Exhibit 10.11

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

OF

HF LOGISTICS-SKX, LLC

THE LIMITED LIABILITY COMPANY INTERESTS IN HF LOGISTICS-SKX, LLC (THE
“INTERESTS”) ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER TERMS AND
CONDITIONS SET FORTH IN ARTICLE 11 AND MAY NOT BE OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE
WITH THE TERMS AND CONDITIONS THEREOF. THEREFORE, PURCHASERS OF THE INTERESTS
WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENTS FOR AN INDEFINITE PERIOD
OF TIME. THE INTERESTS HAVE NOT BEEN REGISTERED (i) UNDER ANY SECURITIES LAWS OF
THE SEVERAL STATES (THE “STATE ACTS”), OR (ii) UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “FEDERAL ACT”), IN RELIANCE UPON
EXEMPTIONS PROVIDED THEREIN, AND NEITHER THE INTERESTS NOR ANY PART THEREOF MAY
BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, OR TRANSFERRED AT
ANY TIME EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF ARTICLE 11 AND
(1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER ANY APPLICABLE STATE
ACTS OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER SUCH STATE ACTS
OR WHICH IS OTHERWISE IN COMPLIANCE WITH SUCH STATE ACTS, AND (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE FEDERAL ACT OR IN A TRANSACTION WHICH
IS EXEMPT FROM REGISTRATION UNDER THE FEDERAL ACT OR WHICH IS OTHERWISE IN
COMPLIANCE WITH THE FEDERAL ACT. IN ADDITION, ANY INTERESTS ACQUIRED BY NON-U.S.
PERSONS MAY NOT, DIRECTLY OR INDIRECTLY, BE OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, SOLD, ASSIGNED, OR TRANSFERRED IN THE UNITED STATES OR TO OR FOR
THE ACCOUNT OF A U.S. PERSON EXCEPT IN COMPLIANCE WITH THIS AGREEMENT AND THE
FEDERAL ACT AND ALL APPLICABLE STATE ACTS. AS USED HEREIN, “UNITED STATES” MEANS
THE UNITED STATES OF AMERICA, ITS TERRITORIES AND POSSESSIONS, AND ALL AREAS
SUBJECT TO ITS JURISDICTION, AND A “U.S. PERSON” MEANS A CITIZEN OR RESIDENT OF
THE UNITED STATES (INCLUDING THE ESTATE OF ANY SUCH PERSON), A CORPORATION,
COMPANY, OR OTHER PERSON CREATED OR ORGANIZED UNDER THE LAWS OF THE UNITED
STATES OR ANY POLITICAL SUBDIVISION THEREOF OR THEREIN, AND AN ESTATE OR TRUST
THE INCOME OF WHICH IS SUBJECT TO UNITED STATES FEDERAL INCOME TAXATION
REGARDLESS OF ITS SOURCE.

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TABLE OF CONTENTS

 

     Page  

Article 1 DEFINED TERMS

     1   

Article 2 ORGANIZATIONAL MATTERS

     9   

Article 3 PURPOSE

     11   

Article 4 CAPITAL CONTRIBUTIONS; MEMBER LOANS; CAPITAL ACCOUNTS

     11   

Article 5 DISTRIBUTIONS AND ALLOCATIONS

     15   

Article 6 LOANS

     15   

Article 7 MANAGEMENT AND OPERATION OF BUSINESS

     19   

Article 8 BUY-SELL PROVISIONS

     28   

Article 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS

     30   

Article 10 TAX MATTERS

     31   

Article 11 TRANSFERS AND WITHDRAWALS

     34   

Article 12 ADMISSION OF MEMBERS

     36   

Article 13 DISSOLUTION AND LIQUIDATION

     36   

Article 14 AMENDMENT OF AGREEMENT

     39   

Article 15 DISPUTE RESOLUTION

     40   

Article 16 DEFAULTS / REMEDIES

     40   

Article 17 GENERAL PROVISIONS

     41   

Article 18 OVERRIDING PROVISIONS RE SUBSIDIARIES

     46   

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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF HF LOGISTICS -SKX,
LLC

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF HF
LOGISTICS-SKX, LLC (the “Company”), is entered into and effective as of the 12th
day of April, 2010 but is effective as of January 30, 2010 (the “Effective
Date”) by and between HF LOGISTICS I, LLC, a Delaware limited liability company
(“HF”), and SKECHERS R.B., LLC, a Delaware limited liability company
(“Skechers”, and together with HF, the “Members”). This Agreement amends and
restates, and supersedes in its entirety, the Limited Liability Company
Agreement of HF Logistics-SKX, LLC dated January 30, 2010.

RECITALS

WHEREAS, the Members, being all of the Members of the Company, desire to form
the Company as a limited liability company under the Act for the purposes set
forth herein.

NOW, THEREFORE, in consideration of the premises, the mutual promises and
agreements herein made, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Members, intending to be
legally bound, have agreed and do hereby agree as follows:

ARTICLE 1 DEFINED TERMS

Section 1.1 Certain Defined Terms. Unless otherwise clearly indicated to the
contrary, the following terms shall have the following meanings:

1.1.1 “Act” means Sections 18-101 et seq. of the Delaware Corporation Laws Ann.,
commonly known as the Delaware Limited Liability Company Act, as it may be
amended from time to time, and any successor to such statute.

1.1.2 “Additional Capital Contributions” means the total of all Capital
Contributions made to the Company by the Members in accordance with
Section 4.1.2.

1.1.3 “Additional Funding Obligation” has the meaning set forth in
Section 6.9(a).

1.1.4 Intentionally deleted.

1.1.5 “Affiliate” means with respect to any Person, (a) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
or (b) any Person owning or controlling fifty-one percent (51%) or more of the
outstanding voting interests of such Person, or (c) any Person of which such
Person owns or controls fifty-one percent (51%) or more of the voting interests.

1.1.6 “Agreement” means this Amended and Restated Limited Liability Company
Agreement of HF Logistics-SKX, LLC, as it may be amended, supplemented or
restated from time to time.

1.1.7 “Assignee” means a Person to whom any Company Interest has been
transferred in a manner permitted under this Agreement, but who has not been
admitted to the Company as a Member.

 

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1.1.8 “Available Cash” means, with respect to any period for which such
calculation is being made:

(a) all cash revenues and funds received by the Company from whatever source,
including Capital Transaction Proceeds (except with respect to Liquidating
Transactions), plus the amount of any reduction in existing Reserves of the
Company;

(b) less the sum of the following:

(i) all required interest or principal payments, escrow account payments and any
other payments made during such period by the Company on account of the Debt of
the Company, if any;

(ii) all cash expenditures (including capital expenditures) made by the Company
during such period;

(iii) all payments made by the Company during such period to any Reserve account
(including the amount of any increase in any existing Reserves of the Company).

1.1.9 “Bankruptcy Action” means (a) the filing of any voluntary or involuntary
bankruptcy (and in the case of an involuntary bankruptcy, such proceeding shall
not have been dismissed within ninety (90) days), insolvency or reorganization
case or proceeding, instituting any proceeding under any applicable insolvency
law or otherwise seeking any relief under any laws relating to the relief from
debts or the protection of debtors generally by or against any Person, (b) the
appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for any Person or a substantial portion of its
properties, (c) making any assignment for the benefit of creditors by any
Person, (d) any Person being adjudged a bankrupt or insolvent, or having entered
against it an order of relief in any bankruptcy or insolvency proceeding,
(e) any Person filing a petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, (f) any Person filing an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of the foregoing nature, (g) the
filing of any proceeding with respect to any Person seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, which has not been dismissed within
one hundred twenty (120) days after the commencement thereof, or (h) the
appointment of a trustee, receiver, assignee, sequestrator, custodian or
liquidator with respect to any Person which has not been vacated or stayed
within ninety (90) days after the appointment or such appointment is not vacated
within ninety (90) days after the expiration of any such stay.

1.1.10 “Breaching Member” shall mean any Member who has committed an Event of
Default.

1.1.11 “Business Day” means any day except a Saturday, Sunday or other day on
which commercial banks in Riverside, California, are authorized or required by
law to close.

1.1.12 “Buy-Sell Deposit” has the meaning set forth in Section 8.6.

1.1.13 “Buy-Sell Notice” has the meaning set forth in Section 8.1.

1.1.14 “Capital Account” means the Capital Account maintained for a Member
pursuant to Exhibit “A” attached hereto.

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1.1.15 “Capital Contribution” means, with respect to any Member, any cash, cash
equivalents or the Agreed Value (as defined in Exhibit “A”) of property which
such Member contributes or is deemed to contribute to the Company pursuant to
Article 4. Such amounts shall be treated as contributions to the Company
pursuant to Section 721(a) of the Code.

1.1.16 “Capital Transaction” means a voluntary or involuntary sale, exchange or
other disposition (other than a Liquidating Transaction) or a financing or
refinancing by the Company of the Project or any portion thereof.

1.1.17 “Capital Transaction Proceeds” means the net cash proceeds of a Capital
Transaction, after deducting all expenses incurred in connection therewith and
after application of any proceeds toward the payment of any Debt of the Company
secured by, or otherwise reasonably allocable to, the Project.

1.1.18 “Certificate” means the Certificate of Formation of the Company filed in
the office of the Secretary of State of the State of Delaware, as amended from
time to time.

1.1.19 “Closing Date” means the date after HF and the Construction Lender have
executed the commitment which is attached hereto as Exhibit “F” (the
“Commitment”), upon which the Construction Lender gives notice to HF that it has
procured a participant for the Construction Loan, as described in the Commitment
(which participant may be HF or an Affiliate of HF). HF shall execute and
deliver the Commitment to the Construction Lender on the first (1st) Business
Day after the Effective Date and shall use diligent efforts to obtain the
execution of the Commitment by the Construction Lender as soon thereafter as
possible.

1.1.20 “Code” means the Internal Revenue Code of 1986, as amended. Any reference
herein to a specific Section or Sections of the Code shall be deemed to include
a reference to any corresponding provision of future law.

1.1.21 “Company” has the meaning set forth in the preamble.

1.1.22 “Company Assets” means (a) the membership interests in the Subsidiaries
(which includes the indirect ownership of the Property and the Project), and
(b) all other assets of the Company.

1.1.23 “Company Interest” means the ownership interest in the Company held by a
Member, which includes any and all benefits to which the holder of such a
Company Interest may be entitled as provided in this Agreement (including any
voting rights and rights to receive distributions of Available Cash), together
with all obligations of such Member to comply with the terms and provisions of
this Agreement.

1.1.24 “Company Record Date” means the record dates established by the Managing
Members for the distribution of Available Cash, or if they fail to agree as to
any record date, such term means the last day of the current month.

1.1.25 “Company Year” means the fiscal year of the Company.

1.1.26 “Completion of the Project” has the meaning set forth in the Development
Management Agreement.

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1.1.27 “Construction Lender” means Bank of America in its capacity as a lender
and also as administrative agent for other lenders who are participants in the
Construction Loan, or any other lender under the Construction Loan.

1.1.28 “Construction Loan” means the construction loan from the Construction
Lender to be taken out by the T1 Subsidiary in the amount of approximately Fifty
Five Million Dollars ($55,000,000) to finance the development of the Development
Parcel in accordance with the Lease.

1.1.29 “Construction Loan Documents” means any and all documents which evidence
the Construction Loan, including a construction loan agreement, promissory
notes, deeds of trust, assignments of leases and rents, security agreements,
financing statements, pledge agreements and environmental indemnity agreements.

1.1.30 “Contribution Percentages” means the ratio at which the Members are
required to make certain Additional Capital Contributions, which is fifty
percent (50%) for HF and fifty percent (50%) for Skechers.

1.1.31 “Debt” means, as to any Person as of any date of determination, (a) all
indebtedness of such Person for money borrowed or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (c) all indebtedness for money
borrowed or for the deferred purchase price of property or services secured by
any lien on any property owned by such Person, to the extent attributable to
such Person’s interest in such property, even though such Person has not assumed
or become liable for the payment thereof; and (d) lease obligations of such
Person which, in accordance with generally accepted accounting principles,
should be capitalized.

1.1.32 “Default” has the meaning set forth in Section 4.1.5(c). For
clarification, the use of the word “default” (uncapitalized) in this Agreement
shall mean any default other than a Default which is defined in
Section 4.1.5(c).

1.1.33 “Default Amount” has the meaning set forth in Section 4.1.5(c).

1.1.34 “Default Date” has the meaning set forth in Section 4.1.5(c).

1.1.35 “Default Member” has the meaning set forth in Section 4.1.5(c).

1.1.36 “Default Notice” has the meaning set forth in Section 4.1.5(b).

1.1.37 “Deposit Date” has the meaning set forth in Section 8.6.

1.1.38 “Determination” has the meaning set forth in Section 15.2.

1.1.39 “Development Budget” has the meaning set forth in the Development
Management Agreement.

1.1.40 “Development Management Agreement” means that certain Development
Management Agreement effective as of January 30, 2010 between the Company and
HFC Holdings, LLC, a Delaware limited liability company (which is an Affiliate
of HF), as amended by an Amendment to Development Management Agreement effective
as of the same date, a copy of which is attached hereto as Exhibit “B” (the
interest of the Company therein has been or will be assigned to the T1
Subsidiary).

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1.1.41 “Development Manager” has the meaning set forth in the Development
Management Agreement.

1.1.42 “Development Parcel” means that certain real property which will, after
recordation of the final Parcel Map, be identified as Parcel 1 of Parcel Map
No. 35629, and consisting of approximately 82.59 acres of land, which real
property comprises a portion of the Property and is the “Premises” under the
Lease. Notwithstanding the foregoing, it is understood and agreed that prior to
the date that the final parcel map records, the Development Parcel shall be
established by lot line adjustments and therefore may not contain exactly the
amount of acreage or be in exactly the same configuration as it will be in after
the final parcel map records.

1.1.43 “Distribution Percentages” means the ratio at which the Members are
entitled to receive distributions of Available Cash, which is fifty percent
(50%) for HF and fifty percent (50%) for Skechers, subject to adjustment as set
forth in Section 4.1.5.

1.1.44 “Effective Date” has the meaning set forth in the preamble.

1.1.45 “Embargoed Person” has the meaning set forth in Section 2.5.10.

1.1.46 “Event of Default” shall mean a default by a Member (which includes a
default by a Member in its capacity as Managing Member) in the performance of
its obligations under this Agreement which is not cured within any applicable
cure period set forth herein, but excluding a default under Article 4 or
Article 6 with respect to required Additional Capital Contributions or required
loans.

1.1.47 “Event of Dissolution” has the meaning set forth in Section 13.1.

1.1.48 “Expansion Parcel” means that certain real property which will, after
recordation of the final, Parcel Map, be identified as Parcel 2 of Parcel Map
35629, and consisting of approximately 22.37 acres, which real property
comprises a portion of the Property and is the “Expansion Area” under the Lease.
Notwithstanding the foregoing, it is understood and agreed that prior to the
date that the final parcel map records, the Expansion Parcel shall be
established by lot line adjustments and therefore may not contain exactly the
amount of acreage or be in exactly the same configuration as it will be in after
the final parcel map records.

1.1.49 “HF” has the meaning set forth in the preamble.

1.1.50 “HF Loan” has the meaning set forth in Section 6.4.

1.1.51 “HF Managing Member” means HF acting in its capacity as a Managing Member
of the Company.

1.1.52 “Incapacity” or “Incapacitated” means (a) as to any individual Member,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (b) as to any
corporation which is a Member, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (c) as to
any partnership or limited liability company (or partnership) which is a Member,
the dissolution and commencement of winding up of the partnership or the limited
liability company (or partnership); (d) as to any estate which is a Member, the
distribution by the fiduciary of the estate’s entire interest in the Company; or
(e) as to any trustee of a trust which is a Member, the termination of the trust
(but not the substitution of a new trustee).

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1.1.53 “Indemnitee” means (a) any Person made a party to a proceeding brought by
an unaffiliated third party by reason of such Person’s status as (i) a Member,
or (ii) a director, officer, member, manager, partner, trustee, or shareholder
of the Company, or a Member or an Affiliate of a Member, or (b) such other
Persons acting in good faith on behalf of the Company as determined by the
Managing Members in their reasonable judgment.

1.1.54 “Initial Capital Contributions” means the total of all Capital
Contributions made to the Company by the Members in accordance with
Section 4.1.1.

1.1.55 “Invoking Member” has the meaning set forth in Section 8.1.

1.1.56 “IRS” means the United States Internal Revenue Service.

1.1.57 “Lease” means that certain lease dated September 25, 2007 between HF, as
landlord, and Skechers Parent, as tenant, as amended by the Lease Amendment and
the Second Lease Amendment, and any subsequent amendments.

1.1.58 “Lease Amendment” means that certain Amendment to Lease dated
December 18, 2009, between HF, as landlord, and Skechers Parent, as tenant.

1.1.59 “Lender” means the Construction Lender or the Permanent Lender, as the
case may be, or their respective successors-in-interest.

1.1.60 “Liquidating Transaction” means any transaction or series of related
transactions which results in the sale or other disposition of all or
substantially all of the Company Assets.

1.1.61 “Liquidator” has the meaning set forth in Section 13.2.1.

1.1.62 “Loan” means either the Construction Loan or the Permanent Loan, as the
case may be.

1.1.63 “Loss Item” has the meaning set forth in Section 7.6.1.

1.1.64 “Managing Member” means either HF or Skechers, as the case may be, acting
in the capacity as a Managing Member of the Company.

1.1.65 “Managing Members” means both HF and Skechers, each acting in the
capacity as a Managing Member of the Company.

1.1.66 “Master Lease” That certain Amended and Restated Master Lease Agreement
dated effective as of September 25, 2007 between HF, as tenant, and Highland
Partners I (formerly known as Westcoast Properties Partners, a California
general partnership), Highland Fairview Partners IV (formerly known as Sinclair
Property Partners, a California general partnership), Highland Fairview Partners
III (formerly known as HF Educational Partners, a Delaware general partnership)
and Highland Fairview Partners II (formerly known as Sand Properties Partners, a
California general partnership) (collectively, “Master Landlord”) as landlord
(the interest therein of HF has been or will be assigned by HF in part to the T1
Subsidiary and in part to the T2 Subsidiary, unless the Master Lease has been
terminated by the parties thereto).

1.1.67 “Members” has the meaning set forth in the preamble.

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1.1.68 “Offeree Member” has the meaning set forth in Section 8.1.

1.1.69 “Operating Budget” means a reasonably detailed budget of the estimated
revenues and expenditures (including capital expenditures) of the Company, and a
reasonably detailed business plan, which shall be prepared by the Skechers
Managing Member and approved by the HF Managing Member in accordance with
Section 7.9, as amended from time to time (with the approval of both Managing
Members). The initial Operating Budget, which has been approved by the Managing
Members, is attached as Exhibit “D”.

1.1.70 “Permanent Lender” means the lender under the Permanent Loan.

1.1.71 “Permanent Loan” means a loan or loans taken out by the T1 Subsidiary to
pay off the Construction Loan, or any replacements or refinancings thereof.

1.1.72 “Person” means an individual, corporation, partnership, limited liability
company (or partnership), trust, unincorporated organization, association or
other entity.

1.1.73 “Plans and Specifications” means the Approved Plans (as defined in the
Development Management Agreement), which have been transmitted by HF to Skechers
(by “You Send It”) on January 29, 2010.

1.1.74 “Prescribed Laws” has the meaning set forth in Section 2.5.10.

1.1.75 “Prime Rate” means the highest prime rate reported in the Money Rates
column or section of The Wall Street Journal from time to time, as having been
the rate in effect for corporate loans at large United States of America money
center commercial banks (whether or not such rate has actually been charged by
any such bank). If The Wall Street Journal ceases publication of the Prime Rate,
the “Prime Rate” shall mean the prime rate (or base rate) announced by Wells
Fargo Bank, National Association, from its Los Angeles, California office
(whether or not such rate has actually been charged by such bank). If such bank
discontinues the practice of announcing the Prime Rate, the “Prime Rate” shall
mean the highest rate charged by such bank on short-term, unsecured loans to its
most creditworthy large corporate borrowers.

1.1.76 “Project” means the development of approximately 1,820,457 square feet of
buildings and other improvements in accordance with the Lease and the Plans and
Specifications on the Development Parcel. Pursuant to the Lease, the Project may
be expanded to include the development of another approximately 500,000 square
feet of buildings on the Expansion Parcel (if certain expansion rights are
exercised by Skechers Parent as tenant under the Lease).

1.1.77 “Project Schedule” has the meaning set forth in the Development
Management Agreement.

1.1.78 “Property” means the Development Parcel and the Expansion Parcel, which
together constitute approximately 104.96 acres located in the City of Moreno
Valley (Rancho Belago) California at the northwest corner of Theodore Street and
Eucalyptus Avenue.

1.1.79 “Purchasing Member” has the meaning set forth in Section 8.6.

1.1.80 “Regulations” has the meaning set forth in Exhibit “A”.

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1.1.81 “Reserves” means cash set aside into a segregated account (or maintained
in a non-segregated Company account but specifically “earmarked” as a reserve)
as reserves for the Company’s operations or obligations under the Lease (such
as, but not limited to, roof replacement and repair and replacement of
structural aspects of the building under the Lease, but excluding amounts
anticipated to be required as capital for the potential expansion of the
Project, as described in the Lease), as reasonably determined by the Managing
Members, or as set forth in an Operating Budget. Reserves shall include any
amounts required to be set aside as reserves under the Loans or under any other
agreements executed by the Company or a Subsidiary which call for reserves of
this nature.

1.1.82 “Second Lease Amendment” means that certain Second Amendment to Lease in
the form of Exhibit “I” attached hereto, to be executed by HF, as landlord, and
Skechers Parent, as tenant.

1.1.83 “Securities Act” means the Securities Act of 1933, as amended.

1.1.84 “Selling Member” has the meaning set forth in Section 8.6.

1.1.85 “Skechers” has the meaning set forth in the preamble.

1.1.86 “Skechers Loan” has the meaning set forth in Section 6.5.

1.1.87 “Skechers Parent” means Skechers U.S.A., Inc., a Delaware corporation.

1.1.88 “Skechers Managing Member” means Skechers, acting in its capacity as a
Managing Member of the Company.

1.1.89 “Stated Amount” has the meaning set forth in Section 8.2.

1.1.90 “Subsidiary’s Assets” means, as applicable, (a) the Development Parcel,
(b) the Expansion Parcel, (c) the Subsidiary’s rights under the Master Lease,
(d) the Subsidiary’s rights under the Lease, and (e) all other assets of the
Subsidiary.

1.1.91 “Subsidiaries” means the T1 Subsidiary and the T2 Subsidiary.

1.1.92 “T1 Subsidiary” means HF Logistics SKX-T1, LLC, a Delaware limited
liability company, which shall be wholly owned by the Company.

1.1.93 “T2 Subsidiary” means HF Logistics SKX-T2, LLC, a Delaware limited
liability company, which shall be wholly owned by the Company.

1.1.94 “Tax Matters Partner” has the meaning set forth in Section 10.2.1.

1.1.95 “Tenant” means the Skechers Parent, or its permitted assignee as the
tenant under the Lease.

1.1.96 “Unrecovered Contribution” with respect to each Member means the
aggregate Capital Contributions made by such Member to the Company, reduced by
all amounts of cash distributed to such Member pursuant to Section 5.2(a) (or
made under Section 5.2(a) pursuant to Section 13.2.1(c)).

Section 1.2 Other Terms. All capitalized terms used in this Agreement which are
not defined in this Article 1 shall have the meanings set forth elsewhere in
this Agreement.

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ARTICLE 2

ORGANIZATIONAL MATTERS

Section 2.1 Formation; Application of Act.

2.1.1 Formation of Company. The Company has been formed by the filing of the
Certificate with the Delaware Secretary of State. The Members hereby agree to
become Members and to operate the Company as a limited liability company under
and pursuant to the provisions of the Act, and in accordance with the provisions
of this Agreement.

2.1.2 Application of Act. The Company is a limited liability company pursuant to
the provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Members and the administration and operation of the Company
shall be governed by the Act.

Section 2.2 Name. The name of the Company is HF Logistics-SKX, LLC. The
Company’s business may be conducted under the foregoing name, or under any other
name or names deemed advisable by the Managing Members. The words “Limited
Liability Company,” “L.L.C.”, “LLC” or similar words or letters shall be
included in the Company’s name where necessary for the purposes of complying
with the laws of any jurisdiction that so requires.

Section 2.3 Registered Office and Agent; Principal Office. The address of the
registered office of the Company in the State of Delaware shall be established
by the Managing Members. The registered agent for service of process on the
Company in the State of Delaware at such registered office is Corporation
Service Company. The principal office of the Company is c/o Highland Fairview
Properties, 14225 Corporate Way, Moreno Valley, California 92553, or such other
place as the Managing Members may from time to time determine.

Section 2.4 Term. The term of the Company commenced on the date that the
Certificate was filed with the Delaware Secretary of State, and shall continue
for a period of fifty (50) years thereafter, unless it is dissolved sooner
pursuant to the provisions of Article 13, or as otherwise provided under the
Act.

Section 2.5 Representations of Members. Each Member represents as follows:

2.5.1 Such Member will acquire its Company Interest for its own account and not
with a view to or for sale in connection with any public distribution thereof
within the meaning of the Securities Act.

2.5.2 Such Member has sufficient knowledge and experience in financial and
business matters to enable it to evaluate the merits and risks of investment in
its Company Interest. Such Member has the ability to bear the economic risk of
acquiring its Company Interest.

2.5.3 Such Member has been supplied with, or had access to, information to which
a reasonable investor would attach significance in making investment decisions,
including, without limitation, any Company information with respect to the
Company’s financial condition, business and prospects, and any other information
such Member has requested, to answer all of its inquiries about the Company, and
to enable it to make its decision to acquire its Company Interest.

