Ex1017

EX-10.17 3 stwd-20171231ex101768785.htm EX-10.17 Ex1017

Exhibit 10.17

TAX PROTECTION AGREEMENT

This Tax Protection Agreement (this “Agreement”), dated as of December 28, 2017, is entered into by and among SPT Dolphin Intermediate LLC, a Delaware limited liability company (the “Company”); SPT Dolphin Parent LLC, a Delaware limited liability company (the “Managing Member”); each Transferor identified on Annex A hereto, as amended and/or supplemented from time to time (each, a “Transferor”); and each Protected Partner (other than the Transferors) identified on Annex A hereto, as amended and/or supplemented from time to time.

WHEREAS, pursuant to the Contribution Agreement and Escrow Instructions (the “Contribution Agreement”) by and among the Company, as transferee, Starwood Property Trust, Inc., a Maryland corporation (“STWD” and, together with the Managing Member and the Company, the “Starwood Parties”) and the Transferors, dated as of December 21, 2017, the Transferors are expected to contribute their interests in each property set forth on Annex B hereto to the Company on the applicable Closing Date (as defined in the Contribution Agreement) in exchange for a combination of Units and cash (each, a “Contribution”);

WHEREAS, in consideration for the agreement of the relevant Transferors to make the Contributions of the Protected Properties, the parties hereto desire to enter into this 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:

Section 1.1 Definitions.

Capitalized terms employed herein and not otherwise defined shall have the meaning assigned to them in the Contribution Agreement or the Company Agreement.

(a) “Accounting Firm” shall have the meaning set forth in Section 2.4(d)(iii).

(b) “Additional Method” shall mean the allocation of “excess nonrecourse liability” to any Protected Partners in accordance with the fifth sentence of Treasury Regulations Section 1.752-3(a)(3), or any applicable successor provision.

(d) “Applicable Tax Liability” shall mean:

(i) with respect to each Protected Partner that is allocated gain under Code Section 704(c) with respect to a particular Protected Property as a result of a breach of Section 2.1(a), an amount equal to the product of (A) the amount of Built-In Gain allocated to such Protected Partner under Code Section 704(c) with respect to such Protected Property and the applicable Contribution as a result of such breach (taking into account any adjustments under Code Section 743 or 734 to which such Protected Partner is entitled or that would be available if any applicable intermediate entity classified as a partnership for U.S. federal income tax purposes had made an election under Code Section 754) multiplied by (B) the Effective Tax Rate;

(ii) with respect to each Protected Partner that recognizes gain resulting from a disposition of the Units of such Protected Partner in a Fundamental Transaction as a result of a breach of Section 2.1(a), an amount equal to the product of (A) the lesser of (x) the aggregate Built-In Gain attributable to such Protected Partner with respect to the applicable Protected Properties as of the applicable Closing Date and (y) the amount of gain recognized by such Protected Partner from such Fundamental Transaction multiplied by (B) the Effective Tax Rate, provided, however, that if Built-In Gain has previously been taken into account under clause (i) of this definition of Applicable Tax Liability or in a prior Fundamental Transaction with respect to the Protected Partner, or if such Fundamental Transaction also results in an allocation of Built-In Gain to the Protected Partner described in clause (i) of this definition, the amount of Built-In Gain taken into account for purposes of subclause (A)(x) of this clause (ii) with respect to such Fundamental Transaction shall be reduced by such amount so taken into account under clause (i) of this definition prior to or as a result of the Fundamental Transaction or as a result of any prior Fundamental Transaction (and this proviso shall be interpreted and applied so as to avoid double counting of Built-In Gain when calculating any Applicable Tax Liability resulting from a Fundamental Transaction);

(iii) with respect to each Protected Partner that recognizes gain under Code Section 731 as a result of a breach of Section 2.2(a) with respect to a Protected Property, an amount equal to the product of (A) the amount of gain recognized under Code Section 731 by such Protected Partner (but not in excess of such Protected Partner’s Built-In Gain with respect to such Protected Property) by reason of such breach multiplied by (B) the Effective Tax Rate.

For purposes of calculating the amount of Built-In Gain allocated to a Protected Partner under Code Section 704(c) with respect to a particular Protected Property, (i) any “reverse Section 704(c) gain” allocated to such Protected Partner pursuant to Treasury Regulations Section 1.704-3(a)(6) shall not be taken into account and (ii) any Built-In Gain recognized by such Protected Partner pursuant to Code Section 704(c)(1)(B) (i.e., as a result of the distribution of such Protected Property by the Company to a partner of the Company other than the Protected Partner) and Code Section 737 (i.e., as a result of an in-kind distribution made by the Company to the Protected Partner) shall be taken into account.

(e) “Built-In Gain” shall mean, with respect to a Protected Partner and a Protected Property at any time, the gain that is allocable to such Protected Partner pursuant to Code Section 704(c) with respect to such Protected Property (or, for purposes of clause (ii) of the definition of Applicable Tax Liability prior to any adjustment pursuant to the proviso of such clause (ii), the gain that would be allocable to such Protected Partner under Code Section 704(c) with respect to such Protected Property if such Protected Property were sold by the Company in a taxable sale for fair market value as of the applicable Closing Date on which such Protected Property was transferred to the Company). The initial fair market value and Built-In Gain for each Transferor with respect to each Protected Property is set forth on Annex B hereto, as amended and/or supplemented from time to time. For the avoidance of doubt and notwithstanding the foregoing, the parties acknowledge that any Applicable Tax Liability is calculated with reference to the Built-In Gain for the applicable Protected Partner and Protected Property immediately prior to the breach (to the extent recognized as a result of the breach) and the initial Built-In Gain for a Protected Property will be reduced over time to the extent required under Treasury Regulations Section 1.704-3 or in connection with any redemptions pursuant to the Company Agreement, but in all events such Built-In Gain shall not be greater than the Built-In Gain as of the applicable Closing Date on which such Protected Property was transferred to the Company determined after taking into account any gain required to be recognized by any Protected Partner on such Closing Date as a result of the transactions contemplated by the Contribution Agreement.

(f) “Closing Date” shall have the meaning set forth in the Contribution Agreement.

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

(h) “Company” shall have the meaning set forth in the Preamble.

(i) “Company Agreement” shall mean the Limited Liability Company Agreement of the Company, dated as of December 28, 2017, and as thereafter amended or restated.

(j) “Consistent Amendment” shall have the meaning set forth in Section 2.2(b).

(k) “Contribution” shall have the meaning set forth in the Recitals.

(l) “Contribution Agreement” shall have the meaning set forth in the Recitals.

(m) “Debt Guarantee” means a guarantee in such form as may be acceptable to the Protected Partners, the Company, and the applicable lender to which such guarantee relates; provided that the Protected Partners and the Company agree that the form of guarantee in Annex E hereto is deemed to be reasonably acceptable to the Protected Partners and the Company.

(n) “Debt Notification Event” means, with respect to a Nonrecourse Indebtedness, any transaction (i) 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 and any refinancing occurring on any Closing Date), or owned or guaranteed (excluding any customary nonrecourse “carve-out” guaranty) by any of the Managing Member or one or more of its Affiliates or (ii) that accelerates the maturity date of such Nonrecourse Indebtedness to a date that is prior to the earlier of (A) the end of the Protected Period; or (B) the expiration of a Debt Guarantee with respect to such Nonrecourse Indebtedness.

(o) “Effective Tax Rate” shall mean, with respect to a Protected Partner who is entitled to receive a payment under Section 2.4(a), the highest combined individual U.S. federal, state and local income tax rate applicable to individuals resident in the state of Florida in respect of the income or gain that gave rise to such payment, taking into account the character and type of the income recognized in the hands of the Protected Partner for the taxable year in which the transaction giving rise to such taxes occurred, the varying tax rates applicable to different categories of taxable income and gain and to different taxable years in which taxable income or gain is recognized, and taking into account the deductibility of state and local taxes for U.S. federal income tax purposes to the extent permitted, provided, however, that in the case of a Protected Partner that is a C corporation for U.S. federal income tax purposes, the Effective Tax Rate shall be based on the combined U.S. federal, state and local corporate income tax rate applicable in respect of the income or gain that gave rise to such payment, taking into account any of the assumptions described above as are applicable to such entity. Such tax rate shall include, if applicable, the Medicare tax on unearned income (currently 3.8%) pursuant to Section 1411 of the Code.

