Treasury Regulations Section 1.704-1(b)(2)(iv)(d)(2) (disregarding for this purpose any limitation imposed by Treasury Regulations Section 1.752-2(k)).
“DRO Amount” means, with respect to any DRO, the dollar amount of Capital Account deficit specified therein that the relevant Protected Partner undertakes an obligation to restore in accordance with the terms of such DRO.
“Effective Date” has the meaning set forth in the recitals.
“Guaranteed Amount” means, with respect to any Guaranteed Debt and any Partner Guarantor, the aggregate amount of such Guaranteed Debt that is guaranteed by such Partner Guarantor and for which such Partner Guarantor is treated as having “economic risk of loss” for purposes of Treasury Regulations Section 1.752-2 as a result of such guarantee.
“Guaranteed Debt” means any loan existing, incurred or assumed by the Operating Partnership or any Subsidiaries treated for U.S. federal income tax purposes as a partnership or entity disregarded as separate from its owner that is guaranteed in whole or in part by Partner Guarantors at any time on or after the Closing Date pursuant to Article III hereof.
“Initial Units” means the Units initially received in the Merger by the Initial Protected Partners (i) reduced by the number of Units disposed of by the Protected Partners to Excluded Transferees that do not become Protected Partners with respect to such Units and (ii) adjusted appropriately to take into account Unit splits, Unit recapitalizations, a merger or similar restructuring of the Operating Partnership and similar such events.
“Initial Protected Partners” has the meaning set forth in the recitals.
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“OP Agreement” means the Agreement of Limited Partnership of the Operating Partnership, dated as of May 21, 2019.
“OP Units” has the meaning set forth in the recitals.
“Operating Partnership” has the meaning set forth in the recitals.
“Merger” has the meaning set forth in the recitals.
“Minimum Liability Amount” means, for each Protected Partner, the amount set forth on Schedule 4 hereto next to such Protected Partner’s name, as amended from time to time.
“Nonrecourse Liability” means a liability described in Section 465(b)(6)(A) and Treasury Regulations Section 1.752-1(a)(2).
“Partner Guarantor” means a Protected Partner who has guaranteed any portion of a Guaranteed Debt.
“Partnership Interest Consideration” has the meaning set forth in Section 2.3(ii).
“Pre-Merger Gain” means, with respect to each Protected Property and as reflected on Schedule 3 hereof, the excess of: (i) the fair market value of such Protected Property as of the Effective Date; over (ii) the adjusted tax basis of the Protected Property immediately after the Merger (taking into account any income or gain recognized as a result of the Merger).
“Proceeding” has the meaning set forth in Section 6.1.
“Property LLC” has the meaning set forth in the recitals.
“Protected Gain” shall mean the amount of Pre-Merger Gain, without duplication, that would be allocated to and recognized by a Protected Partner under Section 704(c) of the Code in the event of the sale of the Protected Properties in a fully taxable transaction; provided, however, Protected Gain shall exclude any gain recognized by a Protected Partner under the Code pursuant to the Merger. For purposes of calculating the amount of Pre-Merger Gain allocable to a Protected Partner under Section 704(c) of the Code: (A) such amount of gain shall be reduced by adjustments to the amount of gain subject to Section 704(c) as of the Effective Date pursuant to the Treasury Regulations thereunder; and (B) any “reverse Section 704(c) gain” allocable to such Partner pursuant to Treasury Regulations Section 1.704-3(a)(6) shall not be taken into account unless, as a result of adjustments to the “book value” of any Protected Property pursuant to the OP Agreement, all or a portion of the gain recognized by the Operating Partnership that would have been Section 704(c) gain without regard to such adjustments becomes or is treated as “reverse Section 704(c) gain” or Section 704(b) gain under Section 704 of the Code, in which case such gain shall continue to be treated as Section 704(c) gain.
“Protected Partner” means (i) each of the Initial Protected Partners and (ii) any person who acquires Units from a Protected Partner in a transaction in which gain or loss is not recognized in whole or in part and in which such transferee’s adjusted basis, as determined for
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U.S. federal income tax purposes, is determined in whole or in part by reference to the adjusted basis of a Protected Partner in such Units.
“Protected Property” means (i) the Property LLC and the Underlying Property; (ii) a direct or indirect interest owned by the Operating Partnership in any Subsidiary that owns an interest in a Protected Property, if the disposition of such interest would result in the recognition of Protected Gain with respect to a Protected Partner; and (iii) any other property that the Operating Partnership directly or indirectly receives that is in whole or in part a “substituted basis property” as defined in Section 7701(a)(42) of the Code with respect to a Protected Property or interest therein and listed on Schedule 2 hereof. For the avoidance of doubt, if any Protected Property is transferred to another entity in a transaction in which gain or loss is not recognized, and if the acquiring entity’s disposition of such Protected Property would cause a Protected Partner to recognize gain or loss as a result thereof, such Protected Property shall remain subject to this Agreement.