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2.5.4 Such Member is aware that the Company Interests are not registered under
the Securities Act or any state securities laws and cannot be resold or
transferred without registration thereunder or exemption therefrom.

2.5.5 Such Member is an “accredited investor” as such term is defined in
Regulation D promulgated under the Securities Act.

2.5.6 There are no consents or approvals of governmental authorities or other
Persons that are required for the execution and delivery of this Agreement by
such Member; the execution of this Agreement by such Member shall not constitute
a default under any material contract or agreement to which such Member is
bound; and no agreement or obligation exists that affects such Member that has
the effect of restricting the ability of such Member to perform its obligations
under this Agreement.

2.5.7 Except for the Sierra Club Litigation (as defined in Section 17.19) there
is no litigation, action or proceeding pending or, to the best knowledge of such
Member threatened, to which such Member is party that, if adversely determined,
could have a material adverse effect on, or enjoin, restrict or otherwise
prevent, the consummation of any of the transactions contemplated by this
Agreement or the ability of such Member to perform its obligations under this
Agreement.

2.5.8 This Agreement has been duly authorized by all requisite action
(corporate, partnership, limited liability company, or otherwise), and has been
duly executed and delivered by such Member.

2.5.9 Such Member has the power and authority to enter into this Agreement and
consummate the transactions herein provided.

2.5.10 None of the funds or other assets of such Member shall constitute
property of, or shall be beneficially owned, directly or indirectly, by any
Person subject to trade restrictions under the Prescribed Laws (each such
Person, an “Embargoed Person”) with the result that the transactions
contemplated by the terms of this Agreement would be in violation of the
Prescribed Laws. For purposes of this Section 2.5.10 and Section 2.5.11 and
Section 2.5.12, the term “Prescribed Laws” shall mean, collectively, (a) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (Public Law 107 56) (The USA
PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, and relating to Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism,
(c) the International Emergency Economic Power Act, 50 U.S.C. § 1701 et. seq.
and (d) all other legal requirements relating to money laundering or terrorism.

2.5.11 No Embargoed Person shall have any interest of any nature whatsoever in
such Member, with the result that the transactions contemplated by the terms of
this Agreement is or would be in violation of the Prescribed Laws.

2.5.12 None of the funds of such Member shall be derived from any unlawful
activity with the result that the transactions contemplated by the terms of this
Agreement is or would be in violation of the Prescribed Laws.

2.5.13 As long as Skechers Parent is a publicly traded company, the restrictions
in Sections 2.5.10 and 2.5.11 shall not apply to any Persons who are
shareholders of Skechers Parent who purchase such shares in the public
marketplace or from other shareholders.

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ARTICLE 3

PURPOSE

Section 3.1 Purpose. The purpose and nature of the business to be conducted by
the Company is (a) to own all the membership interests in the Subsidiaries,
(b) to acquire the Development Parcel through the T1 Subsidiary, to cause the T1
Subsidiary to develop the Project on the Development Parcel, and to operate
manage, lease, mortgage, encumber, sell and otherwise deal with the Development
Parcel, the Project and other T1 Subsidiary assets for the production of income
and profit, (c) to acquire the Expansion Parcel through the T2 Subsidiary and,
as applicable, cause the T2 Subsidiary to develop the portion of the Project to
be developed on the Expansion Parcel, and to operate manage, lease, mortgage,
encumber, sell and otherwise deal with the Expansion Parcel, the Project and
other T2 Subsidiary assets for the production of income and profit, and (d) to
conduct any activities that may be lawfully conducted by a limited liability
company organized pursuant to the Act in furtherance of the foregoing. The
purpose of the Company shall not be changed unless both Members consent (any
dispute in this regard shall not be subject to the expedited arbitration
provisions in Article 15).

Section 3.2 Powers. The Company is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes described herein and for the
protection and benefit of the Company.

ARTICLE 4

CAPITAL CONTRIBUTIONS; MEMBER LOANS; CAPITAL ACCOUNTS

Section 4.1 Capital Contributions of the Members.

4.1.1 Initial Capital Contributions. The Members shall make Initial Capital
Contributions to the Company as follows:

(a) On the Closing Date, Skechers shall make an Initial Capital Contribution to
the Company in the amount of Thirty Million Dollars ($30,000,000), which shall
be contributed in cash. The obligation to fund such Initial Capital Contribution
shall be guaranteed by Skechers Parent. Such Initial Capital Contribution shall
be made to an escrow account established by and under the control of the
Construction Lender pursuant to an escrow agreement in the form attached hereto
as Exhibit “K”. Skechers may, if it so desires, but at its own expense, engage
an independent compliance auditor to monitor the distribution of funds from such
account, and HF shall provide information to Skechers’ compliance auditor (prior
to any disbursement from such account in form and content reasonably requested
by such compliance auditor) which reflects the amount of any draws to be made
from such account, the purposes of such draws and shall provide copies of any
draw requests and backup documentation provided by all contractors who are being
paid from such draw. If HF fails to provide such information to Skechers’
compliance auditor within a reasonable time after demand is made, then Skechers
may request such information directly from the Construction Lender (and Skechers
may deliver a copy of this provision to the Construction Lender to evidence its
right to obtain such information). HF shall not improperly authorize any draws
from the account which holds such funds. If Skechers’ compliance auditor
establishes that HF improperly authorized any draws from the account which holds
such funds, then the reasonable expense of the compliance auditor shall be
reimbursed by HF to Skechers. If there is a dispute regarding draws from such
account, the matter shall be submitted to expedited arbitration in accordance
with Article 15. In the event Skechers is not entitled to a return of its Thirty
Million Dollars ($30,000,000) Initial Capital Contribution and such Initial
Capital Contribution is made available to the T1 Subsidiary pursuant to the
escrow agreement (Exhibit “K”), such contribution shall be deemed to have been
contributed to the Company and then subsequently contributed by the Company to
the T1 Subsidiary.

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(b) On the Closing Date, HF shall convey, as its Initial Capital Contribution
(but having an Agreed Value of zero (0)), all of HF’s interest in the Property
(being its interest as tenant under the Master Lease and its interest as
landlord under the Lease) to the T1 Subsidiary or the T2 Subsidiary, as
appropriate, free and clear of all monetary liens and encumbrances (other than a
lien of current property taxes and current POA assessments, if any), but subject
to all other matters then of record, including CC&Rs. At or prior to the date of
funding the Construction Loan, HF will cause the Master Landlord to execute
grant deeds that transfer title to the Development Parcel to the T1 Subsidiary
and the Expansion Parcel to the T2 Subsidiary, free and clear of all monetary
liens and encumbrances (other than a lien of current property taxes and current
POA assessments, if any), but subject to all other matters then of record,
including CC&Rs. Concurrently therewith, the Master Lease shall be terminated.
Such conveyance will also constitute the Initial Capital Contribution of HF, and
upon conveyance of fee title to the Property, HF will receive a Capital Account
credit in the amount of Thirty Million Dollars ($30,000,000). HF shall be deemed
to have made representations to the Company, the Subsidiaries and Skechers as
set forth on attached as Exhibit “G” attached hereto. Any documentary transfer
tax payable with respect to the conveyance of HF’s and Master Landlord’s
interest in the Property to the Subsidiaries shall be paid by HF (but the amount
thereof, up to Thirty-Three Thousand Dollars ($33,000), shall become part of the
HF Loan) and concurrently with the closing of the Construction Loan, owner’s
title insurance policies (ALTA 2006 form with customary endorsements) shall be
purchased, at HF’s expense (up to policy amounts aggregating $30,000,000 with
the additional expense being borne by the appropriate Subsidiary, and only to
the extent of any cost incurred which is in addition to the cost of any lender’s
title policy which is issued currently with the closing of the Construction
Loan) insuring the T1 Subsidiary’s fee title ownership of the Development Parcel
and the T2 Subsidiary’s fee title ownership of the Expansion Parcel (the policy
limits of such policies to be reasonably determined by the Members, not to be
collectively less than Thirty Million Dollars ($30,000,000)). After Completion
of the Project, the Managing Members may elect to increase the amount of such
insurance up to the then insurable fair market value of the Property and all
improvements thereon. HF will cause the Master Landlord to convey fee title to
the Property to the Subsidiaries at the time specified above.

(c) Skechers and HF shall each fund fifty percent (50%) of any commitment fees
or expenses required to be funded upon execution of the Commitment. Any
repayment or reimbursement of such fees or expenses shall be refunded fifty
percent (50%) to Skechers and fifty percent (50%) to HF. Such payments shall be
considered Capital Contributions of such Members, but not applicable towards the
Initial Capital Contributions.

4.1.2 Additional Capital Contributions. If either Managing Member determines in
the exercise of its reasonable business judgment that Additional Capital
Contributions are necessary for the operation of the business of the Company or
a Subsidiary, or to enable the Company or a Subsidiary to perform its
obligations under the Lease (other than the Company’s or Subsidiary’s
obligations under the Lease to pay or reimburse Skechers for the costs of
storage of Skechers’ property), which cannot be funded from Available Cash or
obtained through financing (or which are impractical to be obtained through
financing), such Managing Member may (but shall not be required to) give notice
to the other Managing Member, including the amount required and the purposes
therefor. Such Additional Capital Contributions shall be contributed by the
Members according to their respective Contribution Percentages within ten
(10) days after receipt of such notice calling for such Additional Capital
Contributions (which amounts shall then be immediately contributed by the
Company to the appropriate Subsidiary). Failure by a Member to make its required
Additional Capital Contribution shall give the other Member the rights and
remedies specified in Section 4.1.5. If a Member who receives a call for an
Additional Capital Contribution disputes the reasonableness of such Additional
Capital Contribution, it shall give notice to the Member who made such call
within such ten (10) day period, and if the Members cannot resolve the dispute
within ten (10) Business Days thereafter, the dispute shall be submitted to
expedited arbitration as set forth in Article 15. During the pendency of such
arbitration, even though the Member who failed to

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make the Additional Capital Contribution shall not be deemed to be a Default
Member under Section 4.1.5(c), the other Member may elect to loan to the Company
the amount which the other Member failed to contribute in accordance with the
provisions of Section 4.1.5(d)(i) (which amounts shall then be immediately
contributed by the Company to the appropriate Subsidiary). Provided, however,
that if it is determined through arbitration that such Additional Capital
Contribution (or part thereof) was not reasonable, then the loan (to the extent
of any amount which was not determined to be reasonable) shall not bear
interest.

4.1.3 Return of Capital Contributions. Except as otherwise expressly provided
herein, the Capital Contributions of the Members will be returned to the Members
only in the manner and to the extent provided in Article 5 and Article 13, and
neither Member may withdraw from the Company or otherwise have any right to
demand or receive the return of its Capital Contributions to the Company. Under
circumstances requiring a return of any Capital Contributions, neither Member
shall have the right to receive property other than cash, unless expressly
otherwise provided in this Agreement. Except as otherwise provided in this
Agreement, no Member shall be entitled to interest on any Capital Contribution
or Capital Account notwithstanding any disproportion therein as between the
Members. Neither the Members nor the Company nor any Subsidiary shall be
personally liable for the return of any portion of the Capital Contributions of
the Members, and the return of such Capital Contributions shall be made solely
from the Company Assets to the extent, and in the priority, set forth in this
Agreement.

4.1.4 Liability of Members. Except for the obligation to make Capital
Contributions (including the Initial Capital Contributions under Section 4.1.1
and any required any Additional Capital Contributions under Section 4.1.2), the
obligation of the Members to make certain loans under Section 6.8, and any
amounts which a Member may be obligated to repay to the Company under applicable
law, no Member shall be required to make any Capital Contributions to the
Company or to make any loans to the Company. Except for the foregoing, no Member
shall have any personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Company or any Subsidiary to third
parties, nor shall any Member be personally liable for any obligations of the
Company or any Subsidiary to third parties (unless otherwise provided in any
Loan documents or other documents executed by the Members, such as personal
guarantees).

4.1.5 Default in Making Required Additional Capital Contributions.

(a) If either Member fails to make its Initial Capital Contributions to the
Company, in addition to all other rights and remedies of the other Member, the
other Member who made its Initial Capital Contribution may by notice to the
Member who fails to make its Initial Capital Contribution elect to declare this
Agreement null and void, and in such event any Initial Capital Contributions or
other transfers or assignments of property made to the Company by the Member who
sent such notice shall be immediately returned, and the Company and each
Subsidiary shall be wound up and dissolved.

(b) If either Member fails to make a required Additional Capital Contribution,
the other Member may send a notice (the “Default Notice”) to such Member who
failed to make the required Additional Capital Contribution, notifying such
Member of its failure to make such Additional Capital Contribution, the amount
of such Additional Capital Contribution, and demanding that such Additional
Capital Contribution be made immediately.

(c) If a Member who receives a Default Notice fails to make a required
Additional Capital Contribution within five (5) Business Days after receiving
the Default Notice (the failure to make such Additional Capital Contribution is
referred to as a “Default” and the date that is five (5) Business Days after the
receipt of the Default Notice is referred to as the “Default Date”), then such

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Member shall be in default (a “Default Member” and the amount that the Default
Member has failed to contribute is referred to as the “Default Amount”). The
Member other than the Default Member is referred to herein as the
“Non-Defaulting Member.” Neither Member shall be deemed to be a Default Member
during the pendency of any expedited arbitration under Article 15 to determine
whether a request for an Additional Capital Contribution is reasonable under
Section 4.1.2. If as a result of such arbitration, it is determined that the
request for an Additional Capital Contribution was reasonable, then the Member
who failed to make such Additional Capital Contribution shall, within five
(5) Business Days thereafter, make any such Additional Capital Contribution
which was not made (and which was determined to be reasonable), and failing to
do so, such Member shall be a Default Member.

(d) If a Default Member fails to make such Additional Capital Contribution on or
before the Default Date, the Non-Defaulting Member may, in its sole and absolute
discretion, as its sole remedy, take either of the following courses of action:

(i) The Non-Defaulting Member can withdraw any Additional Capital Contribution
made by it in connection with the capital call which resulted in the Default
(and to that end, the Company shall immediately withdraw such amount from the
appropriate Subsidiary to the extent that it had already been contributed to
such Subsidiary); in such event, the Non-Defaulting Member shall have the right
to make a loan to the Company in the amount of the Additional Capital
Contribution required of such Non-Defaulting Member and the Default Member under
Section 4.1.2 (which loan will then be immediately contributed by the Company to
the appropriate Subsidiary), which loan shall bear interest (except as provided
in Section 4.1.2) at the lesser of the Prime Rate plus ten percent (10%) per
annum, or the maximum amount allowable by law, which loan shall be repayable
upon demand. Such loan will have priority over any distributions to be made to
the Members pursuant to Section 5.2 or Section 13.2 and over the repayment of
any loan payable to the Default Member (or its Affiliate); or

(ii) The Non-Defaulting Member may make an Additional Capital Contribution to
the Company in the amount of the Default Amount (which shall then be immediately
contributed by the Company to the appropriate Subsidiary), and then, effective
as of the date on which Non-Defaulting Member makes such Additional Capital
Contribution to the Company, and the Distribution Percentages of the Members
shall automatically be adjusted to reflect the new ratio of the Capital
Contributions of the respective Members to the total of all Capital
Contributions of both Members.

4.1.6 EACH MEMBER ACKNOWLEDGES AND AGREES THAT IT FULLY UNDERSTANDS THAT ITS
INTEREST IN DISTRIBUTIONS AND CAPITAL MAY BE SUBSTANTIALLY DILUTED FOR FAILING
TO MAKE REQUIRED ADDITIONAL CAPITAL CONTRIBUTIONS UNDER THIS ARTICLE 4. EACH
MEMBER FURTHER ACKNOWLEDGES AND AGREES THAT EXCEPT AS SET FORTH IN SECTION
4.1.5(a) THIS SECTION 4.1.6, AND IN SECTION 5.2(C), THE REMEDIES ABOVE ARE THE
SOLE AND EXCLUSIVE REMEDIES AVAILABLE TO THE NON-DEFAULTING MEMBER AS A RESULT
OF SUCH DEFAULT. NOTWITHSTANDING THE FOREGOING, IF A DEFAULT BY SKECHERS UNDER
ARTICLE 4 RESULTS IN THE INABILITY OF THE COMPANY TO PERFORM ITS OBLIGATIONS
UNDER THE LEASE THEN THE TENANT UNDER THE LEASE SHALL NOT BE ENTITLED TO DECLARE
THE COMPANY OR A SUBSIDIARY TO BE IN DEFAULT UNDER THE LEASE AS A RESULT
THEREOF. ADDITIONALLY, IF A DEFAULT BY EITHER MEMBER UNDER ARTICLE 4 RESULTS IN
THE INABILITY OF THE COMPANY OR SUBSIDIARY TO PERFORM ITS OBLIGATIONS UNDER THE
LEASE THEN, IN ADDITION TO ANY RIGHTS AND REMEDIES THAT THE NON-DEFAULTING
MEMBER MAY HAVE AGAINST THE DEFAULT MEMBER HEREUNDER, THE DEFAULT MEMBER SHALL
BE SOLELY RESPONSIBLE FOR ALL CLAIMS OF TENANT UNDER THE LEASE AS A RESULT
THEREOF.

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ARTICLE 5

DISTRIBUTIONS AND ALLOCATIONS

Section 5.1 Distributions: General Principles. Except as provided in
Section 13.2, Available Cash shall be distributed to the Members monthly in
accordance with the provisions of Section 5.2.

Section 5.2 Distributions. Except as provided in Section 5.2(c) below,
distributions of Available Cash shall be made to the Members in the following
order of priority:

(a) First, to the Members pari passu in proportion to their respective
Unrecovered Contributions, and

(b) Thereafter, to the Members pari passu in proportion to their respective
Distribution Percentages.

(c) Notwithstanding the foregoing priorities, the following special distribution
rules shall apply:

(i) If a Member fails to make an Additional Capital Contribution under
Section 4.1.2, and the Non-Defaulting Member elects to make an Additional
Capital Contribution under Section 4.1.5(d)(i), then the amount of such
Additional Capital Contribution shall accrue a preferred return at the rate of
the interest rate then being paid on the HF Loan and the Skechers Loan plus five
percent (5%) per annum, and the total amount of such Additional Capital
Contribution plus such preferred return shall become a priority distribution to
be made before any other distributions to the Members under Section 5.2(a) or
(b) or pursuant to Section 13.2.1(c), and before any repayment of any loan
payable to the Defaulting Member under Article 6.

Section 5.3 Allocations. Profits and losses of the Company (and all related
items of income, gain, loss, deduction and credit) (which shall include such
items of the Subsidiaries, as the Subsidiaries shall be disregarded entities for
tax purposes) shall be allocated between the Members in the manner provided in
Exhibit “A”.

ARTICLE 6

LOANS

Section 6.1 Construction Loan. The Company shall cause the T1 Subsidiary to take
out a Construction Loan or Construction Loans to finance the development of the
Project on the Development Parcel. The Construction Loan shall not close unless
and until fee title to the Property has been conveyed by the Master Landlord to
the Subsidiaries in accordance with Section 4.1.1(b). The Lender of the
Construction Loan(s) shall be selected by the HF Managing Member. Any guarantees
(completion, payment or otherwise) required by the Lender of the Construction
Loan(s) shall be provided by HF (or an Affiliate of HF). HF shall cause an HF
Affiliate acceptable to the Construction Lender to provide such guarantees. If a
Construction Loan (or Construction Loans) sufficient to fund the entire cost of
developing the Project on the Development Parcel (considering the Initial
Capital Contribution to be made by Skechers) cannot be obtained, HF may, at its
option, loan its own funds (or funds of its Affiliates) to the T1 Subsidiary in
lieu of the Construction Loan, and in the latter case such loan will be part of
the HF Loan (provided, however, the interest rate on the portion of the HF Loan
comprising the in-lieu construction loan shall be the rate which is then being
charged by institutional construction lenders in the marketplace for
construction loans of this amount and nature). HF shall take the lead in
procuring the Construction Loan, and Skechers shall cooperate with HF in
connection therewith. Skechers shall have the right to review and comment on the
terms and conditions of the Construction Loan(s), and the

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Construction Loan documentation, but the decisions of HF in this regard shall
control and will be final and conclusive (provided that HF shall act in good
faith and consistent with its fiduciary duties hereunder) and the HF Managing
Member, acting alone, is authorized and empowered to execute and deliver on
behalf of the Company, as the sole member of the T1 Subsidiary, all Construction
Loan Documents, and the Construction Lender may rely on the signature of the HF
Managing Member as binding the Company and the T1 Subsidiary regardless of any
possible claims by Skechers that HF did not act in good faith or consistent with
its fiduciary obligations hereunder. Notwithstanding the foregoing, Skechers
Parent shall not be required to materially amend or modify the Lease in
connection with obtaining the Construction Loan (except for any reasonable and
customary modifications which may be required under a subordination,
non-disturbance and attornment agreement). Skechers shall be given reasonable
advance notice of any regularly scheduled meetings with the prospective
Construction Lender at which material issues regarding the Construction Loan are
expected to be discussed and shall have the right to attend all such meetings
(whether conducted in person or by telephone or electronic meeting). Skechers
shall also have the right to communicate directly with the Construction Lender
to discuss the status of the Construction Loan, but will not negotiate any of
its terms or conditions without the express prior approval of the HF Managing
Member.

Section 6.2 Permanent Loan. The Company shall cause the T1 Subsidiary to take
out a Permanent Loan as soon as practical after the Completion of the Project
being developed on the Development Parcel, although nothing herein shall
prohibit HF from seeking such Permanent Loan at an earlier time. HF (or its
Affiliate) will be required to execute any “bad boy” nonrecourse carve-out
guarantees reasonably required by the Lender of the Permanent Loan, but shall
not otherwise be required to guarantee the Permanent Loan. HF shall cause an HF
Affiliate acceptable to the Permanent Lender to provide such guarantees. HF
shall take the lead in procuring the Permanent Loan, and Skechers shall
cooperate with HF in connection therewith (including using commercially
reasonable efforts, at Company expense, to obtain a credit rating from a
recognized credit rating agency as may be required by the Permanent Lender.
Skechers shall have the right to review and comment on the terms and conditions
of the Permanent Loan (including a possible participating equity interest in the
Company or any Subsidiary afforded to the Permanent Lender), and the Permanent
Loan documentation, but the decisions of HF in this regard shall control and
will be final and conclusive (provided that HF shall act in good faith and
consistent with its fiduciary duties hereunder). Notwithstanding the foregoing,
Skechers Parent shall not be required to materially amend or modify the Lease in
connection with obtaining the Permanent Loan (except for any reasonable and
customary modifications which may be required under a subordination,
non-disturbance and attornment agreement) or otherwise. Skechers shall be given
reasonable advance notice of any regularly scheduled meetings with the
prospective Permanent Lender at which material issues regarding the Permanent
Loan are expected to be discussed and shall have the right to attend all such
meetings (whether conducted in person or by telephone or electronic meeting).
Skechers shall also have the right to communicate directly with the Permanent
Lender to discuss the status of the Permanent Loan, but will not negotiate any
of its terms or conditions without the express prior approval of the HF Managing
Member. If HF gives notice to Skechers that it has identified a proposed
Permanent Lender who has agreed to make a Permanent Loan which HF desires to
accept (which notice shall set forth the basic terms and conditions thereof),
Skechers shall have the right to become the Permanent Lender on the same terms
and conditions. Skechers must give notice of its intention to become the
Permanent Lender within five (5) Business Days after receipt of such notice from
HF. If Skechers does not so elect, then HF may proceed with the proposed
Permanent Lender, but if the terms and conditions of the Permanent Loan change
(to the detriment of the Company or any Subsidiary) in any material respect,
Skechers shall be entitled to a new notice and right to elect to become the
Permanent Lender on the changed terms and conditions. If any non-refundable
deposit (for costs or otherwise) was made to a potential Permanent Lender by the
Company or a Subsidiary, if Skechers elects to become the Permanent Lender, its
fees shall be reduced by the amount of such deposit which is not refunded. If
Skechers elects to become the Permanent Lender and for any reason breaches its
commitment to fund such Permanent Loan, it shall be

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responsible for all resulting damages to the Company or a Subsidiary and to any
HF Affiliate which guaranteed the Construction Loan.

Section 6.3 Indemnification. The Company and the Subsidiaries shall indemnify HF
(or its Affiliates) from any liability which may be incurred in connection with
its guarantee of the Construction Loan or in connection with a “bad boy”
nonrecourse carve-out guarantee of the Permanent Loan, but excluding liability
resulting from a default by the Development Manager under the Development
Management Agreement, the occurrence of an Event of Default by HF under this
Agreement, or the gross negligence or willful misconduct HF or its Affiliates.
However, to the extent that liability under the “bad boy” nonrecourse carve-out
guarantee results from the acts or omissions of Skechers or the occurrence of an
Event of Default by Skechers under this Agreement, or a default by Skechers
Parent under the Lease, then such indemnification shall be afforded primarily by
Skechers and only secondarily by the Company.

Section 6.4 HF Loan. Concurrently with the contribution of the Initial Capital
Contributions as described above, HF will (and will cause its Affiliates to)
transfer and assign to the Company all of its right, title and interest in all
personal property and contracts relating to the development of the Project, and
all plans, specifications, architectural drawings and renderings, surveys and
other collateral material relating to the ownership and development of the
Property, which shall then be immediately contributed by the Company to the T1
Subsidiary. In consideration of such transfer and assignment, HF will be deemed
to have extended a loan to the Company in the amount of Fourteen Million Dollars
($14,000,000) (the “HF Loan”). The HF Loan will bear interest at the rate of six
percent (6%) per annum, with interest and principal payable monthly from the
first Available Cash (prior to any distributions of Available Cash to the
Members), with any unpaid balance of interest and principle payable upon the
earlier to occur of the refinancing or sale of the Project, or the liquidation
of the Company (again, before any distributions of Available Cash to the Members
except as provided in Section 5.2(c)). The HF Loan is to be treated as a partial
sale of the Property as provided in Section 3.3(c) of Exhibit “A”.