(p) “Existing Property Debt” shall mean, for each Protected Property, the indebtedness to which such Protected Property was subject immediately prior to the time of the Contribution of such Protected Property, including as set forth as applicable on Schedules 3 and 4 of the Contribution Agreement, as amended and/or supplemented from time to time.

(q) “Final Determination” means (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted or after the time for filing such appeals has expired, (ii) a binding settlement agreement entered into in connection with an administrative or judicial proceeding, (iii) the expiration of the time for instituting a claim for a refund or adjustment, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto or (iv) the expiration of the time for instituting suit with respect to a claimed deficiency or adjustment.

(r) “Fundamental Transaction” means a merger, consolidation or other combination of the Company with or into any other entity (including by reason of any transfer of ownership interests in the Company), a transfer of all or substantially all of the assets of the Company (including by reason of a transfer of entities or properties owned directly or indirectly by the Company), any reclassification, recapitalization or change of the outstanding equity interests of the Company, a conversion of the Company into another form of entity, or any other strategic transaction undertaken by the Company pursuant to which the Units of a Protected Partner are required to be exchanged for cash or equity in any other entity. Notwithstanding the above, a Fundamental Transaction shall not include (i) any transaction to the extent that as part of such transaction a Protected Partner is offered (whether or not such offer is accepted) consideration that would not result in the recognition of Built-In Gain by such Protected Partner, determined as if the consideration were accepted by the Protected Partner, or (ii) a redemption of Units pursuant to Section 8.6, 8.7(c) or 8.7(d) of the Company Agreement, or other conversion of Units into cash or REIT Shares by a Protected Partner (other than pursuant to a deemed exercise pursuant to Sections 8.7(a) or 8.7(b) of the Company Agreement).

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

(t) “Guarantee Permissible Liability” means a liability with respect to which the lender permits a guarantee.

(u) “Guaranteed Liability” means any Nonrecourse Indebtedness that is guaranteed, in whole or in part, by one or more Protected Partners in accordance with Section 2.2(b).

(v) “Individual Guarantee Cap” means, with respect to each Protected Partner, such Protected Partner’s allocable Requested Debt Amount, as set forth on Annex C hereto, as amended and/or supplemented from time to time.

(w) [Intentionally Omitted.]

(x) “Minimum Debt Amount” shall mean, with respect to each Protected Property, the Existing Property Debt minus any scheduled amortization payments that would have been required to be paid under the terms of such Existing Property Debt prior to the maturity of such Existing Property Debt (but not including payments otherwise due at maturity of such Existing Property Debt, which shall be refinanced as applicable during the Protected Period in accordance with Section 2.2(f)). The initial Minimum Debt Amount with respect to each Protected Property is set forth on Annex C hereto, as amended and/or supplemented from time to time.

(y) “Nonrecourse Indebtedness” shall mean, with respect to a Protected Property, indebtedness that is a “nonrecourse liability” of the Company within the meaning of Treasury Regulations Section 1.752-1(a)(2) and to which the Protected Property is subject for purposes of Treasury Regulations Section 1.752-3.

(z) “Pass Through Entity” means a partnership, disregarded entity, grantor trust or S corporation for U.S. federal income tax purposes.

(aa) “Permitted Disposition” means a sale, exchange or other disposition of Units (i) by a Protected Partner: (a) to such Protected Partner’s children, spouse, ex-spouse or issue; (b) to a trust for such Protected Partner or such Protected Partner’s children (including adopted children), spouse or issue; (c) in the case of a trust that is a Protected Partner, to its beneficiaries, or any of them, whether current or remainder beneficiaries, or to any successor trust or trusts for the benefit of the same beneficiaries; (d) to a revocable inter vivos trust of which such Protected Partner is a trustee; (e) in the case of any partnership or limited liability company that is a Protected Partner, to its partners or members; and/or (f) in the case of any corporation that is a Protected Partner, to its shareholders, and (ii) by a party described in clauses (a), (b), (c), (d), (e), or (f) 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), (d), (e), or (f); provided, however, that a Permitted Disposition shall not include (A) any sale, exchange or other disposition of Units to any “tax-exempt entity” within the meaning of Code Section 168(h) or that would otherwise cause all or any portion of any Company property to be classified as “tax-exempt use property” within the meaning of Code Section 168(h) or (B) any other disposition that is prohibited under the Company Agreement.

(bb) “Permitted Transferee” means a Person that is a permitted transferee for purposes of a transaction qualifying as a Permitted Disposition.

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

(dd) “Proceeding” shall have the meaning set forth in Section 3.4.

(ee) “Protected Partner” shall mean (i) each Transferor, (ii) each other Person who holds Class A Units and who acquired such Units from a Transferor or another Protected Partner in a Permitted Disposition in which such Person’s adjusted basis in such Units, as determined for U.S. federal income tax purposes, is determined, in whole or in part, by reference to either (x) the adjusted basis of such Transferor or other Protected Partner in such Units or (y) the adjusted basis of such Person’s interest in such Transferor or other Protected Partner, and who has notified the Company of its status as a Protected Partner (with this condition being deemed to be satisfied for the Intermediate Substituted Non-Managing Members, the Second Intermediate Substituted Non-Managing Members, the Third Intermediate Substituted Non-Managing Members, the Fourth Intermediate Substituted Non-Managing Members, the Fifth Intermediate Substituted Non-Managing Members, the Sixth Intermediate Substituted Non-Managing Members and the Subsequent Substituted Non-Managing Members admitted to the Company pursuant to Section 11.3(c) of the Company Agreement), provided that all documentation reasonably requested by the Company or the Managing Member to verify such status, to any update any Annex by the Managing Member, to become a signatory to, and agree to the terms and conditions of, this Agreement, has been provided; and (iii) with respect to a Protected Partner that is a Pass Through Entity, and solely for purposes of computing the amount to be paid under Section 2.4(a) with respect to such Protected Partner and without duplication of any amount otherwise payable to such Protected Partner under Section 2.4(a), any Person who (x) holds an interest in such Protected Partner, either directly or through one or more Pass Through Entities, and (y) is required to include all or a portion of the income of such Protected Partner in its own gross income; provided, however, that in the event that multiple Persons may be treated as Protected Partners under this Section 1.1(dd) with respect to any particular Unit as a result of any transfer of such Unit (including pursuant to Section 11.3(c) of the Company Agreement), (A) in no event will the definition of Protected Partner under this Section 1.1(dd) or for any other purpose of this Agreement be construed in a manner that would result in the payment of any duplicative amounts; and (B) in the event of any overlapping claims by any such Persons that are attributable to such Unit, the Company shall be entitled to treat the Protected Partner that first made such claim as the sole Protected Partner to the extent of such overlapping claim for all purposes of this Agreement and shall not be required to make any payments under this Agreement to any other Protected Partners to the extent of such overlapping claim (it being understood that the Protected Partners shall resolve any disputes as to such overlapping claims amongst themselves and shall have no claims against the Company with respect thereto, which claims instead must be brought against the Protected Partner that first made such claim and to whom the Company makes any payment in accordance with this Agreement); provided, further that no Intermediate Substituted Non-Managing Member, Second Intermediate Substituted Non-Managing Member, Third Intermediate Substituted Non-Managing Member, Fourth Intermediate Substituted Non-Managing Member, Fifth Intermediate Substituted Non-Managing Member or Sixth Intermediate Substituted Non-Managing Member shall be treated as a Protected Partner unless, at or prior to the Second Tranche Closing, such Intermediate Substituted Non-Managing Member, Second Intermediate Substituted Non-Managing Member, Third Intermediate Substituted Non-Managing Member, Fourth Intermediate Substituted Non-Managing Member, Fifth Intermediate Substituted Non-Managing Member or Sixth Intermediate Substituted Non-Managing Member has provided to the Managing Member all of the information required to have been provided by such Member to the Company at the First Tranche Closing under such Member’s Unitholder Questionnaire that was not so provided by such Member at such Closing, and upon such information having been provided to the Managing Member in accordance with the foregoing, such applicable Substituted Non-Managing Member, Second Intermediate Substituted Non-Managing Member, Third Intermediate Substituted Non-Managing Member, Fourth Intermediate Substituted Non-Managing Member, Fifth Intermediate Substituted Non-Managing Member, or Sixth Intermediate Substituted Non-Managing Member shall become a Protected Partner in accordance with the terms of this Agreement, effective as of the date of this Agreement.