“Start Date” means the Effective Date.
“Subsidiary” means any entity in which the Operating Partnership owns a direct or indirect interest.
“Successor Partnership” has the meaning set forth in Section 2.2(i).
“Tax” has the meaning set forth in the recitals.
“Tax Claim” has the meaning set forth in Section 6.1.
“Tax Protection Period” means the period commencing on the Start Date and ending at 12:01 AM on the day after the seven (7) year anniversary of the Start Date; provided, however, that with respect to a Protected Partner, the Tax Protection Period shall terminate at such time as such Protected Partner (or one or more successor Protected Partners) has disposed of fifty percent (50%) or more of the OP Units received, directly or indirectly, in the Merger by such Protected Partner in one or more taxable transactions.
“Underlying Property” has the meaning set forth in the recitals.
“Units” means the OP Units, and any other interest in an entity taxable as a partnership for U.S. federal income tax purposes into which such OP Units are directly or indirectly converted pursuant to a state law conversion of the Operating Partnership, a merger of the Operating Partnership or a contribution of substantially all the assets and liabilities of the Operating Partnership.
RESTRICTIONS ON DISPOSITIONS OF
PROTECTED PROPERTIES
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ALLOCATION OF LIABILITIES; GUARANTEE OPPORTUNITY
AND DEFICIT RESTORATION OBLIGATIONS
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REMEDIES FOR BREACH
plus, in either case, an additional amount so that, after the payment by such Protected Partner of all federal, state and local income taxes on amounts received pursuant to this Section 4.1(including any Tax liability incurred as a result of such Protected Partner’s receipt of such
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indemnity payment), such Protected Partner has received an amount equal to its total federal, state and local income tax liability incurred as a result of such breach.
For purposes of computing the amount of federal, state, and local income taxes required to be paid by a Protected Partner, (i) any deduction for state and local income taxes payable as a result thereof shall be taken into account, and (ii) a Protected Partner’s Tax liability shall be computed using the highest federal, state and local marginal income tax rates that would be applicable to such Protected Partner’s taxable income (taking into account the character of such income or gain) for the year with respect to which the Taxes must be paid, and, except as described in clause (i), without regard to any deductions, losses or credits that may be available to such Protected Partner that would reduce or offset its actual taxable income or actual Tax liability if such deductions, losses or credits could be utilized by the Protected Partner to offset other income, gain or Taxes of the Protected Partner, either in the current year, in earlier years, or in later years.
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SECTION 704(C) METHOD AND ALLOCATIONS
TAX PROCEEDINGS
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AMENDMENT OF THIS AGREEMENT; WAIVER OF CERTAIN PROVISIONS
MISCELLANEOUS
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c/o Broad Street Realty, LLC
7250 Woodmont Avenue, Suite 350
Bethesda, MD 20814
Attention: Michael Z. Jacoby
Facsimile: (301) 828-1201
Email: mjacoby@broadstreetrealty.com
with a copy to:
Morrison & Foerster LLP
2100 L Street, NW
Suite 900
Washington, D.C., 20037
Attention: David P. Slotkin and Andrew P. Campbell
Facsimile: (202) 887-0763
Email: dslotkin@mofo.com and andycampbell@mofo.com
Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be hand delivered, sent, mailed, emailed or faxed in the manner described above, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or (with respect to a facsimile) the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation.
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[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the Company, the Operating Partnership and each Protected Partner have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.
BROAD STREET REALTY, INC. | |
By: | /s/ Michael Z. Jacoby |
Name: | Michael Z. Jacoby |
Title: | Chief Executive Officer |
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BROAD STREET OPERATING PARTNERSHIP, LP | |
By: | BROAD STREET OP GP LLC, its general partner |
By: | BROAD STREET REALTY, INC., its sole member |
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By: | /s/ Michael Z. Jacoby |
Name: | Michael Z. Jacoby |
Title: | Chief Executive Officer |
PROTECTED PARTNERS: | |
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MICHAEL Z. JACOBY | |
By: | /s/ Michael Z. Jacoby |
Name: | Michael Z. Jacoby |
Title: | Manager |
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THOMAS YOCKEY | |
By: | /s/ Thomas Yockey |
Name: | Thomas Yockey |
Title: | Member |
LAMONT STREET PARTNERS, LLC | |
By: | /s/ Shane Sonneveldt |
Name: | Shane Sonneveldt |
Title: | Manager |
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ALEXANDER TOPCHY | |
By: | /s/ Alexander Topchy |
Name: | Alexander Topchy |
Title: | CFO |