Section 6.5 Skechers Loan. Concurrently with the contribution of the Initial
Capital Contributions as described above, Skechers will be deemed to have made a
loan to the Company in the amount of One Million Dollars ($1,000,000) (the
“Skechers Loan”) in consideration of Skechers funding certain costs and expenses
of alternate site rental pending completion of the Project which the landlord
under the Lease had previously agreed to fund. The foregoing relief from the
landlord’s obligation under the Lease is deemed to be a Company Asset, which
shall then be immediately contributed by the Company to the T1 Subsidiary. The
Skechers Loan shall be payable at the same times and manner, and shall bear the
same rate of interest as the HF Loan.

Section 6.6 Pro Rata. As long as there are amounts outstanding under both the HF
Loan and the Skechers Loan, payments on such loans will be made on a pro rata
basis (according to the total unpaid principal balances of each of such loans,
except as provided in Section 5.2(c)).

Section 6.7 Loan Documentation. To evidence the HF Loan and the Skechers Loan,
the Company shall execute unsecured promissory notes (“Notes”) in the forms
attached as Exhibits “C-1” and “C-2”, respectively. The Notes will be amended if
the HF Loan or the Skechers Loan is increased as provided herein.

Section 6.8 Additional Loans.

(a) If the HF Managing Member determines in the exercise of its reasonable
business judgment that additional capital is needed as a result of construction
cost overruns relative to the construction of the Project on the Development
Parcel (which specifically excludes increased construction costs due to change
orders requested by Skechers and approved by the landlord under the Lease, or

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resulting from the acts or omissions of Skechers under the Lease), which cannot
be funded from Available Cash or obtained through financing (or which are
impractical to be obtained through financing), such capital shall be loaned to
the Company by HF (or its Affiliate), and such amounts shall be considered an
increase in the HF Loan (which amounts shall then be immediately contributed by
the Company to the T1 Subsidiary); provided, however, that cost overruns
resulting from an Event of Default by HF under this Agreement or a default by
the Development Manager under the Development Management Agreement, or which
involves the gross negligence, fraud or willful misconduct of HF (or its
Affiliate) shall not be considered an increase in the HF Loan. If additional
capital is needed to perform the Company’s or Subsidiary’s obligation under the
Lease to pay or reimburse Skechers for the costs of storage of Skechers’
property, such capital shall be funded by HF (or its Affiliate), at its own
expense, and such amount shall not be considered income of the Company or any
Subsidiary, or a loan or a Capital Contribution to the Company or any
Subsidiary, or an increase in the HF Loan or an increase in HF’s Capital
Account.

(b) If the HF Managing Member determines in the exercise of its reasonable
business judgment that additional capital is needed as a result of increased
construction costs due to change orders requested by Skechers and approved by
the landlord under the Lease, or resulting from the acts or omissions of
Skechers under the Lease, then such capital shall be loaned to the Company by
Skechers (or its Affiliate) (which amounts shall then be immediately contributed
by the Company to the T1 Subsidiary); and shall be considered an increase in the
Skechers Loan, but such increase shall not exceed One Million Dollars
($1,000,000), and any excess shall be paid by Skechers as its own expense, and
such amount shall not be considered income of the Company or any Subsidiary, or
a loan or a Capital Contribution to the Company or any Subsidiary, or part of
the Skechers Loan, or an Additional Capital Contribution by Skechers. Provided,
however, that any increased construction costs resulting from acts or omissions
of Skechers (or its Affiliate) which constitute an Event of Default by Skechers
under this Agreement or a default by Skechers Parent under the Lease, or which
involves gross negligence, fraud or willful misconduct of Skechers or Skechers
Parent (or their Affiliates) shall not be considered an increase in the Skechers
Loan; and provided, further that to the extent that the Skechers Loan is
increased as a result of the foregoing, the Base Rent under the Lease shall be
increased proportionately by the ratio that the increase in the Skechers Loan
bears to the total Project Costs (as such term is defined in the Development
Management Agreement). The HF Managing Member shall not unreasonably withhold
its consent to any change order requested by Skechers Parent if Skechers funds
the entire cost of such change order (including any resulting increases in the
Project Costs). If there is a dispute as to whether the refusal of the HF
Managing Member to give its consent to any change order proposed by Skechers is
reasonable, the matter shall be submitted to expedited arbitration in accordance
with Article 15.

(c) If there is any dispute regarding the reasonableness of the determination by
the HF Managing Member that additional capital is required under Section 6.8(a)
or (b), such dispute shall be submitted to expedited arbitration as set forth in
Article 15. During the pendency of such arbitration, even though the Member who
has failed to make any additional loan to the Company shall not be deemed to be
in default under this Agreement, the other Member may elect to loan to the
Company the amount which the other Member failed to loan, and if it is
determined through arbitration that the required additional loan was not
reasonable, then the amount loaned by the other Member (to the extent of any
amount which was not determined to be reasonable) shall not bear interest.

Section 6.9 Default in Making Required Loans.

(a) If either Member fails to make any required loan pursuant to Section 6.8 (an
“Additional Funding Obligation”), the other Member may send a notice to such
Member who failed to make the required Additional Funding Obligation, notifying
such Member of its failure to make such

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Additional Funding Obligation, the amount to be funded and demanding that such
Additional Funding Obligation be made immediately.

(b) If the Member who receives such notice fails to make the required Additional
Funding Obligation within five (5) Business Days after the receipt of such
notice, then the other Member shall have the following rights:

(i) Such Member may loan the required funds to the Company (which funds shall
then be immediately contributed by Company to the T1 Subsidiary), which amount
so loaned shall bear interest and be payable in the same manner as the loan
described in Section 4.1.5(d)(i); or

(ii) Such Member may make an Additional Capital Contribution to the Company in
the amount of the required Additional Funding Obligation (which amounts shall
then be immediately contributed by the Company to the T1 Subsidiary), in which
event the Distribution Percentages shall be adjusted in the manner set forth in
Section 4.1.5(d)(ii).

Section 6.10 EACH MEMBER ACKNOWLEDGES AND AGREES THAT IT FULLY UNDERSTANDS THAT
ITS INTEREST IN DISTRIBUTIONS AND CAPITAL MAY BE SUBSTANTIALLY DILUTED FOR
FAILING TO MAKE A REQUIRED ADDITIONAL FUNDING OBLIGATION UNDER THIS ARTICLE 6.
EACH MEMBER FURTHER ACKNOWLEDGES AND AGREES THAT EXCEPT AS SET FORTH IN THIS
SECTION 6.10 AND IN SECTION 5.2(C), THE REMEDIES ABOVE ARE THE SOLE AND
EXCLUSIVE REMEDIES AVAILABLE TO THE NON-DEFAULTING MEMBER AS A RESULT OF SUCH
DEFAULT. NOTWITHSTANDING THE FOREGOING, IF A DEFAULT BY SKECHERS UNDER ARTICLE 6
RESULTS IN THE INABILITY OF THE COMPANY TO PERFORM ITS OBLIGATIONS UNDER THE
LEASE THEN THE TENANT UNDER THE LEASE SHALL NOT BE ENTITLED TO DECLARE THE
COMPANY TO BE IN DEFAULT UNDER THE LEASE AS A RESULT THEREOF. ADDITIONALLY, IF A
DEFAULT BY EITHER MEMBER UNDER ARTICLE 6 RESULTS IN THE INABILITY OF THE COMPANY
TO PERFORM ITS OBLIGATIONS UNDER THE LEASE THEN, IN ADDITION TO ANY RIGHTS AND
REMEDIES THAT THE NON-DEFAULTING MEMBER MAY HAVE AGAINST THE DEFAULTING MEMBER
HEREUNDER, THE DEFAULTING MEMBER SHALL BE SOLELY RESPONSIBLE FOR ALL CLAIMS OF
TENANT UNDER THE LEASE AS A RESULT THEREOF.

ARTICLE 7

MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1 Management.

7.1.1 Powers of the Managing Members.

(a) Subject to the limitations set forth herein, all management powers over the
business and affairs of the Company are exclusively vested in the Managing
Members, and no Member other than the Managing Members shall have any right to
participate in or exercise control or management power over the business and
affairs of the Company.

(b) Unless and until it is removed as a Managing Member pursuant to
Section 7.1.4, the Skechers Managing Member shall have exclusive management,
responsibility and control over the operations of the Building after completion
of construction and Skechers taking possession of the premises described in the
Lease (subject to the obligations of the tenant under the

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Lease). In addition to the foregoing, the Skechers Managing Member shall have
exclusive management responsibility and control over the Company’s or a
Subsidiary’s rights to pursue remedies for any default by the Development
Manager under the Development Management Agreement, for any default by any HF
Affiliate under any agreement between the Company or a Subsidiary and such HF
Affiliate, any default by HF under this Agreement, any negotiations with the POA
which involve any wrongdoing or alleged wrongdoing by HF or any HF Affiliate,
and to enforce the Company’s or a Subsidiary’s rights as tenant under the Master
Lease.

(c) Unless and until it is removed as Managing Member pursuant to Section 7.1.4
the HF Managing Member shall have the exclusive management, responsibility and
control over, (i) any consents, approvals or decisions to be made by the
landlord under the Lease, including decisions regarding the development of the
Expansion Parcel if the Tenant fails to exercise its option to expand under the
Lease (provided the foregoing shall be subject to Section 17.21 and Skechers
shall be afforded the first option to participate with HF in any other
development of the Expansion Parcel, on terms prepared by the HF Managing
Member), (ii) financing of the Project, including procuring and negotiating the
Loans and determining the terms and conditions thereof (to the extent not
inconsistent with the other provisions of this Agreement), (iii) pledges or
encumbrances of Company Assets or assets of any Subsidiary, (iv) all matters
pertaining to the entitlements affecting the Property (including, but not
limited to, zoning issues, CFD formation, mapping and subdivision), including
interactions and negotiations with governmental entities, (v) except as set
forth in Section 7.1.1(b), all matters pertaining to the Property Owners
Association (“POA”) for the Corporate Park in which the Project is located
(provided, however, HF Managing Member may not take any action in connection
with the POA without Skechers Managing Member’s approval that will materially
reduce or eliminate any of Skechers Parent’s rights as tenant under the Lease,
or that will materially increase Tenant’s costs and expenses thereunder, other
than the obligation to pay reasonable POA assessments), and (vi) subject to
Section 7.1.1(e), all matters relating to the development (but not the sale) of
the Project and the development of the Expansion Parcel if Skechers Parent
exercises its expansion rights under the Lease, including, but not limited to,
engagement of attorneys, architects, engineers, contractors, a development
manager (which shall be an Affiliate of HF and which shall enter into a
development management agreement with respect to the Expansion Parcel on
substantially the same terms and conditions as are set forth in the Development
Management Agreement) and other professionals, preparation of construction
drawings, and all aspects of construction (subject to the rights of Skechers
Parent as tenant under the Lease and the provisions of the Development
Management Agreement). Notwithstanding the exclusive rights granted to HF
Managing Member hereunder, the Skechers Managing Member shall have the right to
approve any insurance company recovery, award or settlement, any condemnation
award and any settlement of any lawsuit or threatened lawsuit with respect to
the Property or the Project, which consent will not be unreasonably withheld.
Further, subject to any provisions in the Lease, the Construction Loan documents
and the Permanent Loan Documents, any insurance proceeds received by the Company
or a Subsidiary as a result of damage or destruction to any improvements within
the Project shall be used to reconstruct such improvements, to the extent
legally permissible, and provided that the Lease continues in force and effect.
HF Managing Member shall keep Skechers reasonably informed about negotiations
involving the construction contract (including the selection of the general
contractor) and shall promptly upon request provide Skechers with copies of
drafts of the proposed construction contract during the course of its
negotiation. HF Managing Member will consider any comments offered by Skechers
with respect to the foregoing, but ultimately the decisions of HF Managing
Member regarding the selection of the general contractor and the terms and
conditions of the construction contract shall control, subject to any express
provisions in this Agreement or the Development Management Agreement.
Notwithstanding item (i) of this Section 7.1.1(c), nothing herein shall be
interpreted as a waiver of, or prohibition on, the right of Skechers Parent, as
tenant under the Lease, to contest the withholding of any requested landlord
consent or approval under the Lease.

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(d) To the extent that the management and control of the Company is within the
scope of the exclusive authority of either the HF Managing Member or the
Skechers Managing Member, such Managing Member may act on behalf of the Company
or a Subsidiary (and may bind the Company or such Subsidiary) alone and without
the consent, approval, ratification or signature of the other Managing Member.
To that end, it is expressly agreed that the signature of the HF Managing Member
alone on the Construction Loan Documents shall bind the Company, as the sole
member of the T1 Subsidiary.

(e) Any issues relating to the management and control of the Company which are
not within the scope of the exclusive authority of either the HF Managing Member
or the Skechers Managing Member shall be matters which require the joint
consent, approval or ratification (and joint signature, as applicable) of both
Managing Members, which consent shall not be withheld unreasonably or delayed;
provided, however, that the Members acknowledge that the Skechers Managing
Member may cause the Company and each Subsidiary to adopt such internal controls
as are reasonably necessary, upon advice of Skechers Parent’s counsel, to comply
with the Skechers Parent’s obligations under SEC Rule 404. The Members
acknowledge, without limitation, that (i) a sale of the Project or the Property,
(ii) an amendment of the Development Management Agreement, and
(iii) modifications of either the Development Budget or the Project Schedule
requiring Company’s or a Subsidiary’s consent under the Development Management
Agreement shall require the mutual consent of the Managing Members.
Additionally, the engagement of attorneys and accountants by the Company or
either Subsidiary, other than with respect to the development of the Project,
shall be mutually agreed to by the Managing Members. In connection with the
foregoing, HF Managing Member acknowledges that Skechers Parent is a publicly
traded company and Skechers may need to require that particular accountants be
used by the Company or either Subsidiary. As such, HF Managing Member agrees to
use KPMG or such other accountants as Skechers Parent may use as the Company’s
or a Subsidiary’s accountants in accordance with Article 9. If there is a
dispute regarding the reasonableness of the withholding of consent, approval or
ratification of any matter which requires the joint consent, approval or
ratification of both Managing Members, unless otherwise provided herein, the
matter shall be submitted to expedited arbitration in accordance with
Article 15. Except as set forth in Section 15.3, the Determination of the
arbitrator shall be limited to whether or not the Managing Member acted
reasonably, and the other Managing Member shall not be entitled to seek or
obtain any monetary damages as a result of the unreasonable withholding of
consent, approval or ratification.

(f) In addition to the powers now or hereafter granted to a manager of a limited
liability company under the Act or under any other provision of this Agreement,
the Managing Members, to the extent of either their exclusive scope of authority
or joint authority as the case may be, shall have full power and authority to do
all things deemed necessary or desirable by them to conduct the business of the
Company and the Subsidiaries, to exercise all powers set forth in Section 3.2
and to effect the purposes set forth in Section 3.1, including, without
limitation:

(i) the making of any expenditures, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the issuance of evidences
of indebtedness (including the securing of same by mortgage, deed of trust or
other lien or encumbrance on the Company Assets) and the incurring of any
obligations of the Company;

(ii) the making of regulatory and other filings, or rendering of periodic or
other reports to governmental or other agencies having jurisdiction over the
business of the Company and/or the Company Assets;

(iii) the acquisition, disposition and leasing of the Project and other Company
Assets;

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(iv) the negotiation, execution, performance and administration of (including
the exercise of any rights or remedies under) any contracts (including contracts
with Affiliates of the Members);

(v) the opening and closing of Company bank accounts (which bank accounts shall
be in the name of the Company but on which representatives of both Managing
Members shall be signatories, subject to the limitations set forth in the
Development Management Agreement with respect to bank accounts into which
Construction Loan draws will be funded prior to Completion of the Project), the
investment of Company funds in securities, certificates of deposit and other
instruments, and the distribution of Available Cash;

(vi) the engagement and dismissal of agents, outside attorneys, accountants,
engineers, appraisers, consultants, contractors and other professionals for the
Company and the determination of their compensation and other terms of any such
engagement or dismissal;

(vii) the control of any matters affecting the legal rights and obligations of
the Company, including the conduct of litigation and the incurring of legal
expenses and the settlement of claims and litigation;

(viii) obtaining and maintaining casualty, liability and other insurance on the
Company Assets, including the Project and the Members;

(ix) the execution, acknowledgment and delivery of any and all documents and
instruments to effect any or all of the foregoing, and

(x) taking any of the foregoing actions with respect to either Subsidiary or
either Subsidiary’s Assets.

7.1.2 No Approval Required for Above Powers. The applicable Managing Member (or
the Managing Members, jointly, as the case may be) is authorized to execute,
deliver and perform the above-mentioned documents and transactions on behalf of
the Company or either Subsidiary without any further act, approval or vote of
the Members. Notwithstanding the foregoing, if a Managing Member is authorized
to act alone to the extent practical, it shall give at least five (5) Business
Days prior notice ( which shall be reduced to two (2) Business Days prior notice
until Completion of the Project) to the other Managing Member of any actions it
intends to take on behalf of the Company or either Subsidiary which might have a
material impact on the business, Company Assets, a Subsidiary’s Assets, or
obligations of the Company or either Subsidiary. In any event, the Members will
cooperate in all reasonable respects with the Managing Members to facilitate the
exercise of the powers of management and control by the Managing Members.

7.1.3 No Obligation to Consider Tax Consequences to the Members. In exercising
authority under this Agreement, the Managing Members may, but shall be under no
obligation to, take into account the tax consequences to the Members of any
action taken by the Managing Members, and neither the Company or either
Subsidiary nor any Managing Member acting in good faith shall have any liability
to either Member under any circumstances as a result of an income tax liability
incurred by such Member as a result of an action (or inaction) by the Managing
Members pursuant to their authority under this Agreement.

7.1.4 Removal of Managing Members. A Managing Member may be removed by the other
Managing Member (or by the other Member, if there is only one Managing Member),
as follows:

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(a) If such Managing Member materially defaults under this Agreement (except for
a default under Article 4 or Article 6, which are governed by provisions in
those Articles), subject to notice from the other Managing Member and ten
(10) Business Days to cure such default; provided, however, that in the case of
any default which can be cured but not within such ten (10) Business Day period,
such Managing Member fails to begin reasonable steps to cure such breach within
such ten (10) Business Day Period, or does not thereafter diligently prosecute
such cure to completion or in any event if such default is not cured within
sixty (60) days following the date of notice thereof from the other Managing
Member; or

(b) If such Managing Member (or any of its controlling Persons) is convicted of
any criminal act involving the Company Assets, a Subsidiary’s Assets, or
business of the Company or either Subsidiary, or is found by a court of
competent jurisdiction to have breached its fiduciary duty under this Agreement,
or to have committed fraud involving the Company Assets, a Subsidiary’s Assets,
or business of the Company or either Subsidiary, or to have been grossly
negligent in performing its duties under this Agreement; or

(c) If such Managing Member becomes Incapacitated or commits or suffers a
Bankruptcy Action; or

(d) In the case of the Skechers Managing Member, if the Skechers Parent commits
a material default under the Lease and such default is not cured within any
applicable time period set forth therein; or

(e) In the case of the HF Managing Member, if the Development Manager commits a
material default under the Development Management Agreement and such default is
not cured within any applicable time period set forth therein; or

(f) In the case of either Managing Member, if the Company or a Subsidiary
defaults under the Lease by reason of any act or omission of such Managing
Member and such default is not cured within any applicable time period set forth
therein; or

If a Managing Member is so removed, the other Managing Member shall serve as the
sole Managing Member (and shall thereafter have the management authority and
attendant management obligations of replaced Managing Member in addition to the
management authority and attendant management obligations which it previously
had). For clarification, if the HF Managing Member is removed, the Skechers
Managing Member shall have the right to enforce the Company’s and Subsidiaries’
rights under the Development Management Agreement, and if the Development
Management Agreement is terminated, the Skechers Managing Member may enter into
a new development management agreement on behalf of the Company or a Subsidiary
and may engage a new Development Manager, subject to the provisions of
Section 7.5. The removed Managing Member shall retain all of the rights and
obligations hereunder as a Member, other than those which pertain to its
management authority as a Managing Member, but such Managing Member shall remain
liable to the Company or a Subsidiary and the other Member for any damages
resulting from the acts (or omissions) which resulted in its removal.

Notwithstanding the foregoing, if the Managing Member whose removal is being
sought gives notice of its objection to such removal within five (5) Business
Days after receiving notice of any attempted removal, then the matter shall be
submitted to expedited arbitration in accordance with Article 15. If a
Determination is made in the arbitration proceeding that the grounds for removal
have been satisfied, then prior to the actual removal of such Managing Member,
such Managing Member shall have an additional ten (10) Business Days to
effectuate a cure of the default (if the default is of a nature that it can be
cured).

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Notwithstanding anything herein to the contrary, if the Lender declares a
default under the Construction Loan Documents, other than due to the acts or
omissions of Skechers or Skechers Parent, and refuses to continue to fund the
Construction Loan, unless the HF Managing Member provides alternative funding at
no additional cost or expense to Skechers or the Company within thirty (30) days
of the expiration of the applicable notice and cure period set forth in the
Construction Loan Documents, the Skechers Managing Member (and not the HF
Managing Member) shall have exclusive management rights with respect to the
development of the Project (but not the Expansion Parcel), to the same extent
that the HF Managing Member previously had such exclusive management rights
pursuant to Section 7.1.1(c)(vi). In addition, if the Lender declares a default
under the Construction Loan Documents as a result of any act or omission other
than one caused by Skechers or Skechers Parent, and the Skechers Managing Member
is reasonably dissatisfied with the progress of any attempt to cure such default
by the HF Managing Member, then the Skechers Managing Member, in its sole
discretion, may seek to effectuate the cure itself, without waiving any rights
or remedies which it might have against HF or the HF Managing Member as a result
of such default. Any Lender may rely on the foregoing as the Members’
authorization to accept a cure by Skechers Managing Member on behalf of the
Company.

Section 7.2 Certificate of Formation. The Managing Members shall file any
required amendments to and restatements of the Certificate, and shall do all the
things to maintain the Company and each Subsidiary as a limited liability
company under the laws of the State of Delaware, the State of California and
each other jurisdiction in which the Company or either Subsidiary may elect to
do business or own property. The Managing Members shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited liability company in the State of
Delaware, the State of California, and any other jurisdiction in which the
Company or either Subsidiary may elect to do business or own property.

Section 7.3 Compensation of Managing Members.

7.3.1 No Compensation. The Managing Members shall not be compensated for
rendering services as Managing Members of the Company. The foregoing is not
intended to prohibit the payment to the Members, or their Affiliates, of fees
under any agreement entered into by the Company or a Subsidiary and any such
Member or its Affiliate pursuant to this Agreement (including the Development
Management Agreement).

7.3.2 Reimbursement for Expenses. The Company shall be responsible for and shall
pay all expenses relating to the Company’s ownership of the Company Asset or the
ownership of each of the Subsidiary’s Assets , and the operation of, or for the
benefit of, the Company, and the Managing Members shall be reimbursed on a
monthly basis, for all reasonable and customary out-of-pocket expenses actually
incurred by the Managing Members on behalf of the Company or any Subsidiary
directly relating to the ownership of the Company Assets or the ownership of
each of the Subsidiary’s Assets and the operation of, or for the benefit of, the
Company or any Subsidiary; provided, however, that the Company shall not
reimburse the legal fees and costs of a Member in any arbitration or court
proceeding that is solely between the Company or any Subsidiary, on one hand,
and either Member or its Affiliates, on the other hand, or between Members and
their Affiliates, until the conclusion of such arbitration or court proceeding
(at which time, legal fees and costs shall be awarded to the prevailing party).
Further, it is understood that neither Member or its Affiliates shall be
entitled to any property management fees for management of the Project (but the
foregoing does not prohibit the payment of a fee to the Development Manager
under the Development Management Agreement).

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Section 7.4 Devotion of Time and Outside Activities of the Members.

(a) Nothing herein contained shall prevent or prohibit the Members or any
Affiliates of the Members from entering into, engaging in or conducting any
other activity or performing for a fee any service, including engaging in any
business dealing with real property of any type or location; owning, managing,
leasing or disposing of any real property of any type or location; acting as a
director, officer or employee of any corporation, as a trustee of any trust, as
a general partner of any partnership, or as an administrative official of any
other business entity; or receiving compensation for services to, or
participating in profits derived from, the investments of any such business,
property, corporation, trust, partnership or other entity, regardless of whether
such activities are competitive with the Company or any Subsidiary(collectively,
the “Outside Activities”), and nothing herein shall require any Member or any
Affiliates thereof to offer any interest in such Outside Activities to the
Company or any Subsidiary or to any other Member.

Section 7.5 Contracts with Affiliates. Neither Managing Member nor any of its
Affiliates shall (a) sell, transfer or convey any property to, or purchase any
property from, the Company or any Subsidiary, directly or indirectly, or
(b) enter into any agreement (or amendment thereto) for the provision of
services to the Company or any Subsidiary, or pursuant to other transactions or
agreements unless the terms thereof are fair and reasonable, such terms and are
no less favorable to the Company or such Subsidiary than those that would be
obtained from an unaffiliated third party, and such Managing Member provides the
other Member with at least ten (10) Business Days prior written notice of its
intent to enter into such arrangement, together with the material terms thereof,
and such Managing Member does not receive a written notice of objection from the
other Member regarding the reasonableness of such arrangement. Notwithstanding
the foregoing, the Members acknowledge that Company has entered into the
Development Management Agreement with an Affiliate of HF, which Development
Management Agreement will be assigned by Company to the T1 Subsidiary. If the
Expansion Parcel is developed for the tenant under the Lease, then the Company
shall cause the T2 Subsidiary to enter into the development management agreement
described in Section 7.1.1(c) with respect to developing the Expansion Parcel.
Further, except as set forth in Section 6.1, no Affiliate of a Member may become
either the Construction Lender or the Permanent Lender unless both Managing
Members agree (and if there is a dispute in this regard, the matter shall not be
subject to the expedited arbitration provisions in Article 15).