(ff) “Protected Period” shall mean the period commencing on the First Tranche Closing Date and ending on September 30, 2027; provided, however, that the Protected Period shall end prior to September 30, 2027, with respect to the Units received by any Transferor (whether then held by such Transferor or any other Protected Partner) on any Closing Date, and with respect to any equity interests attributable thereto that are treated as Units under clause (ii) of the definition of “Units,” to the extent that there is a Final Determination that all or any portion of the Contribution occurring on such Closing Date did not qualify for tax-deferred treatment under Code Section 721.

(gg) “Protected Property” shall mean the property set forth on Annex B hereto, as amended and/or supplemented from time to time, transferred to the Company by a Transferor in a Contribution and any interest therein owned by the Company, and any property acquired by the Company in a transaction pursuant to which the tax basis of such property is determined in whole or in part by reference to the tax basis of such Protected Property.

(hh) “REIT” shall mean the Managing Member or any of its Affiliates, including STWD.

(ii) “Representative” shall have the meaning set forth in the Company Agreement.

(jj) “Requested Debt Amount” means, with respect to any Protected Partner and Protected Property, the portion of the Minimum Debt Amount with respect to such Protected Property that is requested to be allocated to such Protected Partner; provided that the Requested Debt Amount shall not exceed the lesser of (i) product of the Minimum Debt Amount with respect to such Protected Property, multiplied by such Protected Partner’s Class A Percentage Interest or (ii) the then applicable amount necessary to prevent the recognition of Built-In Gain to such Protected Partners under Section 465, Section 707(a)(2)(B), Section 731 or Section 752 of the Code and Treasury Regulations.

(kk) “STWD” means Starwood Property Trust, Inc., a Maryland corporation.

(ll) “STWD Guaranty” has the meaning set forth in the Company Agreement.

(mm) “Tax Claim” shall have the meaning set forth in Section 3.4.

(nn) “Tax Protected Period Transfer” shall have the meaning set forth in Section 2.1(a).

(oo) “Transferor” shall mean the persons designated on Annex A hereto, as amended and/or supplemented from time to time, as receiving Units on an applicable Closing Date.

(pp) “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).

(qq) “Units” means (i) the units in the Company that were received by the Transferors on account of the Contribution that were distributed to the Intermediate Substituted Non-Managing Members (and, in certain cases, the Second Intermediate Substituted Non-Managing Members, the Third Intermediate Substituted Non-Managing Members, the Fourth Intermediate Substituted Non-Managing Members, the Fifth Intermediate Substituted Non-Managing Members, and the Sixth Intermediate Substituted Non-Managing Members) and further distributed to the Subsequent Substituted Non-Managing Members and (ii) equity interests in an entity treated as a partnership for U.S. federal income tax purposes received by any Protected Partner in exchange for Units pursuant to a Fundamental Transaction with respect to which the Protected Partner’s tax basis in such equity interests is determined in whole or in part with reference to the Protected Partner’s tax basis in such Units.

ARTICLE II

RESTRICTIONS RELATING TO PROTECTED PROPERTIES.

Section 2.1 Restrictions on Dispositions of Protected Properties.

(a) Except as otherwise provided in this Section 2.1 and subject to Section 2.4, during the Protected Period, neither the Company nor any entity in which the Company holds a direct or indirect interest will consummate (i) a sale, transfer, exchange, or other disposition of any Protected Property or any interest therein held by the Company directly or indirectly in a transaction that results in an allocation to any Protected Partner of all or any portion of its Built-In Gain with respect to such Protected Property under Code Section 704(c) (including any portion thereof recognized under Code Section 704(c)(1)(B)), (ii) a distribution by the Company to a Protected Partner that results in the recognition of all or any portion of the Protected Partner’s Built-In Gain with respect to a Protected Property under Code Section 737, or (iii) any Fundamental Transaction that would result in the recognition of gain by any Protected Partner (any such disposition under clause (i), distribution under clause (ii) or Fundamental Transaction under clause (iii) taking place during the Protected Period, a “Tax Protected Period Transfer”); provided however, that if a Representative (in his or her capacity as such) expressly consents to such Tax Protected Period Transfer in writing, the Company shall not be deemed to be in breach of its obligations hereunder regarding such Tax Protected Period Transfer with respect to the Protected Partners, and no payment shall be due under Section 2.4(a) as a result of such Tax Protected Period Transfer with respect to any Protected Partner.

(b) Section 2.1(a) shall not apply to any Tax Protected Period Transfer in a transaction in which no gain is allocated to or required to be recognized by a Protected Partner, including a transaction qualifying under Code Section 1031, Code Section 351 or Code Section 721 (or any successor statutes) if no gain is allocated to or required to be recognized by such Protected Partner in such transaction, provided however that, subject to the limitations set forth in this Agreement, this Agreement shall thereafter apply with respect to the property received by the Company in such transaction to the extent such property is received in exchange for property contributed by such Protected Partner.

(c) Section 2.1(a) shall not apply to any Tax Protected Period Transfer as a result of the condemnation or other taking (including a casualty) of a Protected Property by a Government Entity in an eminent domain or condemnation proceeding or otherwise, provided that, if the proceeds of such condemnation or other taking (including a casualty) exceed $500,000, determined separately with respect to each applicable occurrence, the Company shall use commercially reasonable efforts to structure such condemnation or other taking (including a casualty) as either a tax-free like-kind exchange under Code Section 1031 or a tax-free reinvestment of proceeds under Code Section 1033, provided further that, regardless of the amount of such proceeds, in no event shall the Company be obligated to acquire, rehabilitate or invest in any property that it otherwise would not have acquired, rehabilitated or invested in.

Section 2.2 Obligation to Maintain Nonrecourse Indebtedness.

(a) Except as otherwise provided in this Section 2.2 and subject to Section 2.4, during the Protected Period, with respect to each Protected Property then held by the Company, the Company shall maintain, directly or indirectly, an amount of Nonrecourse Indebtedness secured by such Protected Property or to which the Protected Property is otherwise subject for purposes of Treasury Regulations Section 1.752-3(a) in an amount that is not less than the Minimum Debt Amount with respect to such Protected Property, and the Company shall allocate such Nonrecourse Indebtedness to the Protected Partners in accordance with Section 752 of the Code and the Treasury Regulations. Annex C hereto sets forth, with respect to each Protected Property, each Protected Partner’s Requested Debt Amount with respect to such Protected Property. To the extent a Protected Partner is required (in accordance with

Section 2.2(b)) to guarantee any Nonrecourse Indebtedness in order to be allocated its Requested Debt Amount and does not do so (except to the extent such failure to do so is the direct result of a failure by the Company to use reasonable efforts to cause the lender to agree to the Debt Guarantee form or other mutually agreed upon form to the extent required in accordance with Section 2.2(b)), the Company shall not be treated as having breached its obligation under this Section 2.2(a) to the extent of such failure. The Minimum Debt Amount may be decreased over time (as reasonably determined by the Company) to an amount that reflects the then applicable amount necessary to prevent the recognition of Built-In Gain to such Protected Partners under Section 465, Section 707(a)(2)(B), Section 731 or Section 752 of the Code and Treasury Regulations.