Section 7.6 Indemnification.

7.6.1 General. The Company shall indemnify, to the full extent allowed by the
Act, each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including reasonable legal fees and
expenses), judgments, fines, settlements, and other amounts (collectively, “Loss
Items”) arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative brought by an unaffiliated
third party, that relate to the operations of the Company or any Subsidiary as
set forth in this Agreement in which such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise (but excluding
indemnification for any Loan guarantees, which are separately addressed in
Section 6.3), except to the extent it is established in a final court proceeding
that the Loss Item is proximately caused by: (a) the act or omission of such
Indemnitee that was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, fraud, willful misconduct or gross negligence or such Indemnitee’s
uncured breach of this Agreement, the Development Management Agreement, or the
Lease; (b) such Indemnitee actually receiving an improper personal benefit in
money, property or services; or (c) in the case of any criminal proceeding, such
Indemnitee having reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that such Indemnitee did not meet the requisite
standard of

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conduct set forth in this Section 7.6.1. The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent, or an entry of
an order of probation prior to judgment, creates a rebuttable presumption that
such Indemnitee acted in a manner contrary to that specified in this
Section 7.6.1. Any indemnification pursuant to this Section 7.6 shall be made
only out of the Company Assets. Notwithstanding anything in this Agreement to
the contrary, no Indemnitee who is an individual shall be denied indemnification
or shall have any personal liability to the Company or its Members or any
Subsidiary with respect to any Loss Item, except to the extent such Loss Item is
proximately caused by such Indemnitee’s actual active and deliberate dishonesty,
or fraud.

7.6.2 In Advance of Final Disposition. Except as provided in Section 7.3.2,
reasonable expenses incurred by an Indemnitee who is a party to a proceeding may
be paid or reimbursed by the Company in advance of the final disposition of the
proceeding upon receipt by the Company of (a) a written affirmation by the
Indemnitee of the Indemnitee’s good faith belief that the standard of conduct
necessary for indemnification by the Company as authorized in this Section 7.6
has been met and (b) a written undertaking by or on behalf of the Indemnitee to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.

7.6.3 Other Than by This Section. The indemnification provided by this
Section 7.6 shall be in addition to any other rights to which an Indemnitee may
be entitled under any agreement with the Company or any Subsidiary, or under any
other provision of this Agreement.

7.6.4 Liability of the Managing Members. Notwithstanding anything to the
contrary set forth in this Agreement, the Managing Members shall not be liable
to the Company or any Subsidiary or any Members for losses sustained or
liabilities incurred as a result of errors in judgment, or as a result of any
act or omission by such Managing Member, except for losses sustained or
liabilities incurred in whole or in part by such Managing Member’s bad faith,
fraud, willful misconduct, gross negligence, acting beyond the scope of such
Managing Members’ authority or commission of any Event of Default under this
Agreement (subject to limitations on remedies set forth elsewhere in this
Agreement). Neither Managing Member shall be liable to the Company or any
Subsidiary or to any Member for any losses sustained or liabilities incurred as
a result of the acts or omissions of the other Managing Member.

Section 7.7 Other Matters Concerning the Managing Members.

7.7.1 Reliance on Documents. The Managing Members may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document reasonably believed by them to be genuine
and to have been signed or presented by the proper party or parties.

7.7.2 Reliance on Consultants and Advisers. The Managing Members may consult
with legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisers selected by them, and any act taken
or omitted to be taken in reliance upon and in accordance with the opinion of
such Persons as to matters which the Managing Members reasonably believe to be
within such Person’s professional or expert competence shall be prima facie
evidence that such act was done or omitted in good faith.

7.7.3 Action Through Officers and Attorneys In Fact. The Managing Members shall
have the right, in respect of any of their powers or obligations hereunder, to
act through any of their duly authorized officers (or partners or managers, as
applicable) and their duly appointed attorneys-in-fact. Each such Person, to the
extent provided by the Managing Members in the power of attorney or other
authorizing instrument, shall have full power and authority to do and perform
all and every act and duty which is permitted or required to be done by the
Managing Members hereunder.

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Section 7.8 Reliance by Third Parties. Any Person dealing with the Company shall
be entitled to assume that the Managing Members have full power and authority to
encumber, sell or otherwise use in any manner any and all Company Assets and to
enter into any contracts on behalf of the Company, and such Person shall be
entitled to deal with the Managing Members, or either of them, as if they were
the Company’s sole party in interest, both legally and beneficially. In no event
shall any Person dealing with the Managing Members or their representatives be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
Managing Members or their representatives. Each and every certificate, document
or other instrument executed on behalf of the Company by the Managing Members or
their representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Company and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Company. Nothing herein is
intended to afford either Managing Member greater power or authority than is
otherwise granted under this Agreement, or to exculpate either Managing Member
from any liability for acting beyond the scope of such Managing Member’s
authority as set forth herein.

Section 7.9 Operating Budgets. The initial Operating Budget for 2010 is attached
as Exhibit “D” which has been approved by both Managing Members. No later than
the first (1st) day of the last quarter of each Company Year, the Skechers
Managing Member shall submit a proposed Operating Budget (which shall include
capital expenditures which are the landlord’s obligation under the Lease, and a
business plan) for the next ensuing Company Year for approval by the HF Managing
Member. Proposed amendments to any Approved Operating Budget may be submitted by
the Skechers Managing Member to the HF Managing Member at any time. Such
proposed Operating Budget (or any proposed amendment thereto) shall not be
deemed to be effective until such time as it has been approved by the HF
Managing Member. The HF Managing Member shall respond in writing to each such
proposed Operating Budget (or any proposed amendment thereto) within thirty
(30) days after receipt thereof. In such response, the HF Managing Member shall
specify in detail its disapproval of any item or items therein or its
disapproval of the whole, and any proposed modifications requested by the HF
Managing Member or recommended changes therein. Within fifteen (15) days after
receipt by the Skechers Member of the HF Managing Member’s disapproval of any
proposed Operating Budget (or any proposed amendment thereto), the Skechers
Managing Member may re-submit to the HF Managing Member a revised Operating
Budget (or amendment) for its approval. The HF Managing Member shall not
unreasonably withhold or delay approval of any Operating Budget or amendment
(with the issue of reasonableness being determined by expedited arbitration
under Article 15). In the event that any Company Year shall commence without an
Operating Budget approved by both the Skechers Managing Member and the HF
Managing Member pursuant to the terms of this Section, the Managing Members
shall be entitled to make expenditures for items specified in the Operating
Budget for the most recent Company Year which has been approved by both Managing
Members, and for the actual amount of the utility cost, property taxes,
insurance premiums or special assessments incurred by the Company or a
Subsidiary in the current Company Year and any other non-discretionary items
(including Debt service and stated increases in Company obligations or
Subsidiary obligations under contracts for the year), and for any expenditures
on the Project which, in the Managing Members’ reasonable good faith judgment,
is necessary to prevent imminent damage to the Project and/or injury to Persons.
The Operating Budget shall not include the budget for development of the Project
(although the Members acknowledge that a development budget has been approved
and a copy is attached as an exhibit to the Development Management Agreement).

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ARTICLE 8

BUY-SELL PROVISIONS

Section 8.1 At any time commencing on a date which is one (1) year after the
“Substantial Completion” of the Project (as defined in the Lease), or the date
that a Notice of Completion is recorded, whichever occurs earlier, either Member
(such Member hereinafter referred to as “Invoking Member”) may deliver to the
other Member (such other Member hereinafter referred to as the “Offeree
Member”), written notice that the Invoking Member is invoking the provisions of
this Section 8.1 (the “Buy-Sell Notice”).

Section 8.2 The Buy-Sell Notice shall set forth the gross price (the “Stated
Amount”) at which the Invoking Member would be willing to purchase all of the
Company Assets from the Company.

Section 8.3 The Buy-Sell Notice shall constitute an offer by the Invoking Member
to purchase the entire Company Interest of the Offeree Member for a price equal
to the amount of cash which would be distributable to such Offeree Member
pursuant to Section 13.2.1 if the Project and all other Company Assets were sold
to a third party pursuant to a bona-fide, arm’s length transaction at the Stated
Amount and had the Company then (a) paid in full all of its Debt, including the
repayment of the Loans and any loans payable to the Members (and made all
apportionments customarily made in the closing of real estate transactions in
the jurisdictions in which the Project is located, and all other customary
closing costs, including, but not limited to title insurance premiums, survey
costs, a reasonable and customary real estate commission and transfer taxes
normally payable by a seller of real estate), (b) not established any Reserves
and (c) distributed the net proceeds of the sale, and all other cash of the
Company to the Members in accordance with the provisions of Section 13.2.1. Such
calculations shall be made as of the date of closing set forth in Section 8.8.
Provided, however, that the Stated Amount may not be less than an amount which
would result in the distribution to the Selling Member of at least the Selling
Member’s Unrecovered Contribution and the repayment of any loans owed by the
Company to the Selling Member as of the date of closing. The Buy-Sell Notice
shall also constitute an offer by the Invoking Member to sell its entire Company
Interest to the Offeree Member for a price equal to the amount of cash which
would be distributable to the Invoking Member in the manner described above if
it were the Selling Member.

Section 8.4 Upon receipt of the Buy-Sell Notice, the Offeree Member may, at its
option, either elect to purchase the entire Company Interest of the Invoking
Member at the price described above, or to sell its entire Company Interest to
the Invoking Member at the price described above.

Section 8.5 The Offeree Member shall give notice of its election under
Section 8.4 to the Invoking Member within sixty (60) days after such Offeree
Member’s receipt of the Buy-Sell Notice; provided, however, that in the event
the Offeree Member shall fail to give the Invoking Member notice of its election
within such sixty (60) day period, such Offeree Member shall be conclusively
deemed to have elected to sell its entire Company Interest to the Invoking
Member.

Section 8.6 The Member, which under this Article 8 is to purchase the Company
Interest of the other Member (the “Purchasing Member”) shall, within ten
(10) days after the determination is made as to who the Purchasing Member will
be (the “Deposit Date”), deliver to an escrow holder which is a national title
insurance company selected by the Purchasing Member cash in the amount of five
percent (5%) of the purchase price (the “Buy-Sell Deposit”) which Buy-Sell
Deposit will be applied against the purchase price for the Company Interest of
the Selling Member whose Company Interest is being purchased (the “Selling
Member”).

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Section 8.7 Notwithstanding anything to the contrary contained in this
Agreement, in no event may a Default Member, or a Member that is Incapacitated,
or a Member that is subject to a Bankruptcy Event, or a Member that is a
Breaching Member, be an Invoking Member under or otherwise initiate the
procedures of this Article 8, and if a Member suffers any of the foregoing after
it has initiated the procedures under this Article 8 as the Invoking Member,
then at the option of the Offeree Member, the buy-sell process may be
immediately terminated (provided that the closing of the purchase and sale of
the Company Interest has not consummated).

Section 8.8 The closing of a sale and purchase pursuant to this Article 8 shall
be consummated through escrow on a date which is six (6) months after the
Deposit Date (or sooner at the election of the Purchasing Member), or such other
date and manner as the Members shall agree upon. At such closing, the Purchasing
Member shall pay the entire purchase price for the Company Interest of the
Selling Member, in cash in immediately available funds, and the Selling Member
shall execute all documents that may be necessary or desirable, in the
reasonable opinion of counsel for the Purchasing Member (including customary
representations and warranties regarding the Company Interest of the Selling
Member, but not regarding the Project, the other Company Assets or the Company),
to effect the sale of the Company Interest of the Selling Member to the
Purchasing Member free and clear of all liens and encumbrances. In the event the
Selling Member or the Purchasing Member shall fail or refuse to execute any
instruments required to consummate the closing, the other Member is hereby
granted an irrevocable power of attorney, which shall be binding on the Member
refusing to execute such documents as to all third Persons, to execute and
deliver on behalf of the Member refusing to execute such documents all such
required documents. The aforesaid power, being coupled with an interest, is
irrevocable by death, dissolution or otherwise.

Section 8.9 In the event the Selling Member then has any outstanding Debt to the
Company or any Subsidiary, all proceeds of the purchase price due the Selling
Member shall be paid to the Company until all such Debt shall have been paid and
discharged in full. In the event that such proceeds are not sufficient to
discharge such Debt, the Selling Member shall repay all such unpaid Debt at the
closing. In the event that any loans are then outstanding from the Company or
any Subsidiary to the Selling Member, then all of such loans shall concurrently
be repaid by the Company at the closing. In the event the Selling Member or any
Affiliate of the Selling Member shall have guaranteed any Loan, then either
(a) the Loan which is the subject of such guaranty shall be paid in full by the
Company at the time of closing or (b) the Selling Member and any such Affiliate
of the Selling Member shall be unconditionally released by the obligee for any
liability on account thereof. If the Selling Member is a Breaching Member, the
Company shall reserve any rights to pursue the Selling Member for damages after
the closing, to the extent otherwise allowable under this Agreement.

Section 8.10 The Selling Member and the Purchasing Member shall each pay their
own expenses in connection with such purchase and sale of a Company Interest.

Section 8.11 From and after the giving of a Buy-Sell Notice, and until either
the consummation of the sale of the Company Interest in accordance with this
Article 8, or termination of the buy-sell process as provided herein, neither
Member shall exercise any transfer rights under Article 11.

Section 8.12 In the event the Purchasing Member defaults in its obligation to
purchase the Company Interest of the Selling Member, then Selling Member as its
sole and exclusive remedy shall be entitled to retain the Buy-Sell Deposit as
full liquidated damages for such default of the Purchasing Member, in which
event the buy-sell transaction shall be terminated and the Purchasing Member
shall have no further rights to initiate the buy-sell provisions (as an Invoking
Member) under this Article 8. The Selling Member, at its election and in lieu of
the remedy set forth above, may elect within sixty (60) days of such default to
dissolve and liquidate the Company and the Subsidiaries. The Members hereby

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acknowledge and agree that it is impossible to more precisely estimate the
damages to be suffered by the Selling Member upon the Purchasing Member’s
default, and the Members expressly acknowledge and agree that the Buy-Sell
Deposit which may be retained by the Selling Member is a reasonable and fair
estimate of such damages and is intended not as a penalty, but as full
liquidated damages for such default of the Purchasing Member.

Section 8.13 In the event that the Selling Member defaults in its obligation to
sell its Company Interest to the Purchasing Member, the Purchasing Member shall
be entitled to pursue any and all remedies available at law or in equity,
including specific performance.

ARTICLE 9

BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 9.1 Records and Accounting. The HF Managing Member shall keep
appropriate books and records with respect to the Company’s business, all of
which shall be and remain the property of the Company. Any records maintained by
or on behalf of the Company or a Subsidiary in the regular course of its
business may be kept on, or be in the form of, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the
records so maintained are convertible into clearly legible written form within a
reasonable period of time. The books of the Company and each Subsidiary shall be
maintained for financial purposes on an accrual basis in accordance with
generally accepted accounting principles (except that Capital Accounts shall be
maintained in accordance with Exhibit “A”) and for tax reporting purposes on the
accrual basis. The Members may, upon reasonable notice to the HF Managing Member
and during normal business hours and at its own expense, examine the books and
records of the Company and each Subsidiary, which will be maintained at the
principal office of the HF Managing Member.

Section 9.2 Fiscal Year. The fiscal year of the Company and each Subsidiary
shall be the calendar year, unless the Managing Members decide otherwise.

Section 9.3 Reports.

9.3.1 Annual Reports. Within ten (10) days after the end of each Company Year,
the HF Managing Member shall prepare or cause to be prepared and delivered to
the Members an annual report, as of the close of the Company Year, containing
financial statements of the Company and each Subsidiary for such Company Year,
presented in accordance with generally accepted accounting principles.

9.3.2 Quarterly Reports. As soon as practicable, but not later than ten
(10) days after the end of each calendar quarter, the HF Managing Member shall
prepare or cause to be prepared and delivered to the Members a report as of the
last day of the calendar quarter (except the last calendar quarter of each
year), containing unaudited financial statements of the Company and each
Subsidiary, and such other information as may be required by applicable law or
regulation, or as the HF Managing Member reasonably determines to be
appropriate.

9.3.3 Other Reports. Each Managing Member shall promptly give notice to the
other Managing Member of the occurrence of any of the following: receipt by such
Managing Member of actual knowledge of any material (that is, seeking damages in
excess of $250,000 or seeking injunctive relief of any nature) threatened or
pending litigation against the Company, any Subsidiary, the Property or the
Project; the occurrence of any felony indictment or conviction of any Person in
senior management at such Managing Member; receipt by such Managing Member of
any offer to purchase all or any part of the

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Property or the project; and receipt of written notice from any governmental
authority which alleges any material adverse claim against the Company, any
Subsidiary, the Property or the Project.

Section 9.4 Special Provisions Re Books and Records, Accounting and Reports.
Notwithstanding the provisions of this Article 9, for so long as Skechers Parent
is a publicly traded company and the operations of the Company are required to
be consolidated with the operations of Skechers parent for reporting purposes,
the following provisions shall apply:

(b) The Company and each Subsidiary will use KMPG (or another certified public
accounting company designated by Skechers) as its auditor and preparer of its
tax returns, as long as its fees for such work are competitive in the
marketplace (if they exceed competitive fees, any excess shall be paid by
Skechers);

(c) KMPG will undertake annual audits of the Company and each Subsidiary, at
Company expense;

(d) All of the quarterly and annual reports and all Company tax returns must be
in forms reasonably acceptable to the Skechers Managing Member as a result of
consultation with KPMG and its legal counsel (it is expected that both GAAP and
cash basis records will be required for the determination of distributions to
Members), with appropriate and reasonable certifications by the HF Managing
Member;

(e) Reasonable internal controls may be required to satisfy the obligations of
Skechers Parent under the Federal Act and specifically SEC Rule 404; provided
that if the cost of implementing such internal controls is more than nominal, it
shall be borne by Skechers;

(f) The Skechers Managing Member shall have unrestricted right to speak with
(and to give directions, to the extent that it is the sole Managing Member or
otherwise in connection with any matter where Skechers Managing Member has the
authority to take such action without the consent of the HF Managing Member) to
the Company’s accountants, attorneys and other professional advisors, and those
of the Subsidiaries and shall have the right to receive copies of documents in
their possession which relate to the Company, any Subsidiary or its operations
(and HF shall not be entitled to invoke attorney-client privilege as a basis to
deny Skechers Managing Member access to any such Persons or documents); and

(g) Skechers Managing Member shall upon the advice of its legal counsel, have
the right to disclose in Skechers Parent’s public reports and to Skechers Parent
board of directors any information regarding the Company, any Subsidiary, the
Property, the Project, the Lease, the Development Management Agreement, the
Development Manager or the HF Managing Member notwithstanding the
confidentiality provisions of this Agreement.

ARTICLE 10

TAX MATTERS

Section 10.1 Preparation of Tax Returns. The Tax Matters Partner shall arrange
for the preparation and timely filing of all returns of Company and Subsidiary
income, gains, deductions, losses and other items required of the Company for
federal and state income tax purposes and shall use all reasonable efforts to
furnish, within ninety (90) days after the close of each taxable year, the tax
information reasonably required by the Members for federal and state income tax
reporting purposes. If the Tax Matters Partner fails to file the Company’s tax
returns on or before any applicable deadlines

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(including extensions), the other Managing Member may prepare and file the
Company’s tax returns as it determines.

Section 10.2 Tax Matters Partner.

10.2.1 General. The HF Managing Member shall be the “Tax Matters Partner” of the
Company for federal income tax purposes, and shall be referred to herein as the
“Tax Matters Partner,” but such designation shall not be construed or used as
evidence to support any claim that the Company is a partnership, rather than a
limited liability company. Upon the HF Managing Member becoming a Breaching
Member or becoming Incapacitated or suffering a Bankruptcy Action, the Skechers
Managing Member shall automatically become the Tax Matters Partner. Pursuant to
Section 6223(c) of the Code, upon receipt of notice from the IRS of the
beginning of an administrative proceeding with respect to the Company, or any
Subsidiary, the Tax Matters Partner shall furnish the IRS with the name, address
and capital and profits interest of each of the Members. The Tax Matters Partner
shall keep the Members reasonably informed of any action that it takes in such
capacity which has a material impact on the other Members, the Company or any
Subsidiary.

10.2.2 Powers. The Tax Matters Partner is authorized, but not required:

(a) to enter into any settlement with the IRS with respect to any administrative
or judicial proceedings for the adjustment of Company or Subsidiary items
required to be taken into account by a Member for income tax purposes (such
administrative proceedings being referred to as a “tax audit” and such judicial
proceedings being referred to as “judicial review”), and in the settlement
agreement the Tax Matters Partner may expressly state that such agreement shall
bind all Members, except that such settlement agreement shall not bind any
Member (i) who (within the time prescribed pursuant to the Code and Regulations)
files a statement with the IRS providing that the Tax Matters Partner shall not
have the authority to enter into a settlement agreement on behalf of such Member
or (ii) who is a “notice partner” (as defined in Section 6231 of the Code) or a
member of a “notice partner” (as defined in Section 6231 of the Code), and, to
the extent provided by law, the Tax Matters Partner shall cause any Member to be
designated a notice partner;

(b) in the event that a notice of a final administrative adjustment at the
Company or Subsidiary level of any item required to be taken into account by a
Member for tax purposes (a “final adjustment”) is mailed or otherwise given to
the Tax Matters Partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court, or the
filing of a complaint for refund with the District Court of the United States
for the district in which the Company’s principal place of business is located
or the United States Court of Federal Claims;

(c) to intervene in any action brought by any other Member for judicial review
of a final adjustment;

(d) to file a request for an administrative adjustment with the IRS at any time
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition, complaint or other document) for judicial review
with respect to such request;

(e) to enter into an agreement with the IRS to extend the period for assessing
any tax which is attributable to any item required to be taken into account by a
Member for tax purposes, or an item affected by such item;

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(f) to take any other action on behalf of the Members, a Subsidiary or the
Company in connection with any tax audit or judicial review proceeding to the
extent permitted by applicable law or regulations; and

(g) Subject to any restrictions contained elsewhere in this Agreement, to engage
attorneys, accountants and other professionals to advise it and to file any
required income tax returns and other documents associated with its rights and
authority as the Tax Matters Partner.

(h) Notwithstanding the foregoing, the Tax Matters Partner shall not take any
action under Section 10.2.2(b), (d), (e) or (f) unless it has given the other
Member at least ten (10) Business Days prior notice of its intent to take such
action and the other Member has not given notice of its objection within five
(5) Business Days after receipt of such notice. If notice of objection is timely
given and the parties cannot otherwise resolve the dispute, either Member may
submit the matter to expedited arbitration under Article 15.

The taking of any action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the extent required by
law, is a matter in the reasonable discretion of the Tax Matters Partner, and
the provisions relating to indemnification of the HF Managing Member set forth
in Section 7.6 of this Agreement shall be fully applicable to the Tax Matters
Partner in its capacity as such.

10.2.3 Reimbursement. The Tax Matters Partner shall receive no compensation for
its services. All reasonable third-party costs and expenses incurred by the Tax
Matters Partner in performing its duties as such (including reasonable legal and
accounting fees) shall be borne by the Company. The costs of any professionals
engaged by the Tax Matters Partner pursuant to Section 10.2.2(g) shall be paid
or reimbursed by the Company.

Section 10.3 Organizational Expenses. The Company shall elect to deduct
expenses, if any, incurred by it in organizing the Company, or its Subsidiaries
either immediately or ratably over a one hundred eighty (180) month period (or
such other period) as permitted by and provided for in Section 709 of the Code.

Section 10.4 Withholding. The Members hereby authorize the Company to withhold
from or pay on behalf of or with respect to the Members any amount of federal,
state, local, or foreign taxes that the Tax Matters Partner reasonably
determines that the Company is required to withhold or pay with respect to any
amount distributable or allocable to the Members pursuant to this Agreement,
including any taxes required to be withheld or paid by the Company pursuant to
Section 1441, 1442, 1445, or 1446 of the Code. The Tax Matters Partner shall
give prompt notice to the Members with respect to which withholding is effected
in accordance with this Section 10.4 and shall provide each such Member with a
written explanation of the basis for their determination so to withhold or pay.
Any amount paid on behalf of or with respect to a Member shall constitute a loan
by the Company to such Member which loan shall be repaid by such Member within
fifteen (15) days after notice from the Tax Matters Partner that such payment
must be made unless (a) the Company withholds such payment from a distribution
which would otherwise be made to such Member in accordance with Section 5.2 or
Section 13.2 or (b) the Tax Matters Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the Available Cash of the
Company which would, but for such payment, be distributed to such Member. Any
amounts withheld pursuant to the foregoing clauses (a) or (b) shall be treated
as having been distributed to such Member and shall be promptly paid, solely out
of funds of the Company, by the Tax Matters Partner to the appropriate taxing
authority. Each Member hereby unconditionally and irrevocably grants to the
Company a security interest in such Member’s Company Interest to secure the
Member’s obligation to pay to the Company any amounts required to be paid
pursuant to this Section 10.4. In the event that a

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Member fails to pay any amounts owed to the Company pursuant to this
Section 10.4 when due, the Tax Matters Partner may, in its sole and absolute
discretion, elect to make the payment to the Company on behalf of such
defaulting Member, and in such event shall be deemed to have loaned such amount
to such defaulting Member and shall succeed to all rights and remedies of the
Company as against such defaulting Member (including, without limitation, the
right to receive distributions which would otherwise be made to the Member until
such loan, with interest, has been paid in full). Any amounts payable by a
Member hereunder shall bear interest at a per annum rate of interest equal to
the Prime Rate, plus five percent (5%) (but not higher than the maximum lawful
rate) from the date such amount is due (i.e., fifteen (15) days after demand)
until such amount is paid in full. The Members shall take such actions as the
Company or the Tax Matters Partner shall request in order to perfect or enforce
the security interest created hereunder.