(b) During the Protected Period, each Protected Partner shall have the right, but not the obligation, upon forty-five (45) days’ written notice, to offer a Debt Guarantee of one or more Nonrecourse Indebtednesses in an aggregate amount up to the Individual Guarantee Cap with respect to such Protected Partner, and the Company shall use reasonable efforts, at such Protected Partner’s expense, to cause the applicable lender to agree to accept such Debt Guarantee in the form attached hereto as Annex E or in such other form as may be acceptable to the Protected Partner, the Company, and the applicable lender; provided that the Company makes no representation or warranty that the applicable lender accepted or shall accept any such Debt Guarantee. In connection with any request by any Protected Partner to offer a Debt Guarantee, the parties hereto hereby agree as follows:

(i) If such lender agrees to accept such Debt Guarantee, then, as a condition to the execution and delivery of such Debt Guarantee, the applicable Protected Partner(s), the Company and the applicable lender will enter into an agreement (in form and substance satisfactory to the applicable lender and reasonably satisfactory to the Company and the Protected Partner(s)) under which such Protected Partner(s) shall confirm that (x) such Protected Partner(s) will have no approval right in connection with or relating to the Debt Guarantee with respect to any modification or amendment to any of the loan documents evidencing and/or securing the applicable loan, and (y) the applicable Debt Guarantee will remain in full force and effect with respect to the loan documents evidencing and/or securing such loan, including any and all modifications or amendments thereto, without a contemporaneous approval, confirmation or ratification by such Protected Partner(s).

(ii) If a Protected Partner executes a Debt Guarantee in a form acceptable to the Company and the applicable lender under the Guaranteed Liability, the Company shall deliver a copy of such Debt Guarantee to such lender promptly after receiving such copy from the relevant Protected Partner.

(iii) Any Protected Partner delivering a Debt Guarantee pursuant to this Section 2.2(b) shall promptly reimburse the Company and the Managing Member for all reasonable costs and expenses (including any amounts charged to the Company by the applicable lender) incurred by the Company and Managing Member in complying with this Section 2.2(b).

(iv) If, at any time, any Protected Partner executes and delivers a Debt Guarantee to a lender in accordance with this Section 2.2(b), and if, notwithstanding the provisions of any agreement entered into in accordance with clause (i) of this Section 2.2(b), in connection with a proposed modification or amendment to the related loan documents the applicable lender requests from the applicable Protected Partner(s) a confirmation and ratification of the Debt Guarantee, then, provided that the proposed modification or amendment is a Consistent Amendment (hereinafter defined), the applicable Protected Partner(s) will ratify and confirm that the Debt Guarantee remains in full force and effect and shall not be impacted, terminated or modified in any way as a result of such loan modification (other than modifications that occur pursuant to Section 6(a) of the form of Debt Guarantee annexed hereto as Annex E) and such Protected Partner(s) will execute and deliver such written consent, confirmation and ratification no later than five (5) Business Days after being requested to do so by the Company. In the event that a Protected Partner fails to ratify and confirm a Debt Guarantee in accordance with this Section 2.2(b)(iv), then (i) the Managing Member may, in its discretion and to the extent permitted by law, reduce the portion (if any) of such Guaranteed Liability that is allocable to such Protected Partner for purposes of Section 752 of the Code; and (ii) regardless of any actions taken by the Managing Member pursuant to the preceding clause (i), the Company shall, with respect to such Protected Partner, be deemed to have satisfied in full its obligations under Section 2.2 with respect to such Nonrecourse Indebtedness for all purposes of this Agreement (and shall have no obligation to such Protected Partner under Section 2.4(a)(ii) of this Agreement with respect to the Nonrecourse Indebtedness to which such Debt Guarantee relates).

(v) Prior to entering into any amendment or modification to the loan documents evidencing a Guaranteed Liability, the Company will deliver to each Protected Partner(s) that has at that time delivered a Debt Guarantee that remains outstanding with respect to such Guaranteed Liability, a brief summary of the key business terms of such amendment or modification. Such Protected Partner(s) shall have five (5) Business Days (x) to solicit any additional information from the Company regarding the amendment or modification and (y) to object to such amendment or modification, but the Protected Partner(s) shall be entitled to object only if such Protected Partner(s) conclude, in such Protected Partner(s)’ reasonable discretion, that solely as a result of such proposed amendment or modification, there would be a reduction in the amount of such Guaranteed Liability that would be allocated to such Protected Partner(s) under Section 752 of the Code and the Treasury Regulations thereunder (as compared to the amount of such Guaranteed Liability that would be so allocated to such Protected Partner(s) in the absence of such modification or amendment), it being understood and agreed that Protected Partner(s) shall have no other basis upon which to object to the proposed modification or amendment. Any such objection shall be delivered to the Company in writing prior to the expiration of such five (5) Business Day period and shall explain the specific basis for such objection. If the Company receives any such objection notice, the Company will not enter into the proposed amendment or modification, and any future revisions to the proposed amendment or modification shall be subject to the approval process set forth in this clause (v). If the Protected Partner(s) either notify the Company that the Protected Partner(s) do not object to the proposed business terms, or if Protected Partner(s) fail to respond during such five (5) Business Day period, then the Company shall be permitted to enter into the proposed amendment or modification, and such Protected Partner(s) shall be deemed to have approved such proposed amendment or modification (any such proposed amendment or modification, a “Consistent Amendment”).

In no event shall the aggregate amount of all Debt Guarantees executed by all Protected Partners with respect to any Protected Property exceed the applicable Requested Debt Amounts with respect to such Protected Property. The Company shall not be liable for any taxes incurred by any Protected Partner as a result of the failure of such Protected Partner to exercise its rights under this Section 2.2(b). Notwithstanding any other provision of this Agreement, the Company shall be deemed to have satisfied its obligation under Section 2.2(a) to maintain an amount of Nonrecourse Indebtedness at least equal to the Minimum Debt Amount at any given time if the Company maintained at such time an amount of Nonrecourse Indebtedness that are Guarantee Permissible Liabilities at least equal to the aggregate Individual Guarantee Caps of all Protected Partners at such time.

(c) During the Protected Period, the Company shall not allow a Debt Notification Event to occur unless the Company provides at least thirty (30) days’ prior written notice (a “Section 2.2 Notice”) to each Protected Partner that has executed a Debt Guarantee with respect to Nonrecourse Indebtedness to which the Debt Notification Event relates and that may be affected thereby. The Section 2.2 Notice shall describe the Debt Notification Event and designate one or more Nonrecourse Indebtednesses (having an aggregate principal amount and remaining term that is not less than the principal amount and remaining term of the Guaranteed Liability to which the Debt Notification Event Relates) that may be guaranteed by the Protected Partners pursuant to Section 2.2(b) of this Agreement. Any Protected Partner that desires to execute a Debt Guarantee following the receipt of a Section 2.2 Notice shall provide the Company with notice thereof within fifteen (15) days after the date of the Section 2.2 Notice, it being understood that the forty-five day notification requirement of Section 2.2(b) shall not apply to a Debt Guarantee request made by a Protected Partner in response to a Section 2.2 Notice.

(d) Neither the Managing Member nor the Company makes any representation or warranty to any Protected Partner concerning the treatment or effect of any Debt Guarantee under federal, state, local, or foreign tax law, and neither the Managing Member nor any of its Affiliates nor the Company bears any responsibility for any tax liability of any Protected Partner or Affiliate thereof that is attributable to a reallocation, by a taxing authority, of debt subject to a Debt Guarantee, including pursuant to a Consistent Amendment. In furtherance of, and without limiting, the foregoing, neither the Managing Member nor any of its Affiliates nor the Company makes any representation or warranty to any Protected Partner that providing a Debt Guarantee entered into pursuant to this Agreement will be respected for federal income tax purposes as providing any Protected Partner with an allocation of any such Guaranteed Liability for purposes of Section 752 of the Code or as causing any Protected Partner to be considered “at risk” with respect to such Guaranteed Liability for purposes of Section 465 of the Code, including as a result of the lender’s acceptance or non-acceptance of such guarantee. The Company shall reasonably cooperate, at the Protected Partners’ expense, with the Protected Partners to determine the amount of Company liabilities that the Company intends to allocate to the Protected Partners under Section 752 of the Code and the Regulations.

(e) The Company shall be permitted to make any payments required under the terms of each Existing Property Debt prior to the maturity thereof, and notwithstanding any other provision of this Agreement, the Company shall be deemed to satisfy its obligations under Section 2.2(a) and under Section 2.2(f) with respect to a Protected Property for so long and to the extent that it maintains the Existing Property Debt for such Protected Property (other than scheduled amortization pursuant to the terms of such Existing Property Debt prior to, but not in connection with, payments due at maturity of such Existing Property Debt).

(f) Except as otherwise provided in this Section 2.2, and subject to Section 2.4, prior to the maturity date of the Existing Property Debt for a Protected Property the Company may, and no later than the maturity date of such Existing Property Debt for a Protected Property the Company shall, refinance such Existing Property Debt with Nonrecourse Indebtedness secured by the applicable Protected Property having an outstanding balance that will remain at an amount that is at least equal to the Minimum Debt Amount for such Protected Property.

(g) Notwithstanding anything to the contrary herein, but subject to Section 2.4, the Company shall have the right to refinance the Existing Property Debt for any Protected Property with Nonrecourse Indebtedness not described in Section 2.2(f), but only if the amount of Nonrecourse Indebtedness that is allocated to the Protected Partners with respect to such Protected Property under Treasury Regulations Section 1.752-3 is not less than the amount of Nonrecourse Indebtedness that would have been allocated to such Protected Partners under Treasury Regulations Section 1.752-3 if the Company had maintained an amount of Nonrecourse Indebtedness secured by such Protected Property not less than the Minimum Debt Amount with respect to such Protected Property.

(h) A failure to comply with Section 2.2(a)-(g) shall not be a breach under this Agreement and shall not entitle any Protected Partner to a payment under Section 2.4 to the extent that (i) the failure does not reduce the amount of Nonrecourse Indebtedness that is allocated to the Protected Partner under Treasury Regulations Section 1.752-3 below such Protected Partner’s Requested Debt Amount (taking into account Debt Guarantees requested by such Protected Partner), (ii) the failure arises as a result of the condemnation or other taking of the Protected Property by a Government Entity in an eminent domain or condemnation proceeding or otherwise, (iii) the failure results from an obligation to perform under a guarantee that was caused by a pre-existing condition with respect to the Protected Property, (iv) the failure arises as a result of a casualty event with respect to a Protected Property in connection with which a lender requires any insurance proceeds or other related awards be applied to any loan secured by the applicable Protected Property thereby reducing the amount of Nonrecourse Indebtedness allocable to one or more Protected Partners with respect to such Protected Property or (v) the failure arises as a result of the transfer of any Units by any Person (including, without limitation, as a result of any transfer resulting from a Foreclosure Event or as a result of any transfers by the Transferors, the Intermediate Substituted Non-Managing Members, the Second Intermediate Substituted Non-Managing Members, the Third Intermediate Substituted Non- Managing Members, the Fourth Intermediate Substituted Non-Managing Members, the Fifth Intermediate Substituted Non-Managing Members, or the Sixth Intermediate Substituted Non-Managing Members pursuant to Section 11.3(c) of the Company Agreement); provided however, that in the case of a condemnation or other taking of Protected Property pursuant to clause (ii) or a casualty event pursuant to clause (iv), the Company shall use commercially reasonable efforts to replace such Nonrecourse Indebtedness securing such Protected Property with other Nonrecourse Indebtedness that is allocated to each applicable Protected Partner pursuant to Treasury Regulations Section 1.752-3 in the same amounts as allocated prior to such event.

(i) With respect to each (and any) Nonrecourse Indebtedness described in Section 2.2(a) with respect to a Protected Property, any “excess nonrecourse liability” shall be allocated in the 1%/99% ratio provided for in Section 6.2(b) of the Company Agreement; provided, however, that if and to the extent with respect to any taxable year of the Company during the Protected Period, the Managing Member determines (in its reasonable discretion) that the use of the Additional Method would avoid any such Protected Partner recognizing all or a portion of its share of Built-In Gain, the Managing Member shall cause the Company

to first allocate such “excess nonrecourse liability” to such Protected Partners in accordance with the Additional Method (but not in an amount exceeding the remaining amount of Built-In Gain allocable to such Protected Partners with respect to such Protected Property, after taking into account the allocation pursuant to Treasury Regulations Section 1.752-3(a)(2)). Notwithstanding anything to the contrary in this Agreement, the Managing Member shall not be deemed to have breached this Section 2.2(i) with respect to any taxable year of the Company unless (i) a Protected Partner has notified the Managing Member in writing, no later than ten (10) Business Days after receiving its Schedule K-1 with respect to such taxable year, that the Company’s failure to allocate “excess nonrecourse liability” to such Protected Partner in accordance with the Additional Method would cause such Protected Partner to recognize all or a portion of its share of Built-In Gain during such taxable year, (ii) the Protected Partner has provided the Managing Member with all information and supporting documentation reasonably necessary for the Managing Member to conclude that the Company’s failure to so allocate “excess nonrecourse liability” to such Protected Partner would result in the recognition of all or a portion of such Built-In Gain; and (iii) the Managing Member nevertheless fails to cause the Company to modify the allocation of such “excess nonrecourse liability” accordingly.

Section 2.3 Annexes; Procedural Matters

(a) Annex B sets forth (or will pursuant to Section 2.3(c) set forth), with respect to each of the Protected Properties anticipated to be transferred to the Company, an estimated computation of :

(i) the initial Built-In Gain amount with respect to each such Protected Property as of the date of this Agreement (the “Initial Built-In Gain”);

(ii) each Protected Partner’s adjusted tax basis in each such Protected Property as of December 31, 2016 and as of the date of this Agreement (the “Tax Basis Amount”);

(iii) each Protected Partner’s share of the aggregate Built-In Gain with respect to each such Protected Property as of the date of this Agreement (the “Built-In Gain Share”);

(iv) each Protected Partner’s expected initial tax capital account in the Units received by such Protected Partner with respect to each such Protected Property (the “Tax Capital Amount”); and

(v) the amount of any adjustments under Section 734 or 743 that could affect the calculation of an Applicable Tax Liability with respect to each such Protected Property as of December 31, 2016, and as of the date of this Agreement (the “734/743 Adjustment Amount”).

(b) Annex C sets forth (or will pursuant to Section 2.3(c) set forth), with respect to each Protected Property anticipated to be transferred to the Company, (i) an estimated computation of the Minimum Debt Amount based on the scheduled amortization payments required to be paid under the terms of the Existing Property Debt with respect to each such Protected Property prior to the maturity of such Existing Property Debt (the “Allocable Minimum Debt Amount”) and (ii) each Protected Partner’s Requested Debt Amount with respect to such Protected Property.

(c) In the event that, as of the date of this Agreement, Annex B or Annex C omits any information with respect to any Intermediate Substituted Non-Managing Member, Second Intermediate Substituted Non-Managing Member, Third Intermediate Substituted Non-Managing Member, Fourth Intermediate Substituted Non-Managing Member, Fifth Intermediate Substituted Non-Managing Member, or Sixth Intermediate Substituted Non-Managing Member, the Transferors shall, as soon as practicable, but in any event no later than the First Tranche Closing, provide to the Managing Member all information (together with any supporting documentation reasonably requested by the Managing Member), in form and substance reasonably satisfactory to the Managing Member, that is necessary for the completion of Annex B and Annex C with respect to each Intermediate Substituted Non-Managing Member, Second Intermediate Substituted Non-Managing Member, Third Intermediate Substituted Non-Managing Member, Fourth Intermediate Substituted Non-Managing Member, Fifth Intermediate Substituted Non-Managing Member, or Sixth Intermediate Substituted Non-Managing Member; provided that it shall not be unreasonable for the Managing Member to disagree with and refuse to accept any information provided by the Transferors pursuant to this Section 2.3(c) to the extent such information is inconsistent with the information set forth on Annex B or Annex C as of the date of this Agreement.