Section 10.5 Tax Elections. Except as otherwise provided herein, the Tax Matters
Partner shall, in its reasonable discretion, determine whether to make any
available election pursuant to the Code; provided, however, that the Tax Matters
Partner shall make the election under Section 754 of the Code in accordance with
applicable Regulations thereunder and shall do so at the request of either
Member who transfers its Company Interest. The Tax Matters Partner shall have
the right, after the first taxable Company Year, to seek to revoke any election
(other than the election under Section 754 of the Code, which revocation
requires the consent of both Members) upon the HF Tax Matters Partner’s
determination in its reasonable discretion that such revocation is in the best
interests of the Company.

ARTICLE 11

TRANSFERS AND WITHDRAWALS

Section 11.1 Transfer.

11.1.1 Definition. The term “transfer” (including the term “transferred”), when
used in this Article 11 with respect to a Company Interest, shall be deemed to
refer to a transaction by which a Member transfers its Company Interest, or any
part thereof, to another Person and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise of the Company Interest, any part thereof.

11.1.2 Requirements. No Company Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Company Interest not made in
accordance with this Article 11 shall be null and void.

11.1.3 Transfer of Member’s Company Interest. The HF Managing Member may not
transfer any portion of its Company Interest without Skechers’ consent until the
Completion of the Project pursuant to the Plans and Specifications. Neither
Member may transfer its Company Interest (other than any transfer to an
Affiliate, which shall require the consent of the other Member, which consent
may not be unreasonably withheld or delayed), in whole or in part, to any
Person, without first offering such Company Interest (or part thereof) to the
other Member on the same terms and conditions. If a Member desires to transfer
its Company Interest, or any part thereof (whether or not it has received an
offer to purchase same) , it shall send notice to the other Member stating the
extent of the Company Interest which it intends to transfer, the terms and
conditions of the proposed transfer, including the purchase price therefor, and
the identity of the proposed transferee. Upon request of the receiving Member,
additional information regarding the proposed transfer and financial and other
information concerning the transferee will be promptly provided. Within twenty
(20) days after receipt of the notice of intended transfer, the receiving Member
may, by notice to the Member proposing to transfer, elect to purchase the entire
Company Interest proposed to be transferred at the same purchase price and on
the same terms and conditions as set forth in the notice, but the closing shall
not occur sooner than six (6) months after the date of such notice to the Member
proposing to transfer. If the Member receiving the notice of proposed

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transfer fails to elect to purchase the Company Interest as set forth above
within such twenty (20) day time period, the Member proposing the transfer may
proceed to transfer the Company Interest, but only on the terms and conditions
and to the proposed transferee set forth in the notice, and provided that such
proposed transfer is consummated within sixty (60) days thereafter (if there is
any change in the foregoing or the transfer is not consummated within such sixty
(60) day period, then a new notice of intent to transfer is required). If the
transfer is consummated, the transferring Member shall promptly give notice to
the other Member. The transferee shall be an Assignee and shall not become a
Member of the Company until the provisions of Article 12 have been complied
with. Any transfer or purported transfer of a Member’s Company Interest not made
in accordance with this Article 11 shall be null and void.

Section 11.2 Prohibited Transfers. Notwithstanding anything herein to the
contrary, a Member may deny any proposed transfer of the other Member’s Company
Interest to any Person which is owned and controlled directly or indirectly, by
any Person described below (and the Member who denies such transfer need not
elect to purchase the Company Interest of such other Member pursuant to
Section 11.1.3 to prevent such transfer):

(a) A business competitor of the non-transferring Member or any Affiliate
thereof; or

(b) A Person which does not have the financial strength to fulfill its
obligations under this Agreement; or

(c) A Person who is an Embargoed Person or who has been convicted of a felony or
any violations of State Acts, the Federal Act, or any other securities laws;

(d) A Person who has been engaged in any pending or previous litigation or
arbitration in opposition to the non-transferring Member or any Affiliate
thereof; or

(e) A Person who has a reputation in the real estate community as being
“litigious” as a result of the filing of multiple “strike suits”. The Member
seeking to prohibit a transfer on the grounds set forth in this clause (e) shall
have the burden of proof, and if there is a dispute regarding this matter, it
shall be submitted to expedited arbitration under Article 15.

11.2.1 Timing of Transfers. Transfers pursuant to this Article 11 may only be
made on the first day of a calendar month, unless the Managing Members otherwise
agree.

11.2.2 Allocations and Distributions When Transfer Occurs. If any Company
Interest is transferred during any quarterly segment of the Company’s fiscal
year, income and loss of the Company and all other items attributable to such
interest for such fiscal year shall be divided and allocated between the
transferor Member and the transferee Member by taking into account their varying
interests during the fiscal year in accordance with Section 706(d) of the Code,
using the interim closing of the books method. Solely for purposes of making
such allocations, each of such items for the calendar month in which the
transfer or redemption occurs shall be allocated to the Person who is a Member
as of midnight on the last day of said month. All distributions of Available
Cash with respect to which the Company Record Date is before the date of such
transfer or redemption shall be made to the transferor Member, and all
distributions of Available Cash thereafter shall be made to the transferee
Member.

11.2.3 Certain Prohibited Transfers. Notwithstanding anything herein to the
contrary, no transfer by a Member of its Company Interest may be made to any
Person if legal counsel for the Company or the other Member renders written
advice to the effect that it believes that there is a significant risk that (a),
such transfer would be effected or would be deemed to be effected through an

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“established securities market” or a “secondary market” (or the substantial
equivalent thereof) within the meaning of Section 7704 of the Code and the
Regulations thereunder, or (b) such transfer would violate any Securities Laws.

11.2.4 Default. Notwithstanding anything herein to the contrary, no transfer of
any Company Interest shall be permitted if such transfer would create a default
under any Loan, or any material agreement to which the Company or any Subsidiary
is a party.

11.2.5 Withdrawal. Except in connection with a permitted Transfer, no Member may
withdraw from the Company without the consent of both Managing Members (and any
dispute in this regard shall not be subject to the expedited arbitration
provisions in Article 15).

11.2.6 Management. If a Member transfers its Company Interest, the transferee
will (upon admission to the Company as a Member) be entitled to appoint a
Managing Member to the same extent as the transferring Member.

ARTICLE 12

ADMISSION OF MEMBERS

Section 12.1 Admission of Successor Members. A successor to a Member’s Company
Interest that is transferred pursuant to Section 11.1.3 shall be entitled to
admission to the Company as a Member on the terms and conditions set forth
herein. The business of the Company and each Subsidiary shall be carried on
after such transfer without dissolution. In each case, the admission to the
Company is conditioned upon the successor Member executing and delivering to the
Company an acceptance of all of the terms and conditions of this Agreement and
such other documents or instruments as may be required by the remaining Managing
Member(s) to effect the admission. Upon admission of the successor Member to the
entire Company Interest of the transferring Member, the transferring Member
shall be released from all further liability under this Agreement.

Section 12.2 Amendment of Agreement and Certificate. Upon the admission to the
Company of any successor Member, the Managing Members shall take all steps
necessary and appropriate under the Act to amend the records of the Company and,
if necessary, to prepare as soon as practical an amendment of this Agreement
and, if required by law, shall prepare and file an amendment to the Certificate.

ARTICLE 13

DISSOLUTION AND LIQUIDATION

Section 13.1 Dissolution. The Company shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each an “Event of
Dissolution”):

13.1.1 Expiration of Term. The expiration of its term as provided in
Section 2.4;

13.1.2 Judicial Dissolution Decree. Entry of a decree of judicial dissolution of
the Company pursuant to the provisions of Section 18-802 of the Act;

13.1.3 Sale of Company’s Assets. The sale, exchange or other disposition of all
or substantially all of the Company Assets, unless such sale or other
disposition involves the deferred payment of the consideration for such sale or
disposition, in which latter event the Company shall dissolve on the last day of
the calendar month during which the balance of such deferred payment is received
by the Company;

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13.1.4 Mutual Agreement. The agreement of both Managing Members (and any dispute
in this regard shall not be subject to the expedited arbitration provisions in
Article 15); or

13.1.5 Other Event. Any other event permitting the dissolution or liquidation of
the Company under this Agreement.

Section 13.2 Winding Up.

13.2.1 General. Upon the occurrence of an Event of Dissolution, the Company
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
the Members. No Member shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Company’s business and
affairs. A Person appointed by the Managing Members (excluding any Managing
Member which is a Breaching Member) which may be one (1) or both Managing
Members who is not a Breaching Member (the “Liquidator”), shall be responsible
for overseeing the winding up and dissolution of the Company and shall take full
account of the Company’s liabilities and property and the Company Assets shall
be liquidated as promptly as is consistent with obtaining the fair value
thereof, and the proceeds therefrom shall be applied and distributed in the
following order:

(a) First, to the payment and discharge of all of the Company’s Debt to
creditors other than the Members;

(b) Second, to the payment and discharge of all of the Company’s Debt to the
Members, first with respect to any such Debt which has priority under any other
provision of this Agreement, and thereafter pro rata in accordance with amounts
owed to each such Member; and

(c) Finally the balance, if any, shall be distributed to the Members in the
order and priority set forth in Section 5.2.

No Member shall receive any additional compensation for any services performed
as Liquidator pursuant to this Article 13, but any Liquidator which is not
otherwise a Member or an Affiliate of a Member shall be entitled to receive
reasonable compensation for rendering such services.

13.2.2 When Immediate Sale of Company Assets Impractical. Notwithstanding the
provisions of Section 13.2.1 which require liquidation of the Company Assets,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Company the Liquidator determines that an immediate sale of
part or all of the Company Assets would be impractical or would cause undue loss
to the Members, the Liquidator may, in its sole and absolute discretion, defer
for a reasonable time (consistent with the provisions of Section 13.2.3 below)
the liquidation of any Company Assets except those necessary to satisfy current
liabilities of the Company (including to those Members who are also creditors)
or, with the consent of both Members, distribute to the Members, in lieu of
cash, as tenants in common, either directly or in trust, and in accordance with
the provisions of Section 13.2.1, undivided interests in the Company Assets as
the Liquidator deems not suitable for liquidation. Any such distributions in
kind shall be made only if, in the good faith judgment of the Liquidator, such
distributions in kind are in the best interest of the Members, and shall be
subject to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. Any property
distributed in kind shall be valued at fair market value by the Liquidator using
such reasonable method of valuation as it may adopt (for purposes of adjusting
Capital Accounts) and treated as though the property were sold for such value
and the cash proceeds were distributed.

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13.2.3 Compliance With Timing Requirements of the Regulations; Allowance for
Contingent or Unforeseen Liabilities or Obligations. Notwithstanding anything to
the contrary in this Agreement, in the event the Company is “liquidated” within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) and with respect to such
liquidation there is an Event of Dissolution, distributions under
Section 13.2.1(c) to the Members who have positive Capital Account balances
shall be made in compliance with the requirements in Regulations
Section 1.704-1(b)(2)(ii)(b)(2) but all distributions shall still be made in the
order of priority set forth in Section 5.2. In the discretion of the Liquidator,
a pro rata portion of the distributions that would otherwise be made to the
Members pursuant to this Article 13 may be: (a) distributed to a liquidating
trust established for the benefit of the Members for the purposes of liquidating
the Company Assets, collecting amounts owed to the Company, and paying any
contingent or unforeseen liabilities or obligations of the Company or of the
Liquidator arising out of or in connection with the Company (the assets of any
such trust shall be distributed to the Members from time to time, in the
reasonable discretion of the Liquidator, in the same proportions as the amount
distributed to such trust by the Company would otherwise have been distributed
to the Members pursuant to this Agreement); or (b) withheld to provide a
reasonable Reserve for Company liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Company; provided, that such withheld amounts shall be distributed to the
Members as soon as practicable.

13.2.4 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article 13, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Event of Dissolution
has occurred, the Company’s property shall not be liquidated, the Company’s
liabilities shall not be paid or discharged, and the Company’s affairs shall not
be wound up. Instead, the Company shall be deemed to have transferred all of the
Company Assets and liabilities to a successor entity (having the same federal
income tax characteristics as the Company) in exchange for an interest in the
successor entity and, immediately thereafter, the Company will be treated as
distributing its interest in the successor entity to the Members in liquidation
of the Company.

13.2.5 Rights of Members. Except as specifically provided in this Agreement,
each Member shall look solely to the Company Assets for the return of its
Capital Contribution and repayment of any loans owned to it by the Company or a
Subsidiary to the extent provided in this Agreement and shall have no right or
power to demand or receive property other than cash from the Company or a
Subsidiary to the extent provided in this Agreement. Except as specifically
provided in this Agreement, no Member shall have priority over any other Member
as to the return of its Capital Contributions, distributions or allocations. No
Member has any ownership interest in any Company Assets and the Company Interest
of the Members shall be personal property for all purposes.

13.2.6 Notice of Dissolution. In the event an Event of Dissolution occurs, the
Liquidator shall, within ten (10) days thereafter, provide written notice
thereof to each of the Members and to all other Persons with whom the Company or
any Subsidiary regularly conducts business and shall publish notice thereof in a
newspaper of general circulation in each place in which the Company or any
Subsidiary regularly conducts business.

13.2.7 Cancellation of Certificate of Formation. When all liabilities and
obligations of the Company and each Subsidiary have been paid or discharged, or
adequate provision has been made therefor, and all of the remaining Company
Assets have been distributed to the Members according to their respective rights
and interests as provided in Section 13.2.1, the Company shall be terminated and
a Certificate of Cancellation shall be executed on behalf of the Company by the
Members (or such other Person or Persons as the Act may require or permit) and
shall be filed with the Office of the Secretary of State of the States of
Delaware and California, and the Liquidator or such other Person or Persons
shall take such other actions, and shall execute, acknowledge and file any and
all other instruments, as may be necessary or appropriate to reflect the
dissolution and termination of the Company and each Subsidiary.

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13.2.8 Reasonable Time for Winding-Up. Subject to Section 13.2.3, a reasonable
time shall be allowed for the orderly winding-up of the business and affairs of
the Company and each Subsidiary and the liquidation of its assets pursuant to
this Section 13.2, in order to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in effect between
the Members during the period of liquidation.

Section 13.3 Termination If Lease Amendment Terminates. If the Lease Amendment
terminates as a result of the provision therein, then this Agreement shall be
deemed automatically terminated, and any Capital Contributions shall be promptly
returned to the Members who made same (and if necessary to accomplish this,
Capital Contributions made by the Company to the Subsidiary shall be repaid),
the HF Note and the Skechers Note shall be automatically cancelled as a result
of the return of the Capital Contributions, and neither Member shall have any
further rights or obligations hereunder, provided, however, that in such event
nothing shall prevent any party to the Lease from bringing legal action on
account of any breach of the Lease.

ARTICLE 14

AMENDMENT OF AGREEMENT

Section 14.1 Amendments.

14.1.1 General. Amendments to this Agreement may be proposed by either Member.
Except as provided in Section 14.1.2 or Section 14.1.3, a proposed amendment
shall be adopted and be effective as an amendment hereto only if it is approved
by both Members. Any dispute between the Members regarding any proposed
amendment shall not be subject to the expedited arbitration provisions in
Article 15.

14.1.2 Managing Member’s Power to Amend. Notwithstanding Section 14.1.1, either
Managing Member shall have the power to amend this Agreement as may be required
to facilitate or implement any of the following purposes:

(a) to reflect the admission, substitution, termination, or withdrawal of
Members in accordance with this Agreement; or

(b) to satisfy any order, directive, opinion, ruling or regulation of a federal
or state agency or contained in federal or state law applicable to the Company
or any Subsidiary and required to be complied with; or

(c) to conform to any “single-purpose entity” requirements of a Lender; or

(d) to correct any non-substantive, typographical errors in this Agreement.

The Member proposing the amendment will provide at least ten (10) days’ prior
written notice to the other Member when any action under this Section 14.1.2 is
taken.

14.1.3 Consent of Adversely Affected Member Required. Notwithstanding
Section 14.1.2 hereof, this Agreement shall not be amended without the consent
of any Member adversely affected if such amendment would (a) modify the limited
liability of such Member, (b) alter rights of such Member to receive
distributions pursuant to Article 5 or Article 13, the allocations specified in
Exhibit “A”, or the Capital Contribution obligations set forth in Article 4,
(c) cause the termination of the Company prior to the time set forth in
Section 2.4 or Section 13.1, (d) amend Article 18, or (d) amend this

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Section 14.1.3. Further, no amendment may alter the restrictions on the Managing
Members’ authority set forth herein without the consent of both Members.

ARTICLE 15

DISPUTE RESOLUTION

Section 15.1 Mediation. In the event of any dispute between the Members under
this Agreement, prior to (and as a condition which must be satisfied before)
either Member institutes litigation (but not arbitration), the Members agree to
submit the dispute to nonbinding mediation with JAMS or another mutually
acceptable mediator. Such Mediation shall be completed no later than ninety
(90) days after it is requested by either Member by notice to the other.
Notwithstanding the foregoing, if appropriate, either Member may seek a
provisional remedy (such as, but not limited to, injunctive relief) prior to
commencing or completing such mediation.

Section 15.2 Arbitration. Should a dispute arise between the Members for which
“expedited arbitration” is expressly called for under this Agreement, the
parties shall submit such dispute to final and binding arbitration to be
administered in accordance with the Streamlined Arbitration Rules and Procedures
of JAMS (Judicial Arbitration and Mediation Service). No other dispute shall be
submitted to arbitration unless the Members mutually agree otherwise. Unless the
parties mutually agree otherwise, the arbitration shall take place at a JAMS
Resolution Center in Los Angeles County, California, the arbitration shall be
conducted by one arbitrator (who must be disinterested and independent of the
Members), and the arbitrator shall award attorneys’ fees and the costs of
arbitration (JAMS fees and the fees of the arbitrator) to the prevailing party.
The decision of the arbitrator (the “Determination”) shall be binding and
conclusive on the parties, except to the extent that appeals are permitted under
California Code of Civil Procedure §1286.2. After the Determination, subject to
any cure rights set forth in this Agreement, the prevailing party under the
Determination may enforce its rights under this Agreement notwithstanding the
filing or pendency of any appeal, but such party shall be responsible for any
damages caused as a result of the taking of such action if the Determination is
eventually set aside on appeal and either the court renders a decision on the
merits in favor of the appealing party, or the appealing party is eventually the
prevailing party in any subsequent arbitration proceeding. The arbitration award
may be enforced in accordance with California Code of Civil Procedure §1285, et
seq. or the Federal Arbitration Act (9 U.S.C. §1, et seq.). To the extent that
matters of law are to be considered by the arbitrator, Delaware law shall apply
(but the procedural aspects of the arbitration, as described above, shall be in
accordance with California law). The parties need not submit any matter for
which expedited arbitration is called for to Mediation under Section 15.1.
Nothing herein shall prohibit a party from seeking a provisional remedy from a
court of competent jurisdiction (e.g., a temporary restraining order or
preliminary injunctive relief) pending the results of any mediation or
arbitration.

Section 15.3 Increased Costs. If, as a result of the institution of any
arbitration between the Members, there is any increase in the cost to complete
the construction of the Project, then any such increased cost shall be funded by
the Member who is not the prevailing party in such arbitration (with no increase
in such Member’s Capital Account, Capital Contributions, or in either the HF
Loan or the Skechers Loan, as the case may be). The amount of any such increase
in cost shall be determined by the arbitrator, and either Member may raise such
issue in the arbitration regardless of who initiated the arbitration or the
nature of the dispute which caused the arbitration.

ARTICLE 16

DEFAULTS / REMEDIES

Section 16.1 Defaults. Except as otherwise expressly provided in this Agreement,
if either Member defaults in the performance of its obligations under this
Agreement, the other Member shall

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provide notice of such default and the allegedly defaulting Member shall have a
period of fifteen (15) days to cure the default (but if the nature of the
default is such that it cannot reasonably be cured within such fifteen (15) day
period, then the allegedly defaulting Member shall have an additional reasonable
amount of time, not to exceed another sixty (60) days, to cure the default if it
commences the cure within the fifteen (15) day period and diligently pursues
same to completion. Provided, however, that if the default cannot be cured, then
no cure period shall be required. Provided, further, that this provision shall
not apply to a default in making required Capital Contributions or loans under
Article 4 or Article 6, as the provisions of Article 4 or Article 6 control
under those circumstances. Any material breach by a Member of any of its
material representations or warranties under this Agreement shall be a default
(but subject to notice and cure as provided herein, to the extent applicable).
With respect to any representation, warranty or covenant of HF or any HF
Affiliate to convey HF’s interest in the Property (as tenant under the Master
Lease) to the Company free and clear of monetary liens and encumbrances, if such
representation, warranty or covenant is untrue on the Effective Date, HF shall
nevertheless have the right to cure such default up until the date that HF is
obligated to convey fee title to the Property to the Company. In addition to
other possible defaults under this Agreement, the following shall constitute
defaults hereunder:

(a) If the HF Affiliate who has executed the assignment of contracts to the
Company pursuant to Section 6.4 fails to honor its indemnification obligations
thereunder, it shall be a default by HF hereunder; or

(b) If HF fails to transfer prepaid rent and operating expenses which it
received from Skechers Parent under the Lease to the Company by the time
provided in the Assignment of Lease (Exhibit “M”), it shall be a default by HF
hereunder; or

(c) If Skechers Parent fails to pay the base rent differential to the Company by
the time required under the Second Lease Amendment (Exhibit “I”), it shall be a
default by Skechers hereunder.

Section 16.2 Remedies. Except as provided in this Agreement to the contrary,
upon a default by any Member which is not cured as provided herein (or which
cannot be cured) the non-defaulting Member shall have all rights and remedies at
law and equity, as well as all rights and remedies afforded under this
Agreement. If there is a dispute regarding whether or not a Member is in
default, the matter shall be submitted to expedited arbitration in accordance
with Article 15.

Section 16.3 Offset Rights. If any final judgment of a court of competent
jurisdiction (or arbitration award, if arbitration is called for under this
Agreement) is rendered against a Member, the other Member shall have the right
to offset the amount thereof against any amounts thereafter due to be
distributed to or otherwise payable to such Member, including distributions of
Available Cash, the Member loans described in Article 4 or Article 6, or any
proceeds due to such Member under the Buy-Sell provisions in Article 8.

ARTICLE 17

GENERAL PROVISIONS

Section 17.1 Addresses and Notice. All notices to be given under this Agreement
shall be in writing, and may be either delivered personally, by certified mail
return receipt requested, or by a nationally recognized overnight courier
providing proof of delivery (e.g., United Parcel Service or Federal Express)
directed to the parties at their respective addresses set forth below. Notices
to the Company shall be delivered at its principal place of business.

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HF:

HF Logistics I, LLC

c/o Highland Fairview Properties

14225 Corporate Way

Moreno Valley, California 92553

Attention: Iddo Benzeevi

With Copy To:

Baker & Hostetler LLP

12100 Wilshire Boulevard, 15th Floor

Los Angeles, California 90025-7120

Attention: Bruce R. Greene, Esq.

With Additional Copy To:

Danette Fenstermacher

3070 Bristol Street, Ste 320

Costa Mesa, California 92626

– and –

James Lieb, Esq.

Executive Vice President

TG Services, Inc.

4 Stage Coach Run

East Brunswick, New Jersey 08816

SKECHERS:

Skechers U.S.A., Inc.

228 Manhattan Beach Boulevard

Manhattan Beach, California 90266

Attention: David Weinberg, COO

With Copy To:

Greenberg Traurig, LLP

2450 Colorado Avenue

Suite 400 East

Santa Monica, California 90404

Attention: Eric Rowen, Esq. and Sanford Presant, Esq.

With Additional Copy to:

Philip Paccione, Esq.

Skechers U.S.A., Inc.

228 Manhattan Beach Boulevard

Manhattan Beach, California 90266

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Notices given personally shall be deemed received upon delivery. Notices sent by
overnight courier shall be deemed given upon delivery to the courier service.
Mailed notices shall be deemed given on the date of mailing by certified mail.
The time to respond to any notice shall begin to run on the date of delivery at
the proper address (or refusal of delivery during normal business hours). Any
Member hereto may designate a different address to which notices shall
thereafter be directed by notice to the other Member given in the manner
hereinabove set forth.

Section 17.2 Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only and 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 “Section” are to Articles and Sections of this Agreement. All
schedules and exhibits annexed or attached hereto are expressly incorporated
into and made a part of this Agreement.

Section 17.3 Interpretation. 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. The terms “include” and “including” shall be construed as
if followed by the phrase “without limitation”.

Section 17.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.

Section 17.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and assigns, subject to the restrictions on
transfer set forth herein. No Member may assign its rights under this Agreement
or delegate its obligations under this Agreement, except as expressly permitted
hereunder.

Section 17.6 Waiver of Partition. The Members hereby agree that the real
property of the Company and each Subsidiary is not and will not be suitable for
partition. Accordingly, each of the Members hereby irrevocably waives any and
all rights (if any) that it may have to maintain any action for partition of any
of the Company Assets or any of the Subsidiary’s Assets or to maintain an action
to compel a judicial dissolution except to compel a liquidation or dissolution
of the Company or a Subsidiary as expressly provided in this Agreement.