(d) As soon as practicable, but in any event no later than thirty (30) days prior to each Closing Date, the applicable Transferors may, with respect to the Protected Properties being transferred on such Closing Date, prepare and deliver to the Managing Member an adjustment statement setting forth any revised calculation of the Initial Built-In Gain, the Tax Basis Amount, the Built-In Gain Share, the Tax Capital Amount, the 734/743 Adjustment Amount, the Allocable Minimum Debt Amount and the Requested Debt Amounts, in each case to the extent attributable to accrued depreciation or amortization or debt service between the date of this Agreement and such Closing Date. In the event that the Managing Member notifies a

Transferor of any objections to such Initial Built-In Gain, Tax Basis Amount, Built-In Gain Share, Tax Capital Amount, 734/743 Adjustment Amount, Allocable Minimum Debt Amount or Requested Debt Amounts, the Representatives and the Managing Member shall reasonably cooperate with one another to make further adjustments to such estimated Initial Built-In Gain, Tax Basis Amount, Built-In Gain Share, Tax Capital Amount, 734/743 Adjustment Amount, Allocable Minimum Debt Amount and/or Requested Debt Amounts, as applicable. The estimated Initial Built-In Gain, Tax Basis Amount, Built-In Gain Share, Tax Capital Amount, 734/743 Adjustment Amount, Allocable Minimum Debt Amount and Requested Debt Amounts, as revised to reflect (i) the correction of any errors identified by the Transferors in an amount not exceeding $25,000 in the aggregate (taking into account all other corrections under this clause (i)); or (ii) any reasonable objections of the Managing Member, shall, subject to Section 2.3(e) below, be considered final and binding for purposes of this Agreement.

(e) Notwithstanding anything to the contrary in Section 4.1, the Managing Member may, in its reasonable discretion:

(i) update and/or supplement any Annex hereto to reflect any changes to Transferors, the Protected Partners or the Protected Properties in accordance with the terms of this Agreement and the Contribution Agreement;

(ii) update and/or supplement Annex B and Annex C to reflect the adjustments contemplated by Section 1.1(e), Section 1.1(w), Section 1.1(ff), and this Section 2.3; and

(iii) update and/or supplement Annex E to reflect any changes contemplated by Section 1.1(l).

(f) Each Transferor and Protected Partner shall, and shall cause the Representatives to, cooperate with all reasonable requests for documentation supporting the calculation of the Initial Built-In Gain, the Tax Basis Amount, the Built-In Gain Share, the Tax Capital Amount, the 734/743 Adjustment Amount, the Allocable Minimum Debt Amount and the Requested Debt Amounts with respect to each Protected Property and the Transferors and Protected Partners shall, and shall cause the Representatives to, cause any information reasonably requested by the Company to be provided as promptly as is reasonably practicable after receipt of such request, including, without limitation, the following information regarding each of the fixed assets (depreciable and non-depreciable) comprising the Protected Property to the extent not already provided to the Company: (A) cost and additions from inception, (B) accumulated depreciation, (C) depreciation method used and (D) useful life remaining.

(g) Neither the Company nor the Managing Member nor any of its Affiliates shall be required to comply with or otherwise satisfy the provisions of Section 2.4(i) with respect to any recognized income or gain resulting from any failure by a Transferor or Protected Partner to satisfy (or cause the Representatives to satisfy) any obligations under Section 2.3(f), to the extent such failure to comply directly results in a recognition of income or gain by a Protected Partner that otherwise would not have occurred but for such failure; or (ii) with respect to any incomplete or incorrect information provided in connection with the preparation of any Annex hereto or otherwise provided under this Section 2.3.

Section 2.4 Indemnification; Liability.

(a) Payment for Breach. Except as otherwise provided in this Agreement:

(i) In the event of a Tax Protected Period Transfer described in Section 2.1(a) or a breach by the Company of an agreed upon reporting position in Section 3.1(a) or Section 3.1(b), the Company shall pay to such Protected Partner an amount equal to the sum of (A) the Applicable Tax Liability (if any) attributable to such Tax Protected Period Transfer or breach, plus (B) an estimated amount equal to the aggregate federal, state, and local income taxes payable by the Protected Partner as a result of the receipt of any payment required under the preceding clause (A) and this clause (B), calculated by applying the Effective Tax Rate that applies with respect to any such additional income.

(ii) In the event of a breach of Section 2.2(a) that causes a Protected Partner to recognize gain under Code section 731, the Company shall pay to such Protected Partner an amount equal to the sum of (A) the Applicable Tax Liability (if any) attributable to such breach, plus (B) an estimated amount equal to the aggregate federal, state, and local income taxes payable by the Protected Partner as a result of the receipt of any payment required under the preceding clause (A) and this clause (B), calculated by applying the Effective Tax Rate that applies with respect to any such additional income.

Any payments due under this Section 2.4(a) shall be paid in accordance with Section 2.4(d). Payment of any such amounts and any other amounts owed by the Company under this Agreement shall be guaranteed by STWD pursuant to the STWD Guaranty.

(b) Exclusive Remedy. The parties hereto agree and acknowledge that the payment obligations of the Company pursuant to Section 2.4(a) hereof shall constitute liquidated damages for any breach by the Company of this Agreement, and shall be the sole and exclusive remedy of the Protected Partners for any such breach of this Agreement. No Protected Partner shall bring any claim for specific performance under this Agreement for any breach of this Agreement, other than a claim for performance of the payment obligations set forth in this Section 2.4, or bring a claim against any Person that acquires a Protected Property from the Company in violation of Section 2.1(a).

(i) For the avoidance of doubt, the Company shall not be liable to any Protected Partner for any income or gain (A) allocated to such Protected Partner with respect to Units that is not the result of a breach by the Company of its obligations or agreements under this Agreement, (B) resulting from distributions by the Company made with respect to all holders of Class A Units, (C) resulting from the receipt (or deemed receipt) of cash or other property on any Closing Date (including any portion of such cash received or deemed received that is intended to be treated as a reimbursement of capital expenditures or the assumption of any “qualified liabilities” as defined in Treasury Regulation Section 1.707-5(a)(6)), (D) resulting from the transfers by the Transferors, the Intermediate Substituted Non-Managing Members, the Second Intermediate Substituted Non-Managing Members, the Third Intermediate Substituted Non-Managing Members, the Fourth Intermediate Substituted Non-Managing Members, the Fifth Intermediate Substituted Non-Managing Members, or the Sixth Intermediate Substituted Non-Managing Members pursuant to Section 11.3(c) of the Company Agreement, or (E) to the extent of a Final Determination that is contrary to the tax reporting positions provided for in Section 3.1(a) or Section 3.1(b).

(ii) No officer, director, member, or employee of the Company, STWD, the Managing Member or any of their respective affiliates shall have any liability for any breach of the obligations and agreements of the Company under this Agreement.

(iii) Except to the extent arising as a result of the Company’s breach of its obligations under Section 2.1, Section 2.2, Section 3.1(a) or Section 3.1(b) of this Agreement, the Protected Partners shall not be entitled to indemnification from the Company for any tax liabilities incurred as a result of any tax authority treating any portion of the Contribution as a taxable exchange (rather than a tax-deferred contribution) for purposes of any tax laws (and notwithstanding Section 3.1(a) or Section 3.1(b)).

(iv) To the extent an imputed underpayment under Code Section 6225 is assessed against the Company and such assessment implicates the terms of, or payments that have been made or that could be required to be made pursuant to, this Agreement, the parties hereto shall reasonably cooperate as necessary to preserve the economic arrangement intended by the terms of this Agreement to the maximum extent possible, and the parties hereto (and any successor to a party hereto) acknowledge and agree that the preservation of the intended economic arrangement includes, without limitation, preventing any party from receiving a windfall or from having to pay duplicate damages and ensuring that, except as required by Section 2.4(c)(iii) above, the Company does not bear any cost, expense or liability associated with a challenge of the tax treatment described in Section 3.1 or any challenge to the treatment of any Debt Guarantee (which costs, expenses and liabilities shall instead be borne by the Protected Partners).

(v) In the event that (A) a Protected Partner holds equity received in a Fundamental Transaction in which the Protected Partner recognizes gain but such equity is treated as Units by reason of clause (ii) of the definition of “Units” (e.g., in a partially taxable Fundamental Transaction) or (B) a property is treated as Protected Property by reason of being acquired in a transaction pursuant to which the tax basis of such property is determined in whole or in part by reference to the tax basis of Protected Property (e.g., in a partially taxable transaction), appropriate adjustments shall be made to any payments required under this Agreement so that the Company is not required to make any payment that would result in receipt of a windfall or to pay duplicate damages with respect to such Units or Protected Property.

(d) Payment and Dispute Resolution Matters With Respect to Section 2.4(a).

(i) In the event that there has been a breach by the Company of any of its obligations under this Agreement during the Protected Period for which payment is required under Section 2.4(a), the Company shall provide to each Representative notice of the breach as soon as reasonably practicable thereafter. As soon as reasonably practicable

after giving notice described in the preceding sentence (subject to delay pending the receipt of any information requested pursuant to the penultimate sentence of this Section 2.4(d)(i)), the Company shall be obligated to (A) provide each Representative with a detailed calculation of the amount due under Section 2.4(a) with respect to such breach for each of the Protected Partners, and (B) provide each Representative with such evidence or verification as such Representative may reasonably require as to the items necessary to confirm the calculation of such amounts. The Protected Partners shall, and shall cause the Representatives to, cooperate with the Company and to provide any information reasonably requested by the Company in order to assist the Company in making the calculations required under this Section 2.4(d)(i) with respect to each breach, including without limitation information relating to adjustments under Code Sections 743 and 734, and information relating to the computation of the Effective Tax Rate, and, subject to obtaining such cooperation, the Company shall, subject to Section 2.4(d)(ii), finalize the calculation of the amount due to each Protected Partner with respect to the breach as soon as reasonably practicable; provided, however, that to the extent the Protected Partners fail to provide (or fail to cause the Representatives to provide) information, the Company may make any good faith assumptions with respect to matters for which it does not have adequate information as a result of such failure. Once such amounts have been finalized in accordance with this Section 2.4(d)(i) and (ii), the Company shall promptly pay the amounts so due with respect to the breach to the relevant Protected Partners.

(ii) If the Company has breached or violated any of the covenants set forth in this Agreement (or a Protected Partner asserts that the Company has breached or violated any of the covenants set forth in this Agreement), the Protected Partner shall cause the Representatives to negotiate in good faith with the Company to resolve any disagreements regarding any such breach or violation and the amount of damages, if any, payable to the Protected Partners under Section 2.4(a). If the Company and the Representatives agree as to a breach or covenant violation but disagree as to the amount of damages payable under Section 2.4(a), and such disagreement cannot be resolved through such negotiations, the Company shall consult with its accountants to determine a reasonable calculation of the amount of damages payable, which determination shall be binding absent a determination to the contrary by the Accounting Firm (as defined below) in accordance with this Section 2.4(d) that the Company acted unreasonably.

(iii) If any disagreement between the Company and one or more Protected Partners as to whether the Company breached or violated any covenant in this Agreement with respect to such Protected Partners, or any allegation that the Company’s determination of damages with respect to such Protected Partners was not reasonable cannot be resolved within sixty (60) days after the receipt of a notice of disagreement from the aggrieved party, the Company and the Representatives shall jointly retain an accounting firm (an “Accounting Firm”) selected by the Company from a list prepared by the Representatives within thirty (30) days following expiration of such sixty (60) day period of five independent accounting firms. Each accounting firm on such list must be comprised of at least one hundred fifty (150) certified public accountants, and two of the accounting firms on such list must be “Big Four” accounting firms; provided, however, that (i) the requirement for such list to include two Big Four accounting firms shall only apply to the extent that at least two of Big Four accounting firms are not then representing, and have not in the three years prior to the due date of such list represented, the Company and/or the REIT with respect to income tax return preparation or the audit of financial statements, (ii) the Company shall inform the Representatives of which of the Big Four accounting firms is providing or has during such period provided such representation, and (iii) if the Representatives do not provide a list meeting the requirements of this sentence within such thirty (30) day period the Company may select any nationally recognized accounting firm to serve as the Accounting Firm for the relevant disputes. The Accounting Firm will act as an arbitrator to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a breach of any of the covenants set forth in this Agreement has occurred and, if so, whether the Company’s determination of the amount of damages to which the Protected Partner is entitled as a result thereof under Section 2.4(a) was reasonable). All determinations made by the Accounting Firm with respect to the resolution of any breach or violation of any of the covenants set forth in this Agreement and the reasonableness of the amount of damages payable to the Protected Partners under Section 2.4(a) shall be final, conclusive and binding on the Company and the Protected Partners. If the Accounting Firm determines that the Company’s calculation of damages was not reasonable, the Accounting Firm shall calculate the proper amount required to be paid. The fees and expenses of any Accounting Firm incurred in connection with any such determination with respect to any dispute between the Company and the Protected Partners shall be borne fifty percent (50%) by the Company and fifty percent (50%) by the Protected Partners. For the avoidance of doubt, the Company shall not be liable for any fees or expenses of any Accounting Firm with respect to any challenge of the tax treatment described in Section 3.1 or with respect to any Debt Guarantee. Each Protected Partner shall cause the Representatives to take any and all actions contemplated to be taken by such Representatives under this Section 2.4(d)(iii).

Section 2.5 Protected Property Effective Date. For the avoidance of doubt, the restrictions and undertakings under this Article II with respect to any Protected Property and any associated Nonrecourse Indebtedness with respect to such Protected Property shall not be effective until the applicable Closing Date on which such Protected Property is transferred to the Company (or applicable Opco Sub).

ARTICLE III

TAX TREATMENT AND REPORTING; TAX PROCEEDINGS; IMPUTED

UNDERPAYMENTS.

Section 3.1 Tax Treatment of Transaction

(a) The parties hereto agree that, for U.S. federal income tax purposes (and for purposes of analogous state and local taxes imposed on, or measured in whole or in part by, federal taxable income), (i) the transfer of each of the Protected Properties to the Company will be reported on their respective applicable income tax returns as in part a taxable sale of the Protected Properties and in part a tax-deferred contribution under Code Section 721 of the Protected Properties to the Company exchange for Units, all in accordance with Sections 2.8 and 2.9.1 of the Contribution Agreement and (ii) the contributions by Transferors to the Company (or the applicable Opco Subs, as defined in the Contribution Agreement) shall be treated by the Parties for reporting purposes as having been made subject to the Designated Mortgage Loans (as defined in the Contribution Agreement) in accordance with Section 2.9.4 of the Contribution Agreement. The parties further agree that Schedule 8A to the Contribution agreement sets forth, with respect to each Protected Property, the amount of Designated Mortgage Loans that the parties intend to treat for federal income tax reporting purposes (and for purposes of any analogous state or local taxes imposed on or measured by federal taxable income) as “qualified liabilities” within the meaning of Treasury Regulation Section 1.707-5(a)(6).

(b) No party hereto shall take any position in any U.S. federal, state, or local income tax returns or for any income tax purposes that is contrary to the characterization described in this Section 3.1 or in Section 2.9.1 of the Contribution Agreement, unless such position is otherwise required by a change in applicable tax law, a change in interpretation of applicable tax law, or a change in facts, or pursuant to a Final Determination.

(c) Despite the undertakings by the Company to treat the transfer of the Protected Properties to the Company in part as a tax-deferred contribution under Code Section 721 (in the manner and to the extent required under this Section 3.1 or under Section 2.9 of the Contribution Agreement) in preparing its tax returns for federal income tax reporting purposes, the Company makes no, and the Transferors acknowledge that the Company is not making any, representation or warranty as to the correctness of that treatment, and the Company undertakes no liability or responsibility under this Agreement, the Contribution Agreement or otherwise to the Transferors, concerning the federal, state, or local tax consequences of the transactions contemplated by the Contribution Agreement, including without limitation the treatment of any cash distributions made thereunder as being in reimbursement of preformation expenditures within the meaning of Treasury Regulation Section 1.707-4(d) (despite their having been identified as such on Schedule 8 to the Contribution Agreement) or the treatment of any portion of the Existing Property Debt as “qualified liabilities” within the meaning of Treasury Regulation Section 1.707-5(a)(6) to which the Protected Properties are subject (or treated as subject to) at the time of their transfer to the Company (despite their having been identified as such on Schedule 8A to the Contribution Agreement).

Section 3.2 Tax Advice. 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. Section 3.1 notwithstanding, the Company makes no representation or warranty as to the proper treatment of any Contribution, or the consequences of the transactions and elections contemplated by the Agreement, the Company Agreement and the Contribution Agreement, for U.S. federal income tax purposes or any other tax purposes.