Section 17.7 Entire Agreement. This Agreement and the other agreements
referenced herein constitute the entire agreement among the parties with respect
to the matters contained herein; they supersede any prior letters of intent,
agreements or understandings among them with respect to the matters contained
herein and the Agreement may not be modified or amended in any manner other than
pursuant to Article 14.

Section 17.8 Securities Law Provisions. The Company Interests have not been
registered under the federal or state securities laws of any state and,
therefore, may not be resold unless appropriate federal and state securities
laws, as well as the provisions of Article 11, have been complied with.

Section 17.9 Creditors. None of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any third party creditor of the
Company, any Subsidiary, or any Person who is not a Member.

Section 17.10 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

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upon a breach thereof shall constitute waiver of any such breach or any other
covenant, duty, agreement or condition.

Section 17.11 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart.

Section 17.12 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law. The parties both agree to submit to the
jurisdiction of any state or federal court in the State of California, and
further agree that venue in any legal action shall be in the County of Los
Angeles.

Section 17.13 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.

Section 17.14 Limitation of Member Liability. Any obligation or liability
whatsoever of the Members which may arise at any time under this Agreement shall
be satisfied, if at all, out of the Members’ assets only, except as expressly
provided in this Agreement. No such obligation or liability shall be personally
binding upon, nor shall resort for the enforcement thereof be had to, the
property of any of the Members’ shareholders, partners, members, trustees,
officers, employees or agents, regardless of whether such obligation or
liability is in the nature of contract, tort or otherwise, except as expressly
provided in this Agreement. NEITHER THE COMPANY NOR ANY SUBSIDIARY NOR ANY
MEMBER SHALL BE RESPONSIBLE OR LIABLE TO ANY MEMBER, OR ANY OF THEIR RESPECTIVE
AFFILIATES, FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF THE BREACH OF THIS AGREEMENT.

Section 17.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE MEMBERS WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE MEMBERS DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS; THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION (WITHOUT SUBMITTING TO ARBITRATION), TO THE FULLEST EXTENT ALLOWABLE
BY LAW, THE MEMBERS WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.

Section 17.16 Construction. This Agreement shall be deemed to have been drafted
jointly by both Members and the provisions of this Agreement shall not be
construed against either Member as a result of any claim that such Member (or
its legal counsel) drafted same.

Section 17.17 Attorneys’ Fees. Should any Member be required to bring legal
action or arbitration to enforce its rights under this Agreement, the prevailing
party in such legal action or arbitration shall be entitled to recover from the
losing party its reasonable attorneys’ fees and costs in addition to any other
relief to which it is entitled. Such recovery of attorneys’ fees shall include
any attorneys’ fees incurred in connection with any bankruptcy or reorganization
proceeding (including stay litigation) and any attorneys’ fees incurred on
appeal. The parties further agree that any attorneys’ fees incurred in enforcing
any judgment are recoverable as a separate item, and that this provision is
intended

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to be severable from the other provisions of this Agreement, shall survive the
judgment, and is not to be deemed merged into the judgment.

Section 17.18 Confidentiality. Subject to the provisions in Section 9.1, the
terms and conditions of this Agreement, including its existence, shall be
confidential information and shall not be disclosed by either Member to any
Person without the prior consent of the other Member, except that a Member may
disclose the terms and conditions of this Agreement to such party’s Affiliates,
attorneys and other advisers, and any Lender, provided that such Persons are
advised of the confidentiality restrictions contained herein, and except that
any other disclosure may be made if required by law (including any required SEC
filings or disclosures). If either Member determines that it is required by law
to disclose information regarding this Agreement, such Member shall, within a
reasonable time before making any such disclosure, consult with the other Member
regarding such disclosure and seek confidential treatment for such portions of
the disclosure as may be reasonably requested by the other Member.

Section 17.19 Sierra Club Litigation. HF Managing Member has negotiated a
settlement of certain pending litigation with the Sierra Club entitled Sierra
Club, a California not-for-profit corporation v. City of Moreno Valley,
Riverside County, California Superior Court Case No. RIC519566 (the “Sierra Club
Litigation”). A copy of the settlement agreement is attached hereto as Exhibit
“H”. Skechers agrees that it will cause Skechers Parent, as the tenant under the
Lease, to abide by the terms and conditions of such settlement agreement.

Section 17.20 Adjacent Development. HF represents to Skechers that HF or its
Affiliates own certain property which is situated adjacent to and in the
proximity of the Project, which is under development or which will be developed
during the term of this Agreement and the Lease. Skechers acknowledges that it
has no interest in any such property or the developments thereon, and that there
will be a certain amount of noise, construction dust and debris and
inconvenience associated with such development.

Section 17.21 Expansion Parcel.

(a) If the tenant under the Lease does not exercise its expansion rights and
does not participate in the development of the Expansion Parcel with HF, then HF
shall have the right to either purchase the Expansion Parcel from the T2
Subsidiary (if the Expansion Parcel has not been previously subdivided, all
costs required to subdivide the Expansion Parcel to satisfy the California
Subdivision Map Act or any other conveyance requirements shall be the sole cost
of HF, and Skechers shall have the right to approve all such subdivision
documents, such approval not to be unreasonably withheld or delayed) at its then
fair market value, or to enter into a ground lease of the Expansion Parcel at
its then fair market rent (which ground lease shall be for a term of not less
then twenty (20) years and upon commercially reasonable market terms and
conditions). If the parties cannot agree on fair market value or fair market
rent, as the case may be, then such amounts will be determined by an appraisal
process as follows: Within fifteen (15) days after one party notifies the other
that there is no mutual agreement with respect to the determination of fair
market value or fair market rent, as the case may be, each party shall appoint
an independent appraiser which has at least ten (10) years experience in
appraisals of industrial real estate in the Riverside County, California area
and who is a member of the Master Appraisers Institute. Each such appraiser
shall submit his or her opinion as to the fair market value or fair market rent,
as the case may be, within thirty (30) days after appointment. If only one party
appoints an appraiser, then his or her opinion as to fair market value or fair
market rent, as the case may be, shall be conclusive and binding on both
parties. If the opinions of the two appraisers are within ten percent (10%) of
each other, then the average of the two appraisals will be conclusive and
binding on the parties as to fair market value and fair market rent, as the case
may be. If the opinions differ by more than ten percent (10%), then the two
appraisers shall appoint a third, independent appraiser (with the same

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qualifications as above) who shall submit his or her opinion as to the fair
market value or fair market rent, as the case may be, within thirty (30) days
thereafter, and such opinion shall be conclusive and binding on the parties. If
the two (2) appraisers cannot mutually agree upon a third appraiser, then the
third appraiser will be selected by an arbitrator (from a list of three proposed
appraisers to be submitted by each of the two appraisers) under the expedited
arbitration provisions of Article 15. Each party shall pay for the appraiser
appointed by such party, and if a third appraiser is appointed, the cost shall
be borne equally by the parties.

(b) If the tenant under the Lease does exercise its expansion rights, then upon
the amendment to the Lease as set forth therein, provided that there is no
impediment to obtaining new financing and provided further that the Company
receives approval of the Construction Lender (or, if applicable, the Permanent
Lender), fee title to the Expansion Parcel shall be conveyed by the T2
Subsidiary to the T1 Subsidiary (and all other Subsidiary’s Assets of the T2
Subsidiary shall be transferred to the T1 Subsidiary, which shall assume all
liabilities of the T2 Subsidiary, and thereafter the Expansion Parcel shall be
owned, operated and managed pursuant to the terms and conditions of the limited
liability company agreement of the T1 Subsidiary). Upon consummation of such
transfers, the T2 Subsidiary shall be dissolved and liquidated, and its
certificate of formation shall be canceled.

Section 17.22 Condition of Effectiveness of Agreement. The effectiveness of this
Agreement is conditioned upon the execution of the Second Lease Amendment
concurrently with the execution of this Agreement.

ARTICLE 18

OVERRIDING PROVISIONS RE SUBSIDIARIES

It is understood and agreed that title to the Property will be held by the
Subsidiaries. Specifically, the T1 Subsidiary will hold title to the Development
Parcel and related entitlements (including the portion of the Project to be
constructed thereon pursuant to the Lease), and the T2 Subsidiary will hold
title to the Expansion Parcel, and any related entitlements (including any
improvements which may be constructed thereon pursuant to the Lease).
Accordingly, notwithstanding anything to the contrary in this Agreement, for the
purposes of interpreting and implementing the provisions of this Agreement, the
following shall apply:

(a) The contribution to the Company of HF’s interest in the Master Lease and
Lease and certain other property, and the subsequent contribution of the
Property to the Subsidiaries, shall be effectuated by a direct assignment of the
Master Lease and Lease to the T1 Subsidiary in the form of Exhibits “L” and “M”,
respectively, and a subsequent conveyance by grant deed of (x) the Development
Parcel directly to the T1 Subsidiary and (y) the Expansion Parcel to the T2
Subsidiary.

(b) To the extent permitted by law and any contractual obligations of the
Subsidiaries, the Company shall cause each Subsidiary to distribute to the
Company all of such Subsidiary’s cash, except as otherwise agreed by the Members
and any available Cash of the Company shall include such distributions of cash
from the Subsidiaries to the Company.

(c) The Managing Members shall not cause the Company to permit a Subsidiary to
take any action that would not be permitted to be taken by the Company under
this Agreement without first obtaining the required approvals of the other
Managing Member or Members under this Agreement that would be required if such
action were to be being taken directly by the Company.

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(d) The Company shall not permit any Subsidiary to have any members other than
the Company.

(e) If either Member or Managing Member takes any actions (or omits to take any
actions) which results in a material default by the Company, as the sole member
of either or both of the Subsidiaries, under any of such Subsidiaries’ material
obligations to third parties (including, but not limited to, the obligations of
the T1 Subsidiary as ground lessee under the Master Lease or landlord under the
Lease), then such Member or Managing Member shall likewise be deemed to be in
default under this Agreement.

(f) If the Company is dissolved pursuant to Article 13, then the Subsidiaries
shall also be dissolved concurrently (unless all of the non-defaulting Members
agree not to dissolve one or the other of the Subsidiaries).

(g) Unless otherwise expressly provided to the contrary in the limited liability
company agreements of the Subsidiaries, all other provisions of this Agreement
(including, but not limited to, the dispute resolution provisions) shall be
deemed to be applicable to the limited liability company agreements of the
Subsidiaries (and hence shall apply to the Company as the sole Member of the
Subsidiaries), to the fullest extent possible without materially changing the
fundamental economics of the business arrangement between the Members.

(h) To the extent that the Members are required to or elect to make Capital
Contributions or loans to the Company, which are then to be contributed to the
appropriate Subsidiary, for convenience such Capital Contributions or loans may
be made directly to the appropriate Subsidiary. Such amounts shall for all
purposes be deemed to have been paid or contributed to the Company and then paid
or contributed to the appropriate Subsidiary by the Company.

(signature page follows)

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

 

“HF”     “SKECHERS” HF LOGISTICS I, LLC, a Delaware limited liability company  
  SKECHERS R.B., LLC, a Delaware limited liability company By:   /s/ Iddo
Benzeevi     By:   Skechers U.S.A., Inc., a Delaware corporation,     Iddo
Benzeevi, President and Chief Executive Officer           its sole member

 

By:   /s/ David Weinberg   David Weinberg, Chief Operating Officer

By its signature hereon, Skechers Parent guarantees to HF, the Company and the
Subsidiaries its obligation to fund the Thirty Million Dollar ($30,000,000)
Initial Capital Contribution of Skechers as set forth in Section 4.1.1, subject
to any conditions to such funding set forth in the Agreement for the benefit of
Skechers.

 

“SKECHERS PARENT” SKECHERS U.S.A., INC., a Delaware corporation By:   /s/ David
Weinberg   David Weinberg, Chief Operating Officer

 

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EXHIBIT “A”

CAPITAL ACCOUNTS,

ALLOCATIONS OF PROFIT AND LOSS,

AND OTHER TAX MATTERS

ARTICLE 1

DEFINITIONS

Section 1.1 Definitions.

All capitalized terms used herein shall have the meanings assigned to them in
the Agreement. Notwithstanding the foregoing, the following definitions shall be
applicable to the following terms as used in this Exhibit “A” and such
definitions shall prevail in the event of a conflict with the definitions in the
Agreement. Referring to Sections “hereof” shall mean Sections of this Exhibit
“A”.

(a) Agreed Value.

“Agreed Value” of any property contributed to the capital of the Company shall
mean the fair market value of such property at the time of contribution (as
agreed to in writing by the Members without regard to Section 7701(g) of the
Code (i.e., determined without regard to the amount of Nonrecourse Liabilities
to which such property is subject)).

(b) Book Basis.

The initial “Book Basis” of any Company property shall be equal to the Company’s
initial adjusted tax basis in such property; provided, however, that the initial
“Book Basis” of any Company property contributed to the capital of the Company
shall be equal to the Agreed Value of such property. Effective immediately after
giving effect to the allocations of profit and loss, as computed for book
purposes, for each fiscal year under Section 3.1 hereof, the Book Basis of each
Company property shall be adjusted downward by the amount of Book Depreciation
allowable to the Company for such fiscal year with respect to such property. In
addition, but subject in all events to the provisions of Section 3.5 hereof,
effective immediately prior to any Revaluation Event, the Book Basis of each
Company property shall be further adjusted upward or downward, as necessary, so
that it will be equal to the fair market value of such property at the time of
such Revaluation Event (as agreed to in writing by the Members taking
Section 7701(g) of the Code into account (i.e., such value shall not be agreed
to be less than the amount of Nonrecourse Liabilities to which such property is
subject)).

(c) Book Depreciation.

The amount of “Book Depreciation” allowable to the Company for any fiscal year
with respect to any Company property shall be equal to the product of (i) the
amount of Tax Depreciation allowable to the Company for such year with respect
to such property, multiplied by (ii) a fraction, the numerator of which is the
property’s Book Basis as of the beginning of such year (or the date of
acquisition if the property is acquired during such year) and the denominator of
which is the property’s adjusted tax basis as of the beginning of such year (or
the date of acquisition if the property is acquired during such year). If the
denominator of the fraction described in clause (ii) above is equal to zero, the
amount of “Book Depreciation” allowable to the Company for any fiscal year with
respect to the

Exhibit “A”

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Company property in question shall be determined under any reasonable method
selected by the Tax Matters Partner.

(d) Book Gain or Loss.

“Book Gain or Loss” realized by the Company in connection with the disposition
of any Company property shall mean the excess (or deficit) of (i) the amount
realized by the Company in connection with such disposition (as determined under
Section 1001 of the Code) over (ii) the Book Basis of such property at the time
of the disposition.

(e) Book/Tax Disparity Property.

“Book/Tax Disparity Property” shall mean any Company property that has a Book
Basis which is different from its adjusted tax basis to the Company. Thus, any
property that is contributed to the capital of the Company by a Member shall be
a Book/Tax Disparity Property if its Agreed Value is not equal to the Company’s
initial tax basis in the property. In addition, once the Book Basis of a Company
property is adjusted in connection with a Revaluation Event to an amount other
than its adjusted tax basis to the Company, the property shall thereafter be a
“Book/Tax Disparity Property”.

(f) Capital Accounts.

“Capital Account” shall have the meaning assigned to such term in Section 2.1
hereof.

(g) Capital Transaction.

“Capital Transaction” means any of the following: (i) a sale, exchange,
transfer, assignment or other disposition of all or a portion of any Company
Asset (but not including sales in the ordinary course of business of inventory,
operating equipment or furniture, fixtures, and equipment); (ii) any financing
or refinancing of, or with respect to, any Company Asset except for equipment
leases or purchase money financing for movables; (iii) any condemnation or
transfer in lieu of condemnation of all or a portion of any Company Asset;
(iv) any collection in respect of property, hazard, or casualty insurance (but
not business interruption insurance) or any damage award; or (v) any other
transaction the proceeds of which, in accordance with generally accepted
accounting principles, are considered to be capital in nature.

(h) Company Minimum Gain.

“Company Minimum Gain” shall mean the amount of “partnership minimum gain” that
is computed in accordance with the principles of Section 1.704-2(d)(1) of the
Regulations. A Member’s share of such Company Minimum Gain shall be calculated
in accordance with the provisions of Section 1.704-2(g) of the Regulations.

(i) Deductible Expenses.

“Deductible Expenses” for any fiscal year (or portion thereof) shall mean all
items, as calculated for book purposes, which are allowable as deductions to the
Company for such period under federal income tax accounting principles
(including Book Depreciation but excluding any expense or deduction attributable
to a Capital Transaction).

Exhibit “A”

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(j) Economic Risk of Loss.

“Economic Risk of Loss” borne by any Member for any Company liability shall mean
the aggregate amount of economic risk of loss that such Member and all Related
Persons to such Member are treated as bearing with respect to such liability
pursuant to Section 1.752-2 of the Regulations.

(k) Gross Asset Value.

“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis
for U.S. federal income tax purposes except as follows:

(i) the initial Gross Asset Value of any asset contributed by a Member to the
Company will be the gross Fair Market Value of the asset;

(ii) the Gross Asset Value of all Company Assets will be adjusted to equal their
respective gross fair market values as of the following times: (a) the
occurrence of a Revaluation Event; (b) the liquidation of the Company within the
meaning of Section 1.704- 1(b)(2)(ii)(g) of the Regulations; and (c) upon any
other event on which it is necessary or appropriate in order to comply with the
Regulations under Code Section 704(b);

(iii) the Gross Asset Value of any Company Asset distributed to any Member will
be adjusted to equal the gross fair market value of the asset on the date of
distribution; and

(iv) the Gross Asset Value of Company Assets will be increased (or decreased) to
reflect any adjustments to the adjusted basis of these assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining the Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations.

(l) Gross Income.

“Gross Income” for any fiscal year (or portion thereof) shall mean the gross
income derived by the Company from all sources (other than from capital
contributions and loans to the Company and other than from Capital Transactions)
during such period, as calculated for book purposes in accordance with federal
income tax accounting principles.

(m) Liquidation.

“Liquidation” of a Member’s Company Interest shall mean and be deemed to occur
upon the earlier of (i) the date upon which the Company is terminated under
Section 708(b)(1) of the Code, (ii) the date upon which the Company ceases to be
a going concern (even though it may continue in existence for the limited
purpose of winding up its affairs, paying its debts and distributing any
remaining Company properties to the Members) or (iii) the date upon which there
is a liquidation of the Member’s Company Interest (but the Company is not
terminated) under Section 1.761-1(d) of the Regulations. “Liquidation” of the
Company shall mean and be deemed to occur upon the earlier of (x) the date upon
which the Company is terminated under Section 708(b)(1) of the Code or (y) the
date upon which the Company ceases to be a going concern (even though it may
continue in existence for the limited purpose of winding up its affairs, paying
its debts and distributing any remaining Company properties to the Members).

Exhibit “A”

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(n) Member Minimum Gain.

“Member Minimum Gain” shall mean “partner nonrecourse debt minimum gain,” as
defined in Section 1.704-2(i)(2) of the Regulations and determined in accordance
with Sections 1.704-2(i)(3) and 1.704-2(k) of the Regulations.

(o) Member Nonrecourse Deductions.

“Member Nonrecourse Deductions” shall mean “partner nonrecourse deductions,” as
defined in Section 1.704-2(i) of the Regulations.

(p) Member Nonrecourse Debt.

“Member Nonrecourse Debt” shall mean “partner nonrecourse debt,” as defined in
Section 1.704-2(b)(4) of the Regulations.

(q) Nonrecourse Deductions.

“Nonrecourse Deductions” shall mean any and all items of Book Depreciation and
other Deductible Expenses that are treated as “nonrecourse deductions” under
Section 1.704-2(c) of the Regulations.

(r) Nonrecourse Liability.

“Nonrecourse Liability” shall mean any Company liability (or portion thereof)
treated as a nonrecourse liability under Section 1.704-2(b)(3) of the
Regulations. Subject to the foregoing sentence, Nonrecourse Liability shall mean
any Company liability (or portion thereof) for which no Member bears the
Economic Risk of Loss.

(s) Operations.

“Operations” shall mean all revenue producing activities of the Company other
than activities constituting or relating to Capital Transactions.

(t) Profits and Loss.

“Profits” and “Loss” mean, for each Tax Period, an amount equal to the Company’s
taxable income or loss for such Tax Period, determined in accordance with Code
Section 703(a) (for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments (without
duplication):

(i) Any income of the Company that is exempt from United States federal income
tax and not otherwise taken into account in computing Profits or Losses pursuant
to this definition of “Profits” and “Losses” shall be added to such taxable
income or loss;

(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses pursuant to this definition of “Profits” and “Losses,” shall
be subtracted from such taxable income or loss; and

Exhibit “A”

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(iii) Any items of income, loss or deduction specially allocated under Article 3
of this Exhibit “A” shall not be taken into account in computing “Profits” or
“Loss.”

(u) Recourse Debt.

“Recourse Debt” shall mean any Company liability (or portion thereof) that is
not a Nonrecourse Liability.

(v) Regulations.

“Regulations” shall mean the regulations promulgated by the United States
Department of the Treasury pursuant to and in respect of provisions of the Code.
All references herein to sections of the Regulations shall include any
corresponding provision or provisions of succeeding, similar, substitute
proposed or final Regulations.

(w) Related Person.

“Related Person” shall mean, as to any Member, any person who is related to such
Member (within the meaning of Section 1.752-4(b) of the Regulations).

(x) Revaluation Event.

“Revaluation Event” shall mean any of the following occurrences: (i) the
contribution of money or other property (other than a de minimis amount) by a
new or existing Member to the capital of the Company as consideration for the
issuance of an additional interest in the Company; (ii) the distribution of
money or other property (other than a de minimis amount) by the Company to a
retiring or continuing Member as consideration for an interest in the Company or
(iii) any other event permitting a revaluation of Capital Accounts under the
Regulations. Notwithstanding the foregoing, an event described in the preceding
sentence shall not constitute a Revaluation Event if both Members reasonably
determine that it is not necessary to adjust the Book Basis of the Company’s
Property or the Members’ Capital Accounts in connection with the occurrence of
any such event.

(y) Tax Depreciation.

“Tax Depreciation” for any fiscal year shall mean the amount of depreciation,
cost recovery or other amortization deductions allowable to the Company for
federal income tax purposes for such year.

(z) Tax Items.

“Tax Items” shall mean, with respect to any property, all items of profit and
loss (including Tax Depreciation) recognized by or allowable to the Company with
respect to such property, as computed for federal income tax purposes.

(aa) Unrealized Book Gain or Loss.

“Unrealized Book Gain Or Loss” with respect to any Company property shall mean
the excess (or deficit) of (i) the fair market value of such property (as agreed
to in writing by the Members taking Section 7701(g) of the Code into account
(i.e., such value shall not be agreed to be less than the

Exhibit “A”

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amount of Nonrecourse Liabilities to which such property is subject)), over
(ii) the Book Basis of such property.

ARTICLE 2

CAPITAL ACCOUNTS

Section 2.1 Capital Accounts.

A separate “Capital Account” (herein so called) shall be maintained for each
Member for the full term of the Agreement in accordance with the capital
accounting rules of Section 1.704-1(b)(2)(iv) of the Regulations. Pursuant to
the basic rules of Section 1.704-1(b)(2)(iv) of the Regulations, the balance of
each Member’s Capital Account shall be:

(a) Increased by the amount of money contributed by such Member (or such
Member’s predecessor in interest) to the capital of the Company pursuant to
ARTICLE 4 of the Agreement and this Exhibit “A” and decreased by the amount of
money distributed to such Member (or such Member’s predecessor in interest)
pursuant to ARTICLE 5 or ARTICLE 13 of the Agreement;

(b) Increased by the fair market value of the Property (determined without
regard to Section 7701(g) of the Code) (i.e., determined without regard to the
amount of Nonrecourse Liabilities to which such property is subject))
contributed by such Member (or such Member’s predecessor in interest) to the
capital of the Company pursuant to ARTICLE 4 or ARTICLE 13 of the Agreement and
this Exhibit “A” (net of all liabilities secured by such property that the
Company is considered to assume or take subject to under Section 752 of the
Code) and decreased by the fair market value of the Property (determined without
regard to Section 7701(g) of the Code (i.e., determined without regard to the
amount of Nonrecourse Liabilities to which such property is subject))
distributed to such Member (or such Member’s predecessor in interest) by the
Company pursuant to ARTICLE 5 of the Agreement (net of all liabilities secured
by such property that such Member is considered to assume or take subject to
under Section 752 of the Code);

(c) Increased by the amount of each item of Company Profit (and other items of
income or gain) allocated to such Member (or such Member’s predecessor in
interest) pursuant to Section 3.1 hereof;

(d) Decreased by the amount of each item of Company Loss (and other items of
loss or deduction) allocated to such Member (or such Member’s predecessor in
interest) pursuant to Section 3.1 hereof; and

(e) Otherwise adjusted in accordance with the other capital account maintenance
rules of Section 1.704-1(b)(2)(iv) of the Regulations including, without
limitation, the capital account maintenance rules for the treatment of
liabilities as set forth in Section 1.704-1(b)(2)(iv)(c) of the Regulations
(provided that there shall be no double counting of items taken into account in
the definition of “Profit” or “Loss.”

Section 2.2 Additional Provisions Regarding Capital Accounts.

(a) If a Member pays any Company indebtedness, such payment shall be treated as
a contribution by that Member to the capital of the Company, and the Capital
Account of such Member shall be increased by the amount so paid by such Member.

Exhibit “A”

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(b) Except as otherwise provided herein, no Member may contribute capital to, or
withdraw capital from, the Company. To the extent any monies which any Member is
entitled to receive pursuant to the Agreement would constitute a return of
capital, each of the Members consents to the withdrawal of such capital.