Section 3.3 Intentionally Omitted.

Section 3.4 Tax Audits. If any claim, demand, assessment (including a notice of proposed assessment) or other assertion is made with respect to taxes against any Protected Partner the calculation of which involves a matter covered in this Agreement (“Tax Claim”) or if a Protected Partner receives any notice from any jurisdiction with respect to any current or future audit, examination, investigation or other proceeding (“Proceeding”) involving the Protected Partners that otherwise could involve a matter covered in this Agreement, then the Protected Partners, as applicable, shall promptly notify the Company of such Tax Claim or Proceeding. With respect to any payment previously paid pursuant to Section 2.4(a), if any Tax Claim or Proceeding causes a change in the amount that should have been paid by the Company to any Protected Partner pursuant to Section 2.4(a), then (i) if there is an increase in the amount that should have been paid by the Company to such Protected Partner, the Company shall pay to such Protected Partner any incremental amount of damages resulting from such increase, or (ii) if there is a decrease in the amount that was owed by the Company to such Protected Partner, such Protected Partner shall pay to the Company any incremental decrease in the amount of damages previously paid to such Protected Partner, in each case as calculated pursuant to Section 2.4(a) and subject to the limitations in this Agreement, including in Section 2.4(c); provided, however, that if (x) a Protected Partner fails to provide notice to the Company of such Tax Claim or Proceeding where it is reasonably expected to potentially increase the amount owed by the Company to any Protected Partner or (y) the Protected Partners breach any of their obligations under Section 3.5, then the amount of any such increase in the amount owed by the Company to the Protected Partner shall not be taken into account and shall not be paid by the Company to the Protected Partner.

Section 3.5 Participation in Tax Proceedings.

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

(b) The Company shall notify the Representatives of any Proceeding against the Company in which the applicable tax authority challenges the tax treatment provided for under Section 3.1 or Section 2.9 of the Contribution Agreement. The Company shall keep the Representatives reasonably informed as to the status of such Proceeding to the extent (and only to the extent) that the Proceeding relates to the tax treatment provided for under Section 3.1 or Section 2.9 of the Contribution Agreement (including providing each Representative with copies of all material written correspondence that it receives regarding such tax treatment), and the Company shall consult in good faith with the Representatives before it settles or otherwise resolves any such matter relating to the tax treatment provided for under Section 3.1 or Section 2.9 of the Contribution Agreement; provided that in no event shall the Company be required to delay any such settlement or resolution.

Section 3.6 Book Depreciation. For any asset with a tax basis of zero that is treated as being contributed to the Company pursuant to Code Section 721 as part of the Contribution, the Company shall calculate the “book depreciation” for such asset pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) as if such asset were purchased on the applicable Closing Date for cash equal to its Allocated Value, as set forth on Annex B hereto.

ARTICLE IV

GENERAL PROVISIONS

Section 4.1 Amendments.

(a) No provision of this Agreement (including the Annexes) may be amended or modified except by an instrument in writing executed by the Company, the Managing Member, and the Consent of Class A Members (as defined in the Company Agreement). Any such written amendment or modification will be binding upon the Company, the Managing Member, each Transferor and each Protected Partner. Notwithstanding the foregoing, amendments to the Annexes hereto may be made by the Managing Member in accordance with Section 2.3(e).

Section 4.2 Appointment of Representative.

Each Transferor and Protected Partner agrees as a condition to becoming a beneficiary to this Agreement that it will be represented by the Representatives authorized to act on behalf of such Transferor and/or Protected Partner pursuant to Section 1.126 of the Company Agreement, and agrees that such Representatives alone will represent and act on behalf of such Transferor and/or Protected Partner and any successor in interest to the Units received by such Transferor and/or Protected Partner or to equity attributable to such Units and treated as Units under clause (ii) of the definition thereof (and each hereby irrevocably appoints or shall be deemed to irrevocably appoint the Representatives as his, her, or its representatives) for the purpose of receiving any notice or giving any notice, consent, approval or waiver required or contemplated in this Agreement, and each agrees that the Company shall be fully entitled to rely conclusively on any such notice, consent, approval, waiver or other determination by the Representatives as an action by the appointed and authorized representative of the applicable Protected Partners. Each Transferor and Protected Partner shall cause the Representatives to take such actions as are contemplated to be taken by such Representatives pursuant to this Agreement and shall be liable for any action or omission of any such Representatives.

Section 4.3 Assignment.

No Protected Partner shall assign this Agreement or its rights hereunder to any Person without the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed, provided that any such assignment undertaken without such consent shall be null and void. For the avoidance of doubt, any transfer of Units by a Protected Partner shall be governed by the terms of the Company Agreement.

Section 4.4 Addresses and Notices

Any notice, demand, request or report (each a “Notice”) required or permitted to be given or made to a Member or Assignee under this Agreement shall be in writing and shall be given by one of the methods prescribed in this Section 4.4 to the party at the address for such party set forth in the books and records of the Company, or such other address of which the party shall specify by Notice to the Company. All Notices shall be deemed to be duly given: (a) at the time of delivery, if such Notice is personally delivered; or (b) on the next Business Day, if such Notice is sent by a nationally recognized overnight delivery service, such as Federal Express, with next day delivery prepaid; or (c) upon receipt of delivery, if such Notice is transmitted by facsimile, e-mail or other electronic transmission prior to 5:00 p.m. Pacific time, so long as on the same day as the facsimile, e-mail or other electronic delivery, an additional written copy addressed to the intended recipient is deposited for delivery with a nationally recognized overnight delivery service. If any Notice is not received or cannot be delivered due to a change in address of the intended recipient, of which Notice was not properly given to the sending party, or due to a refusal to accept by the intended recipient, such Notice shall be effective on the date delivery is attempted.

Section 4.5 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 shall be governed by Section 15.18 of the Company Agreement.

Section 4.6 Titles and Captions

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

Section 4.7 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 4.8 Further Action

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

Section 4.9 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 4.10 Creditors

None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of any party.

Section 4.11 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 4.12 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 4.13 Applicable Law

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

Section 4.14 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 4.15 Entire Agreement

This Agreement, the Contribution Agreement and the Company Agreement contain the entire understanding and agreement among the parties with respect to the subject matter of this Agreement and the rights, interests and obligations of the parties. In the case of any conflict between either the Company Agreement or the Contribution Agreement, on the one hand, and this Agreement, on the other hand, in relation to any matter addressed in this Agreement, this Agreement shall prevail.

Section 4.16 No Rights as Stockholders.

Nothing contained in this Agreement shall be construed as conferring upon the holders of the 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; provided, however, that nothing contained herein shall preclude any holder of Units which is also a stockholder of the REIT from possessing and exercising all rights conferred on stockholders of the REIT in its capacity as a stockholder of the REIT.

Section 4.17 No Third-Party Rights Created Hereby

The provisions of this Agreement are solely for the purpose of defining the interests of the parties, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement.

Section 4.18 Venue

Each party hereto agrees that all judicial proceedings brought arising out of or relating to this Agreement or any party’s obligations hereunder may only be brought in any state or federal court of competent jurisdiction in the State of Delaware, and each party accepts generally and unconditionally the exclusive jurisdiction and venue of such courts.

Section 4.19 Attorneys’ Fees

Except as otherwise set forth in this Agreement, in the event that any party hereto brings an action or proceeding (including any arbitration) against any other party to enforce or interpret any of the covenants, conditions, agreements or provisions of this Agreement, the prevailing party in such action or proceeding shall be entitled to recover all reasonable costs and expenses of such action or proceeding, including, without limitation, attorneys’ fees, charges, disbursements and the fees and costs of expert witnesses.

Section 4.20 Construction.

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

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

[SIGNATURES ARE ON THE FOLLOWING PAGES]


AFFORDABLE/GLEN OAKS, LTD.,
a Florida limited partnership

By:	Bull Dolphin Glen Oaks LLC,
	its general partner

	By:	/s/ Louis E. Vogt
		Name:	Louis E. Vogt
		Title:	Authorized Signatory