(c) A loan by a Member to the Company shall not be considered a contribution of
money to the capital of the Company, and the balance of such Member’s Capital
Account shall not be increased by the amount so loaned. No repayment of
principal or interest on any such loan, reimbursement made to a Member with
respect to advances or other payments made by such Member on behalf of the
Company or payments of fees to a Member or Related Person to such Member which
are made by the Company shall be considered a return of capital, or any other
form of distribution, or in any manner affect the balance of such Member’s
Capital Account. No Member or Related Person to such Member shall make a loan to
the Company unless such loan is authorized pursuant to the provisions of the
Agreement.

(d) No Member with a deficit balance in its Capital Account shall have any
obligation to the Company, any other Member or any other Person to restore said
deficit balance. In addition, no venturer or partner in any Member shall have
any liability to the Company or any other Member for any deficit balance in such
venturer’s or partner’s capital account in the Member in which it is a partner
or venturer. Furthermore, a deficit Capital Account balance of a Member (or a
capital account of a partner or venturer in a Member) shall not be deemed to be
a liability of such Member (or of such venturer or partner in such Member) or a
Company Asset or property. The provisions of this Section 2.2(d) shall not
affect any Member’s obligation to make capital contributions to the Company that
are required to be made by such Member pursuant to the Agreement.

(e) Except as otherwise provided herein or in the Agreement, no interest will be
paid on any capital contributed to the Company or the balance in any Member’s
Capital Account.

ARTICLE 3

ALLOCATIONS OF PROFIT AND LOSS

Section 3.1 Allocations of Profit and Loss. Subject to the provisions of
Section 3.1, Section 3.2, Section 3.3, Section 3.4, and Section 3.5, hereof, all
items of Profit and Loss realized by the Company during each fiscal year shall
be allocated among the Members (after giving effect to all adjustments
attributable to all contributions and distributions of money and property
effected during such year) in the manner prescribed in this Section 3.1.

(a) Minimum Gain Chargeback. Pursuant to Section 1.704-2(f) of the Regulations
(relating to minimum gain chargebacks) and notwithstanding any other provision
of the Agreement, if there is a net decrease in Company Minimum Gain for such
year (or if there was a net decrease in Company Minimum Gain for a prior fiscal
year and the Company did not have sufficient amounts of Gross Income and Book
Gain during prior years to allocate among the Members under this Section 3.1(a),
then items of Company Gross Income and Book Gain shall be allocated, before any
other allocation is made pursuant to the succeeding provisions of this
Section 3.1 for such year, to each Member in an amount equal to such Member’s
share of the net decrease in such Company Minimum Gain (as determined under
Section 1.704-2(g)(2) of the Regulations), subject to any exceptions to such
requirement contained in the Regulations. Such items shall consist of (i) Book
Gain from the disposition of property subject to a Nonrecourse Liability, and
(ii) if necessary, a pro rata portion of other items of Gross Income and Book
Gain. This Section 3.1(a) is intended to comply with the minimum gain

Exhibit “A”

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chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.

(b) Member Minimum Gain Chargeback. Pursuant to Section 1.704-2(i)(4) of the
Regulations (relating to chargebacks of partner nonrecourse debt minimum gain)
and not withstanding any other provisions of this Agreement, if there is a net
decrease in Member Minimum Gain for such year (or if there was a net decrease in
Member Minimum Gain for a prior fiscal year and the Company did not have
sufficient amounts of Gross Income and Book Gain during prior years to allocate
among the Partners under this Section 3.1(b)), then items of Company Gross
Income and Book Gain shall be allocated, before any other allocation is made
pursuant to the succeeding provisions of this Section 3.1 for such year, to each
Member in an amount equal to such Member’s share of the net decrease in such
Member Minimum Gain (as determined pursuant to Section 1.704-2(i)(4) of the
Regulations), subject to any exceptions to such requirement contained in the
Regulations. Such items shall consist of (i) Book Gain from the disposition of
property subject to a Member Nonrecourse Debt, and (ii) if necessary, a pro rata
portion of other items of Gross Income and Book Gain not allocated pursuant to
Section 3.1(a) above. This Section 3.1(b) is intended to comply with the partner
nonrecourse debt minimum gain chargeback requirement in Section 1.704-2(i)(4) of
the Regulations and shall be interpreted consistently therewith.

(c) Qualified Income Offset. Any Member who unexpectedly receives an adjustment,
allocation or distribution described in Regulation Sections 1.704-I
(b)(2)(ii)(d)(4), (5) or (6) of the Regulations that causes a deficit balance in
its Capital Account (in excess of any amounts which such Member is obligated to
restore to the Company, if any, or any deemed deficit restoration obligation
pursuant to Regulation Sections 1.704-2(g)(1) and (i)(5) of the Regulations),
shall be allocated items of Gross Income and Book Gain before any other
allocation is made pursuant to the succeeding provisions of this Section 3.1 for
such year in an amount and a manner sufficient to eliminate, to the extent
required by the Treasury Regulations, such deficit balance as quickly as
possible. This Section 3.1(c) is intended to comply with the alternate test for
economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Regulations and
shall be interpreted and applied in a manner consistent therewith.

(d) Nonrecourse Deductions. All Nonrecourse Deductions shall be allocated among
the Members, pro rata in accordance with their respective Contribution
Percentages and in a manner consistent with Section 1.704-2(e) of the
Regulations.

(e) Member Nonrecourse Deductions. All Member Nonrecourse Deductions
attributable to Member Nonrecourse Debt shall be allocated among the Members
bearing the Economic Risk of Loss for such debt consistent with
Section 1.704-2(i)(1) of the Regulations.

(f) Nonrecourse Liabilities. For purposes of Section 752 of the Code, all
Nonrecourse Liabilities of the Company shall be shared among the Members in the
ratio of their Contribution Percentages.

(g) Code Section 754 Adjustment. To the extent an adjustment to the adjusted tax
basis of any Company property, pursuant to Code Sections 734(b) or 743(b) is
required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4)
of the Regulations, to be taken into account in determining Capital Accounts as
a result of a distribution to a Member in complete liquidation of its interest
in the Company, the amount of such adjustment to Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specifically allocated to the Members in accordance with their interests in the
Company (in the event Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations
applies) or to the Members to

Exhibit “A”

8

 

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whom such distribution was made (in the event Section 1.704-1(b)(2)(iv)(m)(4) of
the Regulations applies).

(h) Special Allocation of Amounts Required. In the event and to the extent that
any amount paid by the Company to a Member or to a person related to a Member is
treated as having been received in a partner capacity for federal income tax
purposes, there shall be specially allocated to such Member, before any
allocation is made pursuant to Section 3.1(i) hereof, an amount of Gross Income
equal to such amount that is so treated.

(i) General Allocations. After giving effect to the special allocations in
Sections 3.1(a) through (h) above, all items of Profit and Loss realized by the
Company shall be allocated among the Members in such a manner that would cause
their respective Capital Account balances (determined prior to taking into
account distributions actually made within the fiscal year), to the greatest
extent possible, to be equal to (i) the amount that would be distributed to each
Member, if (a) the Company were to sell all of its assets for their Gross Asset
Values, (b) all Company liabilities were satisfied (limited with respect to each
nonrecourse liability to the Gross Asset Values of the assets securing such
liability), and (c) the Company were to distribute the sale proceeds and other
assets of the Company pursuant to Section 5.2 of the Agreement, plus (ii) the
amount of cash and other property that was distributed to the Member within such
fiscal year, minus (iii) such Member’s share of Company Minimum Gain or Member
Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical
sale of assets.

(j) Character of Income and Loss. For purposes of determining the nature (as
ordinary or capital) of any Company profit allocated among the Members for
federal income tax purposes pursuant to this Section 3.1, the portion of such
profit required to be recognized as ordinary income pursuant to Sections 1245
and/or 1250 of the Code shall be deemed to be allocated among the Members in the
same proportion that they were allocated and claimed the Book Depreciation
deductions, or basis reductions, directly or indirectly giving rise to such
treatment under Sections 1245 and/or 1250 of the Code or in any other manner
required by temporary or final Regulations.

(k) Limitations On Allocations. Notwithstanding the provisions of Section 3.1(h)
above:

(i) No Loss or items of loss or deduction shall be allocated to any Member that
has a deficit Capital Account balance exceeding its actual or deemed obligation
to restore the same or would have a deficit Capital Account balance exceeding
its actual or deemed obligation to restore the same as a result of any such
allocation while any other Member has a positive Capital Account balance, it
being the intention of the Members that such loss shall be allocated in those
circumstances solely to the Member(s) with positive Capital Account balances;

(ii) In the event no Member has a positive Capital Account balance, Loss shall
be allocated between the Members pro rata based on their respective Contribution
Percentages; and

(iii)Any Loss from a Liquidating Transaction, as well as any Profit or Loss for
the fiscal year in which the Liquidating Transaction takes place, shall be
allocated among the Members in such a manner as to cause their respective
positive Capital Account balances, immediately following such allocations, to be
equal, to the maximum extent possible, to the distributions each would receive
under ARTICLE 5 of the Agreement upon the distribution of the available
liquidation proceeds.

Exhibit “A”

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Section 3.2 Allocations of Income and Loss in Respect of Interests Transferred.

If any Company Interest is transferred, or is increased or decreased by reason
of the admission of a new Member or otherwise, during any fiscal year, each item
of Profit and Loss for such year shall be divided and allocated among the
Members in question by taking account of their varying interests in the Company
during such year (on a daily, monthly or other basis, an interim closing of the
books method or any other permissible method under Section 706 of the Code and
the Regulations thereunder) as determined by the Managing Members.

Section 3.3 Allocation of Tax Items.

(a) Except as otherwise provided in the succeeding provisions of this
Section 3.3, each Tax Item shall be allocated among the Members in the same
manner as each correlative item of Profit or Loss, is allocated pursuant to the
provisions of Section 3.1 hereof.

(b) The Members hereby acknowledge that all Tax Items in respect of Book/Tax
Disparity Property are required to be allocated among the Members in the same
manner as under Section 704(c) of the Code (as specified in
Sections 1.704-1(b)(2)(iv)(f) and 1.704-1(b)(2)(iv)(g) of the Regulations) and
that the principles of Section 704(c) of the Code require that such Tax Items
must be shared among the Members so as to take account of the variation between
the adjusted tax basis and Book Basis of each such Book/Tax Disparity Property.
Thus, notwithstanding anything in Section 3.1 or 3.3(a) hereof to the contrary,
the Members’ distributive shares of Tax Items in respect of each Book/Tax
Disparity Property shall be separately determined and allocated among the
Members in accordance with the principles of Section 704(c) of the Code. The
method for making all Section 704(c) allocations of the Company with respect to
the Initial Capital Contribution shall be mutually agreed upon by the Managing
Members, and if the Managing Members cannot mutually agree, then the
“traditional method” shall be used. HF agrees to provide Skechers with its
adjusted tax basis in the Property (as of the Closing Date) within sixty
(60) days after the Closing Date.

(c) The Members agree that the contribution by HF of all property relating to
the Project (including fee title to the Property and all of right, title and
interest in all personal property and all plans, specifications, architectural
drawings and renderings, surveys and other collateral material relating to the
ownership and development of the Property) to the Company pursuant to
Section 4.1.1(b) of the Agreement and the HF Loan made pursuant to Section 6.4
of the Agreement will be treated by the Company and HF on their respective tax
returns as follows under the Regulations under Code Section 707:

(i) Pursuant to Section 1.707-4(d) of the Regulations, the first payments of
principal made under the HF Note are to be treated for all purposes as payments
made to HF to reimburse HF for capital expenditures incurred by HF with respect
to all property relating to the Project during the two (2) year period preceding
the transfer by HF to the Company of such property, subject to the limitation
contained in such Regulation that such pre-formation expenditures shall not
exceed twenty percent (20%) of the fair market value of such property at the
time of contribution (the “20% Limitation”) unless the fair market value of such
property does not exceed one hundred twenty percent (120%) of the adjusted basis
of such property at the time of contribution (in which case such 20% Limitation
shall not apply);

Exhibit “A”

10

 

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(ii) The remainder of the principal payments made under the HF Note shall be
treated as payments made with respect to a sale to the Company by HF of a
proportionate amount of all property relating to the Project on the date of the
contribution of such property to the Company (with the portion of such property
that is deemed to have been sold by HF to the Company being determined under the
Regulations under Section 707 of the Code); and

(iii) As required by Regulations Sections 1.707-3(c)(2) and 1.707-8, the Company
shall disclose to the IRS the Company’s treatment of the HF Note payments as
pre-formation expenses to the extent described in Section 3.3(c)(i) above.

Section 3.4 The allocations set forth in Sections 3.1(a) through 3.1(h) hereof
(the “Regulatory Allocations”) are intended to comply with the requirements of
Sections 1.704-1(b) and 1.704-2 of the Regulations and, in all events, shall be
interpreted and applied consistently therewith.

Section 3.5 Revaluation Events and Capital Adjustments for Book Items.

Pursuant to the capital account maintenance rules of Section 1.704-1(b)(2)(iv)
of the Regulations, effective immediately prior to any Revaluation Event, the
Capital Account balance of each Member shall be adjusted to reflect the manner
in which items of Profit or Loss, equal to the Unrealized Book Gain or Loss then
existing with respect to each asset owned (to the extent not previously
reflected in the Members’ Capital Accounts) by the Company would be allocated
among the Members pursuant to Section 3.1 hereof if there were a taxable
disposition of such property immediately prior to such Revaluation Event for its
fair market value (as determined by the Managing Member taking Section 7701(g)
of the Code into account). In all events with respect to all items of Company
Profit and Loss, the balances of the Members’ Capital Accounts shall be adjusted
solely for allocations of such items, as computed for book purposes, under
Section 3.1 hereof and shall not be adjusted for allocations of correlative Tax
Items under Section 3.3 hereof.

Section 3.6 Intent of Liquidating Distributions.

The parties intend that the allocation provisions of this Exhibit “A” shall
produce final Section 704 Capital Account balances of the Member being equal to
the distributions required pursuant to Section 5.2 of the Agreement. To the
extent that the allocations required in this Exhibit “A” would fail to produce
such Capital Account balances (determined at the close of each taxable year as
provided in Section 3.1(i)), (a) such allocations provisions shall be amended by
the Managing Members if and to the extent necessary to produce such result and
(b) items of Company income, gain, loss, or deduction for prior open taxable
years shall be reallocated among the Members to the extent it is not possible to
achieve such result with allocations of Company income, gain, loss or deduction
for the current taxable year and future taxable years. This Section 3.6 shall
control notwithstanding any reallocation or adjustment of taxable income,
taxable loss, or items thereof by the Internal Revenue Service or any other
taxing authority.

Section 3.7 Curative Allocations.

The Regulatory Allocations are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Section 3.7. Therefore, notwithstanding any
other provision of this Agreement (other than the Regulatory Allocations), the
Managers shall make such offsetting allocations

Exhibit “A”

11

 

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of Company income, gain, loss or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Member’s
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had if the Regulatory Allocations were not part
of this Agreement.

ARTICLE 4

OTHER TAX MATTERS

Section 4.1 Consistent Treatment.

The Members shall take positions with respect to Tax Items that are consistent
with the positions taken by the Company with respect to the same Tax Items in
all U.S. federal, state, local, or foreign tax returns, all notices to
government bodies, and in any audit or other proceedings with respect to taxes.

Exhibit “A”

12

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EXHIBIT “B”

DEVELOPMENT MANAGEMENT AGREEMENT

Exhibit “B”

--------------------------------------------------------------------------------

DEVELOPMENT MANAGEMENT AGREEMENT

THIS DEVELOPMENT MANAGEMENT AGREEMENT (this “Agreement”) is made and entered
into effective as of the 30th day of January, 2010 (the “Effective Date”), by
and between HF LOGISTICS-SKX, LLC (hereinafter, “Owner”); and HFC HOLDINGS, LLC,
a Delaware limited liability company (“Development Manager”).

RECITALS:

A. Owner is a Delaware limited liability company formed pursuant to that certain
Limited Liability Company Agreement (as amended from time to time, the “LLC
Agreement”) dated of even date herewith between HF Logistics I, LLC, a Delaware
limited liability company (“HF Member”), and Skechers RB, LLC, a Delaware
limited liability company (“Skechers Member”).

B. Section 7.5 of the LLC Agreement provides that the Owner shall enter into
this Agreement.

C. The Owner has caused the Project Architect to prepare the Approved Plans for
the Improvements (the construction of the Improvements on the Land in accordance
with the Approved Plans is herein called the “Project”).

D. The Owner has approved the Development Budget for the Project.

E. Owner and Development Manager intend that the Development Manager perform or
cause to be performed the Development Services and receive the Development
Manager Fee, in accordance with this Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing (all of which is incorporated
in this Agreement by this reference) and other good and valuable consideration,
receipt and sufficiency of which are hereby acknowledged, Owner and Development
Manager hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings:

“Added Costs” has the meaning given to that term in Section 4.1.

“Agreement” has the meaning given to that term in the introductory paragraph.

--------------------------------------------------------------------------------

“Applicable Laws” means all applicable statutes, ordinances, rules, regulations,
codes and interpretations by all federal, state and local governmental
authorities having jurisdiction over the Project.

“Approval by (or of) Owner” means to be approved in writing by Owner.

“Approved Plans” has the meaning given to that term in Section 2.4.

“Bid Documents” has the meaning given to that term in Section 2.7(e)(i).

“Building” means the building which constitutes part of the Improvements.

“Close-Out” has the meaning given to that term in Section 2.11(a).

“Completion Notice” means a notice from Development Manager (or the General
Contractor) to the Owner that Substantial Completion has occurred for the
Improvements, as described in Section 2.10(a).

“Completion of the Project” has the meaning given to that term in
Section 2.11(c).

“Construction Loan” means the loan to be made to Owner by Lender, the proceeds
of which shall be used to construct the Project.

“Contract Documents” means the Approved Plans, the Project Construction
Contract, and other documents governing the performance obligations of the
General Contractor.

“Development Approvals” has the meaning given to that term in Section 2.7(g).

“Development Budget” has the meaning given to that term in Section 2.3.

“Development Budget Amendment” has the meaning given to that term in
Section 2.8(f).

“Development Manager” has the meaning given that term in the introductory
paragraph.

“Development Manager Fee” has the meaning given to that term in Section 5.1.

“Development Services” has the meaning given to that term in Section 2.1.

“Due Care” means to act in good faith, within the scope of one’s authority, with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent real estate professional experienced in such matters would use in
the conduct of the development of an industrial/warehouse building of the type
and quality envisioned in the Approved Plans.

“Effective Date” has the meaning given to that term in the introductory
paragraph.

“Entitlement Requirements” has the meaning given to that term in
Section 2.7(a)(i).

“Force Majeure” has the meaning given to that term in Section 4.2.

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“General Contractor” means the general contractor selected by the Development
Manager and engaged by Owner to construct the Project.

“Hard Costs” means those Project Costs so designated in the Development Budget.

“Hazardous Materials” means any hazardous, toxic or dangerous waste, substance
or material, pollutant or contaminant, as defined for purposes of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et seq.), as amended, or the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), as amended, or any other federal,
state or local law, ordinance, rule or regulation applicable to the Land or the
Project, or any substance which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous, or any
substance which contains gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenyls (PCBs), or radon gas, urea formaldehyde, asbestos or
lead.

“Improvements” means an approximately 1,820,000 rentable square foot Building
and other improvements to be constructed by Owner on the Land in accordance with
the Lease and the Approved Plans.

“Indemnified Parties” has the meaning given to that term in Section 4.3.

“Land” means the tract of land which is the subject of the Lease and upon which
the Project will be constructed.

“Lease” means that certain Lease dated September 25, 2007 between HF Member, as
landlord, and Skechers Parent, as tenant, as amended.

“Lender” means the lender which extends the Construction Loan to Owner, or any
future holder of the note and other documents which evidence the Construction
Loan.

“LLC Agreement” has the meaning given that term in the Recitals.

“Owner” has the meaning given to that term in the introductory paragraph.

“Party” means either Owner or Development Manager.

“Project” has the meaning given that term in the Recitals.

“Project Architect” means HPA Architects.

“Project Construction Contract” has the meaning given to that term in
Section 2.7(e)(v).

“Project Costs” means all costs of construction of the Project (Hard Costs and
Soft Costs) as reflected in the Development Budget.

“Project Engineers” means the mechanical, structural and electrical engineers’
engaged in connection with the Project.

“Project Manager” has the meaning given to that term in Section 3.2.

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“Project Schedule” has the meaning given to that term in Section 2.3.

“Project Team” has the meaning given to that term in Section 2.2.

“Punchlist” has the meaning given to that term in Section 2.10(c).

“Punchlist Items” means any items necessary to complete the Improvements in
compliance with Applicable Laws, the Approved Plans and the other requirements
of this Agreement after receipt of the Completion Notice (it being understood
that the nature of the Punchlist Items is such that they will, not materially
interfere with the use, occupancy or enjoyment of the Building by Skechers
Parent as tenant under the Lease).

“Skechers Parent” means Skechers USA, Inc., a Delaware corporation.

“Soft Costs” means those Project Costs so designated in the Development Budget.

“Standard of Quality” has the meaning given to that term in Section 2.5.

“Statement of Project Costs” has the meaning given to that term in
Section 2.11(b).

“Substantial Completion” has the meaning set forth in the Lease.

Section 1.2 Other Definitions. Other terms defined in this Agreement have the
meanings so given them. Capitalized terms used but not defined herein shall have
the same meaning herein as in the LLC Agreement.

Section 1.3 Terminology. Unless the context of this Agreement clearly requires
otherwise, (a) pronouns, wherever used herein, and of whatever gender, shall
include natural persons and corporations, partnerships, limited liability
companies and entities of every kind and character, (b) the singular shall
include the plural wherever and as often as may be appropriate, (c) the word
“includes” or “including” shall mean “including without limitation”, and (d) the
words “hereof”, “herein”, “hereunder”, and similar terms in this Agreement shall
refer to this Agreement as a whole and not any particular section or article in
which such words appear. The section, article, and other headings in this
Agreement are for reference purposes and shall not control or affect the
construction of this Agreement or the interpretation hereof in any respect.
Article, section, subsection, and exhibit references are to this Agreement
unless otherwise specified. All exhibits attached to this Agreement constitute a
part of this Agreement and are incorporated herein.

ARTICLE 2

SCOPE OF SERVICES

Section 2.1 General. Development Manager shall perform, using Due Care, the
services described in this ARTICLE 2 (the “Development Services”) required for
the development of the Project. Development Manager will coordinate with the
Owner with respect to the matters for which the Owner is involved in accordance
with this Agreement and Development Manager will coordinate with the Skechers
Member with respect to matters for

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which the Skechers Member is involved in accordance with this Agreement. It is
understood that any decisions, approvals, consents or other rights or
obligations of the Owner under this Agreement shall be subject to the provisions
of the LLC Agreement which allocate the authority to make such decisions,
approvals, consents or to exercise such rights or obligations between the
Skechers Member and the HF Member, and nothing in this Agreement is intended to
modify or amend such provisions of the LLC Agreement.

Section 2.2 Project Team. Development Manager shall coordinate and provide
leadership for the development, design and construction team (the “Project
Team”) for the Project. The Project Team shall consist of Development Manager,
Owner, the Project Architect, the Project Engineers and the General Contractor,
and others engaged by Owner to work on the development, design or construction
of the Project.

Section 2.3 Development Budget and Project Schedule. Attached hereto marked
Exhibit “A” is a development budget (as amended, the “Development Budget” and
which includes any Added Costs) and a project schedule (as amended, the “Project
Schedule”) for the Project. Development Manager shall revise the Development
Budget and the Project Schedule from time to time, but except as set forth in
Section 4.1, no amendment or modification of the Development Budget or the
Project Schedule shall be effective until Approved by Owner and approved by
Skechers Member. Notwithstanding anything herein to the contrary, the
Development Manager shall not be responsible if Completion of the Project does
not occur by the date set forth in the Project Schedule, except as a result of
the gross negligence or the willful misconduct of Development Manager.

Section 2.4 Plans. Development Manager has coordinated the preparation of the
plans and specifications for the Project which have been approved by both the
tenant under the Lease, and Owner (the “Approved Plans”). The Approved Plans may
not be amended or modified in any material respect without the approval of Owner
and the approval of the tenant under the Lease.

Section 2.5 Standard of Quality. Development Manager has prepared and Owner has
approved detailed general and specific standards for the overall development of
the Project, as set forth in the Approved Plans and covering site use, selection
of materials, building systems, landscaping, parking and other features related
to development of the Project (the “Standard of Quality”).

Section 2.6 Compliance With Applicable Laws. Development Manager shall have the
Project Architect (or other appropriate professional) confirm that the Approved
Plans for the Project satisfy the Standard of Quality, and are in substantial
compliance in all material respects with the requirements of the Construction
Loan and all Applicable Laws.

Section 2.7 Predevelopment Phase. Subject to the general provisions of
Section 2.1 through Section 2.6 above, Development Manager shall perform the
following predevelopment phase services, to the extent that it has not already
done so:

(a) Initial Planning. Development Manager shall:

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(i) Ascertain the significant subdivision, zoning, building code and other
governmental compliance issues for the Project (collectively, the “Entitlement
Requirements”);

(ii) Provide to Owner soils reports, environmental reports and other reports and
studies in Development Manager’s possession in connection with the Project;

(iii) Obtain preliminary site plans, surveys, topographical surveys and
schematic designs and elevations for the Project; and

(iv) Coordinate preparation and submission of materials, plans and information
as necessary under the Entitlement Requirements, and coordinate the Project
development requirements of governmental agencies.

(b) Schematic Design. Development Manager shall coordinate the Project
Architect’s preparation of schematic design drawings for the Project and assist
in evaluating design alternatives in light of Owner’s construction, timing,
function and marketing goals and objectives.

(c) Design Development. Development Manager shall review all plans and
specifications prepared by the Project Architect and evaluate such plans and
specifications in light of the approved design concept for the Project, Owner’s
cost and time constraints and Owner’s objectives.

(d) Working Drawings. Development Manager shall:

(i) Coordinate the preparation by the Project Architect of the construction
drawings; and

(ii) Make recommendations regarding alternative design and construction
solutions whenever design details appear to adversely affect construction
feasibility, the Development Budget or the Project Schedule or to deviate from
the Approved Plans.

(e) Contractor Bidding and Selection. Development Manager shall:

(i) Coordinate the preparation of the “Bid Documents,” which shall consist of,
among other things, the Approved Plans, construction drawings (to the extent
completed), proposed form of Project Construction Contract and instructions to
bidders.

(ii) Make recommendations for prequalification criteria for bidders, including
any need for performance bonding of any bidder if selected as a contractor, and
develop a bid list for prospective contractors and subcontractors.

(iii) Develop competitive bidding procedures and requirements.

(iv) If appropriate, conduct prebid conferences to familiarize bidders with the
Bid Documents and any special or unique systems, materials, methods or
requirements.

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(v) Prior to commencement of construction of any Improvements, including any
site work, the General Contractor and the Owner will enter into a guarantied
maximum cost construction contract for the Project (the “Project Construction
Contract”). Development Manager shall assist Owner in negotiating the Project
Construction Contract and advise Owner as to holdbacks or retentions on
contractor payments and other contract provisions to be incorporated in the
Project Construction Contract so that Development Manager can properly manage
the General Contractor’s performance.

(vi) Provide recommendations regarding the General Contractor’s proposed
temporary Project facilities, equipment, materials and services during
construction and the assignment of responsibilities relating to same.

(vii) Conduct pre-award conferences with the successful bidders, prepare and
negotiate the Project Construction Contract on terms and conditions acceptable
to Owner (for approval and execution by Owner) and advise Owner regarding
subcontractors and major suppliers for the Project.

(f) Payment of Project Architect and Project Engineers. Development Manager
shall review and advise Owner with regard to all requests for payment from the
Project Architect, the Project Engineers and any other consultants having
contracts with Owner or Development Manager for the Project.

(g) Development Approvals. Development Manager shall assist Owner, the General
Contractor, the Project Architect and the Project Engineers with any
governmental authorities having jurisdiction over the Project and shall process
and obtain all governmental and third party approvals required in connection
with the Project, including all approvals, permits, and authorizations necessary
for development, construction, use or occupancy of the Project, the subdivision
of the land, construction, use and occupancy of the Project, establishment of
communities facilities districts, establishment of a property owner’s
association and related documentation, and all necessary public improvement
agreements, easements, dedications or other similar agreements required in
connection with the Project (collectively, the “Development Approvals”).

(h) Meetings. Development Manager shall meet with a representative of Owner on a
regular basis, to update Owner on the status of the Project and apprise Owner of
major events and issues anticipated by Development Manager with respect to the
Project.

(i) Contracts with Project Architect and the Project Engineers. Development
Manager shall negotiate on Owner’s behalf (for approval and execution by Owner)
and advise Owner with respect to service contracts, including, but not limited
to, contracts with the Project Team and other consultants, if any, as are
necessary or appropriate in order to construct the Project.

(j) Development Easements. Upon Development Manager’s request, Owner shall enter
into and grant such development easements, rights of way and other similar
encumbrances affecting title to the Project to the extent reasonably required
for or in connection with the orderly development of the Project.

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Section 2.8 Construction Phase. The “Construction Phase” shall commence at the
time designated in the Project Schedule. Subject to the general provisions of
Section 2.1 through Section 2.6 above, and in addition to services described
under Section 2.7, which (to the extent applicable) continue throughout the term
of this Agreement, Development Manager shall perform the following construction
phase services, to the extent that it has not already done so:

(a) Critical Path Schedule. Development Manager shall direct the General
Contractor (and others, where appropriate) to prepare and update a critical path
schedule for completion of the Project. In the event of delays impacting the
critical path schedule, Development Manager shall make recommendations for
corrective action by the General Contractor.

(b) Site Preparation. Development Manager shall monitor site work for the
Project, as well as any environmental remediation to be performed upon the Land.

(c) Applications for Payment Requirements. Development Manager shall (i) prepare
procedures for the review and, subject to the provisions in subparagraph (o),
processing of applications for payment received from the General Contractor,
(ii) assure that permitted holdbacks or retentions are maintained upon payments
to the General Contractor, (iii) confirm that applications for payment are
complete and correct and accompanied by all required documents, (iv) obtain the
Project Architect’s certification of each application for payment and (v) make
recommendations to Owner concerning payment of applications for payment and
other Project Costs. Development Manager shall prepare and coordinate orderly
procedures, consistent with the requirements of the Construction Loan, for
payment of all Project Costs.

(d) Certificate. Whenever certificates of the Project Architect or the Project
Engineers are required in accordance with the Construction Loan Agreement,
Development Manager shall coordinate delivery of such certificates to assure
that necessary certificates are received.

(e) Construction Administration. Development Manager will provide overall
coordination of development of the Project, including the following:

(i) Meetings. Schedule and conduct (not less than once per month) job-site
meetings to discuss construction procedures, progress and scheduling with
General Contractor and the Project Architect. Development Manager shall prepare
or direct the General Contractor or Project Architect to prepare minutes of
construction meetings and distribute such meeting minutes to the Project Team.

(ii) Contract Performance. Monitor the performance, assure maintenance of
applicable holdbacks and assist in the enforcement (short of instituting any
legal proceeding) of the obligations of the General Contractor under the terms
of the Project Construction Contract.

(iii) Bonds. If required under the terms of the Construction Loan, prior to the
General Contractor performing Work (as defined in the Project Construction
Contract), Development Manager shall obtain from the General Contractor both a
General Contractor’s payment bond and a performance bond in the full value of
the Project Construction Contract

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issued by a corporate surety or sureties reasonably satisfactory to Owner or the
Lender, as applicable, naming Owner or the Lender, as applicable, as a
beneficiary.

(iv) General Contractor Identification. Make timely recommendations to Owner for
the employment or dismissal of the General Contractor and all attorneys,
architects, engineers, consultants and other professionals and personnel as are
necessary or appropriate to construct and complete the Project.

(v) Lien Claims. Obtain from the General Contractor the negotiation of
settlements with all material mechanics, materialmen and subcontractors, and if
any mechanic’s, materialman’s or similar lien and/or stop notices are filed with
respect to the Project, take such action (short of instituting legal
proceedings) which is within the power of Development Manager, or cause the
General Contractor to take such lawful action, as is appropriate to contest or
settle and discharge such lien or liens and/or stop notices and to remove the
same by bonding or otherwise within thirty (30) days after receiving notice of
the filing thereof.

(vi) Warranty Corrections. Cause to be enforced (short of instituting any legal
proceeding) all warranties and guaranties of the General Contractor or
materialmen with a view to correcting any known or identified defects in the
construction of the Project or in the installation or operation of any equipment
or fixtures therein, at the expense of the General Contractor or materialmen and
cause inspections of the completed Project to be made by the Project Architect
with a view to discovering any such defects.

(vii) Monitor Work. Monitor the performance of work by the Project Team
concerning matters relating to the Project. If the Development Manager
determines that any members of the Project Team are not in compliance with the
terms and conditions of their respective agreements or contracts with Owner,
Development Manager shall notify Owner of such noncompliance and the nature
thereof and of Development Manager’s recommendations with respect thereto. Any
legal action to be taken with respect to such noncompliance shall be entirely at
the discretion of and under the direction of Owner. In connection with
monitoring the work, Development Manager shall not cause or knowingly permit any
Hazardous Materials to be brought upon, kept or used in or about the Land or
Project except to the extent such Hazardous Materials: (A) are necessary for the
construction of the Project, (B) are required by the Approved Plans, and (C) are
used, stored and disposed of in compliance with all Applicable Laws.

(viii) Accidents. Notify Owner of any material accidents or damage or injury
claims arising from work on the Project promptly after Development Manager has
actual knowledge of such events.

(ix) Shop Drawings and Other Submittals. Coordinate the Project Architect’s
review and approval of shop drawings, product data and other submittals by the
General Contractor. Coordinate the delivery by the General Contractor to Owner
of the guaranties, warranties, releases, affidavits, bonds, manuals, insurance
certificates and other items required by the Project Construction Contract.

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(x) Utilities. Coordinate the obtaining and installation of all utilities and
similar services required for the Project.

(f) Change Orders. Development Manager shall coordinate the negotiation and
processing of all change orders to the Project Construction Contract for
Approval by Owner. Copies of all change orders will be promptly provided to
Skechers Member. The Development Budget and/or Project Schedule, as applicable,
will be revised to reflect Added Costs, if any, resulting from change orders
which are Approved by Owner. Development Manager shall process and administer
change orders. Owner and agrees to reasonably and timely consider and act upon
change orders and resulting changes in the Development Budget (each, a
“Development Budget Amendment”) and the Project Schedule (each, a “Project
Schedule Amendment”). Notwithstanding the foregoing, Owner need not give
approval of any change order unless (i) the change is permitted under the
Construction Loan, and conforms to the Standard of Quality, and (ii) the
aggregate estimated total costs of the Project following such change order,
Development Budget Amendment do not exceed (and, prior to Completion of the
Project, are not reasonably estimated to exceed) the amount available to pay
such costs under the Development Budget immediately prior to such Development
Budget Amendment therefor (as a result of available funds in the contingency
line item or realized cost savings in another line item in the Development
Budget), or alternatively either the HF Member or the Skechers Member agrees to
fund such excess costs (as required under the LLC Agreement). Subject to
approval of the Lender, Development Manager may allocate any contingency line
item (Hard Cost or Soft Cost) in the Development Budget and realized cost
savings to other line items within the Development Budget.

(g) Construction Phase Reporting. Development Manager shall furnish to Owner and
Skechers Member reports, not less frequently than monthly, containing (i) a
status of construction; (ii) a comparison of the Development Budget (which shall
be presented in such a fashion that it shows the original Development Budget and
all changes thereto, including Added Costs, if any) on a major line item basis
to construction costs by trade incurred through the date of the report and a
comparison of the Project Schedule to the work actually completed through the
date of the report; (iii) a summary of change orders made during the month
covered by the report; (iv) any revision to the Project Schedule and/or
Development Budget made during the month covered by the report; (v) an estimate
of the costs to be incurred in completing the Project and (or) any other
information reasonably requested by Owner or Skechers Member. Reports will be
provided on a timely basis consistent with any Construction Loan requirements.

(h) Technical Inspections. In instances where technical inspection and testing
unless are being provided by the Project Architect or other third party (which
shall be a Project Cost paid by Owner), Development Manager shall assist the
Project Architect or other third parties and the General Contractor in
coordinating such technical inspection and testing. All technical inspection
reports will be in a format approved by and will be reviewed by Development
Manager.

(i) Contract Enforcement. When appropriate, Development Manager shall advise and
make recommendations with respect to the exercise of Project Construction
Contract prerogatives such as accelerating the work when scheduled goals are in
jeopardy or requiring that work found to be defective be repaired or replaced.

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(j) Construction Loan. Development Manager shall (i) act as Owner’s agent in
administering Owner’s responsibilities and assuring compliance by Owner with the
terms and provisions of the Construction Loan documents, and (ii) subject to
Owner’s cooperation with Development Manager, coordinate the timely delivery of
all necessary documents and information to obtain monthly advances of proceeds
of the Construction Loan to pay Project Costs in accordance with the
Construction Loan documents, including the General Contractor’s approved monthly
applications for payment, interest on the Construction Loan, fees and other
Project Costs reflected in the Development Budget.

(k) Insurance of Project Architects and Engineers. Development Manager shall
confirm that the Project Architect, the General Contractor and all Project
Engineers obtain all insurance policies required under their respective
contracts, and shall obtain appropriate certificates of insurance from each as
required.

(l) Claims. Development Manager shall keep track of delays in progress of the
work and perform a preliminary evaluation of the contents of all claims
(including claims for increases in the guarantied maximum cost under the Project
Construction Contract or extensions of time), obtain the factual information
concerning the claim, review the time/cost impact of the alleged claim and make
recommendations as to Owner’s position to the General Contractor or applicable
subcontractor. Development Manager shall also coordinate the submission of all
insurance claims (whether by the General Contractor, Development Manager, Owner
or others) and shall process all paperwork relating to such claims.

(m) Preparation of Punchlist. Development Manager shall assist the General
Contractor, the Project Architect and the Project Engineers in scheduling
inspections (which shall include Skechers Parent, as tenant under the Lease) to
determine the date of Substantial Completion (or Substantial Completion of
phases, if the Improvements are completed in phases), and the preparation of the
Punchlist. Development Manager shall assist the Project Architect in reviewing
the Punchlist Items and interface with the Project Architect, the General
Contractor, and Skechers Parent, as tenant under the Lease, in coordinating
completion of all Punchlist Items. Development Manager shall monitor the General
Contractor’s completion of all Punchlist Items.

(n) Shop Drawings. Development Manager shall monitor the Project Architect’s
review of shop drawings, product data, sample and submittals, and will use
reasonable efforts to cause the Project Architect to respond in a timely fashion
so as not to cause delay in construction of the Project.

(o) Bank Accounts/Withdrawals.

(i) Owner shall establish a bank account into which shall be deposited
sufficient funds to timely pay Project Costs as they are incurred (including
deposits of proceeds of the Construction Loan advanced by the Lender).
Designated representatives of the Development Manager shall be the signatories
on such bank account, and withdrawals from such bank account (which includes
checks, wire transfers or other withdrawals) may be made upon the signature of
any one of such designated representatives. Designated representatives of
Skechers Member shall also be signatories on such bank account, but shall not
exercise any right

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to withdraw funds from such bank account unless and until the HF Member has been
removed as a Managing Member under the LLC Agreement. Notwithstanding the
foregoing, Development Manager covenants that it shall diligently and prudently
coordinate and administer expenditures from the bank account in accordance with
the Development Budget and that all expenditures from the bank account shall be
made in strict conformance with the Development Budget in all respects
(including the nature, amount and timing of each such expenditure).

(ii) From time to time, but not more frequently than once each month (except
under unusual circumstances) Developer Manager shall submit to Skechers Member a
detailed schedule of all withdrawals which Development Manager has approved for
the payment of Project Costs, together with reasonable back-up documentation
such as invoices or statements for labor and/or material for which payment will
be made.

Section 2.9 Affiliate Contracts. Without the express prior written consent of
Owner, Development Manager shall not enter into any contract with an affiliate
of Development Manager or HF Member in connection with the Project, except to
the extent permitted under the LLC Agreement.

Section 2.10 Occupancy; Punchlist.

(a) Upon Substantial Completion of the Project, the Development Manager shall
certify to the Owner (or cause the General Contractor to certify to the Owner)
in AIA form G-704 or substantial equivalent: (i) that, to its knowledge, the
Substantial Completion of the Project has been achieved, in conformity with the
requirements of the Project Construction Contract, and in compliance in all
material respects with Applicable Laws, all Development Approvals, the Standard
of Quality and the Construction Loan documents, free of liens or outstanding
claims for payment for labor (excepting only liens or claims of liens relating
to matters that may be the subject of legitimate disputes between the Developer
and the General Contractor or subcontractors performing work on the Project,
provided the same have been bonded off or insured over to the reasonable
satisfaction of the Owner and the Lender by Development Manager), services,
materials or supplies, subject only to completion of the Punchlist Items; and
(ii) that, to its knowledge, the total cost to complete any remaining Punchlist
Items on the Punchlist is reflected on the Statement of Project Costs.

(b) Upon Substantial Completion of the Project, Development Manager shall apply
for, or have the General Contractor apply for, and obtain all required occupancy
permit(s) for the Improvements which are required to be obtained by Owner
pursuant to the Lease.

(c) Within five (5) business days following the Owner’s receipt of the
Completion Notice with respect to the Improvements (or portions thereof, if
completed in phases), Development Manager and the Owner (and, if requested by
Owner, the Project Architect and such other consultants as Owner shall desire),
together with representatives of Skechers Parent, as tenant under the Lease,
will conduct a walk-through inspection of the Improvements confirming that such
Improvements have achieved Substantial Completion in accordance with the
requirements of this Agreement, the Lease and the Contract Documents, and to
jointly prepare a list (the “Punchlist”) of the Punchlist Items needing
correction or completion. Development Manager shall cause to be completed the
Punchlist Items for the

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Improvements within forty-five (45) days following delivery of the Completion
Notice for the Improvements, subject to delay for items which due to season or
the nature of the item are not practical to complete and which do not interfere
in any material respect with the use or enjoyment of the Building by the tenant
under the Lease.

Section 2.11 Close-Out.

(a) Upon Substantial Completion of the Project, Development Manager shall give
notice to Owner and Skechers Member. Within thirty (30) days following delivery
of such notice (or, with respect to items that cannot reasonably be expected to
be completed within such thirty (30) day period, as soon thereafter as
Development Manager can, with the exercise of due diligence, complete such
items), Development Manager shall complete the following (herein sometimes
referred to as “Close-Out” of the Project), (i) deliver to Owner and Skechers
Member a Statement of Project Costs prepared by Development Manager and
certified as true and correct to its knowledge by Development Manager;
(ii) prepare or cause to be prepared and delivered to the Owner all certificates
and documents that Owner and/or Development Manager are required to deliver to
the Lender in accordance with the Construction Loan documents; (iii) prepare or
cause to be prepared and delivered to Owner such other documents and information
as Development Manager may be obligated to deliver to Owner in connection with
the Substantial Completion of the Project; (iv) monitor the compliance of the
Project Architect, the Project Engineers, and the General Contractor, as
appropriate, with the provisions of their respective contracts with the Owner
relating to the Close-Out of the Project; and (v) without limiting the
foregoing, ensure that each of the following shall have been completed and
delivered to Owner:

(i) As built drawings and specifications.

(ii) Change orders.

(iii) Reports including, but not limited to, soils reports, concrete reports,
equipment testing and balancing reports, termite reports, etc.

(iv) Operation maintenance manuals for all equipment.

(v) Certifications and test results required in accordance with Applicable Laws.

(vi) Warranties or guaranties, including but not limited to the roof warranties,
HVAC warranties, plumbing warranties, etc.

(vii) Keys for all locks.

(viii) Progress photos taken at least monthly throughout the Project.

(ix) Completion Notices as described in Section 2.10(a) above.

(x) All necessary governmental and municipal permits or approvals (including
certificates of occupancy) for the Improvements.

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(xi) Final lien waivers from the General Contractor and all material
subcontractors and suppliers supplying services or material in connection with
the construction and equipping of the Project (excepting only liens or claims
relating to matters that may be the subject of legitimate disputes between the
Development Manager or Owner, on the one hand, and the General Contractor or
subcontractors performing work on the Project or any portion thereof, on the
other hand, provided the same have been bonded off or insured over to the
reasonable satisfaction of the Owner and the Lender).

(xii) An “ALTA-ACSM As Built” survey of the Project completed by a licensed
surveyor, certified as to accuracy.

(xiii) The Punchlist, including for each item shown thereon, the estimated time
and cost of completing such item.

(b) For purposes hereof, the “Statement of Project Costs” shall mean a statement
of the total of all Project Costs incurred in connection with the completion of
the Project, and also including all items on the Punchlist. Development Manager
shall prepare and deliver to Owner a reconciliation of the Statement of Project
Costs with the Development Budget, both in the aggregate and for each major line
item in the Development Budget.

(c) Development Manager acknowledges that the Project shall not be deemed
complete until Development Manager has completed the Closeout of the Project,
including satisfaction of all of the conditions set forth in this Section 2.11,
completion of all items on the Punchlist, and satisfaction of all other
conditions to completion set forth in the Construction Loan Agreement (herein
referred to as “Completion of the Project”). Upon Completion of the Project (or
if this Agreement is otherwise terminated), to the extent not previously done,
Development Manager shall do, and execute and/or deliver to Owner (and Skechers
Member with respect to item (i)) the following with respect to the Project, all
of which shall be done, executed and/or delivered as promptly as is reasonably
practicable:

(i) Prepare a final accounting of all funds possessed by or under the
coordination or control of Development Manager, reflecting receipts and
disbursements in connection with the Project through the date of Completion of
the Project or termination, as applicable.

(ii) Return the balance of monies of Owner held by Development Manager.

(iii) Execute and/or deliver all documents and instruments necessary to transfer
to Owner or its nominee, to the extent transferable, all permits held by
Development Manager necessary to construct the Project.

(iv) Take such other actions as Owner may reasonably require to assure an
orderly transition of management of the completion of the Project.

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ARTICLE 3

TERM OF AGREEMENT AND PERSONNEL

Section 3.1 Term. The term of this Agreement shall commence upon the date of
this Agreement and shall continue, unless sooner terminated in accordance
herewith, until Completion of the Project.

Section 3.2 Personnel. Development Manager shall designate an individual to
serve as the project manager (the “Project Manager”). Development Manager shall
ensure that the Project Manager shall be competent to perform the services
required as such.

(a) Project Manager shall devote such portion of his or her time, efforts and
management skills to the Project using Due Care as is reasonably necessary and
appropriate to complete the Project, subject to Force Majeure, in accordance
with the Project Schedule and Development Budget.

(b) Any communication given to the Project Manager by Owner shall be deemed to
have been given to Development Manager.

(c) Development Manager will also provide such personnel and assistants,
including professional and secretarial/clerical support staff, as may be
necessary to perform its Development Services in a diligent and timely manner.
Development Manager shall be responsible out of its own funds for all salaries,
overhead, costs and expenses related to the employment of the Project Manager
and any other personnel by Development Manager, which salaries, overhead, costs
and expenses shall expressly not be a reimbursable item. All persons, other than
independent contractors, employed by Development Manager in the performance of
its responsibilities hereunder shall be exclusively controlled by and shall be
the employees of Development Manager and not of Owner, and Owner shall have no
liability, responsibility or authority with respect thereto.

ARTICLE 4

DEVELOPMENT BUDGET AND LIABILITY

OF DEVELOPMENT MANAGER

Section 4.1 Increases in Development Budget. Subject to any restrictions set
forth herein or in the LLC Agreement regarding increases in the Development
Budget, the Development Budget will automatically be increased from time to time
to include therein all of the following (collectively, the “Added Costs”):

(a) Increases in the Project Costs resulting from change orders which are
Approved by Owner;

(b) Increases in the Project Costs incurred in connection with changes in the
scope of the Project caused by changes in Applicable Laws that are required by
such Applicable Laws to be complied with;

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(c) Increases in Project Costs due to expressly permitted increases in the
guarantied maximum cost under the Project Construction Contract;

(d) Increases in Project Costs due to (i) Force Majeure (as defined herein); or

(e) Increases in Project Costs pursuant to Section 4.6 below.

Increases in Project Costs include (without duplication) those increases which
result from time delays due to the occurrence of any of the foregoing events
((a)-(d)).

Section 4.2 For purposes hereof, the term “Force Majeure” means the following
events or circumstances, to the extent that they cause the delay of performance
of any obligation hereunder by Development Manager and (except as otherwise
provided below) that could not, through the use of Due Care by Development
Manager, be anticipated and mitigated: (a) strikes, lockouts or picketing;
(b) riot, civil commotion, insurrection and war; (c) fire or other casualty,
accidents, acts of God or public enemy; (d) unusually adverse weather conditions
not reasonably expected for the location of the Project and the time of year in
question, or (e) any other similar event which delays the Completion of the
Project and which is beyond the reasonable control of the Development Manager.
However, in no event shall any of the following be deemed to constitute Force
Majeure: (i) failure to obtain financing for or, failure to refinance, the
purchase, construction or ownership of the Project; (ii) inability to pay when
due monetary sums; or (iii) the acts or omissions of the Development Manager or
any other Person acting by, through or under the Development Manager (including
without limitation, the acts or omissions of such Person that cause the event of
Force Majeure). If the Development Manager shall be delayed, hindered or
prevented from performance of its obligation to achieve Completion of the
Project in accordance with this Agreement by reason of Force Majeure, the time
for such performance shall be extended on a day-for-day basis for each day of
actual delay, provided that the following requirements are complied with by the
Development Manager: (y) the Development Manager shall give prompt written
notice of such occurrence to Owner and Skechers Member, describing the Force
Majeure event with specificity, and (z) the Development Manager shall diligently
attempt to remove, resolve or otherwise eliminate such Force Majeure event and
minimize the cost and time delay associated with such event, keep the Owner and
Skechers Member advised with respect thereto, and commence performance of its
obligations under this Agreement promptly upon such removal, resolution or
elimination.

Section 4.3 Development Manager’s Indemnity. Development Manager shall indemnify
Owner and its partners, members, managers, shareholders, directors, officers and
employees and the heirs, successors and assigns of each of the foregoing
(collectively, the “Indemnified Parties”), defend the Indemnified Parties and
hold the Indemnified Parties harmless from and against any and all suits,
actions or claims and from resulting damages, losses, costs or expenses
(including reasonable attorneys’ fees and court costs, but excluding
consequential damages and punitive damages) incurred by the Indemnified Parties
or any one or more of them due to or arising from, directly or indirectly,
(a) the grossly negligent acts, or omissions, willful misconduct or material
breach of this Agreement by Development Manager, (b) the misapplication or
misappropriation by Development Manager of any funds of Owner, (c) the actions
of Development Manager outside the scope of authority granted to Development

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Manager under this Agreement, or (d) the material breach by the Development
Manager of any of its material obligations under this Agreement.

Section 4.4 Owner’s Indemnity. Owner shall indemnify the Development Manager and
its members, managers, shareholders, directors, officers and employees and the
heirs, successors and assigns of each of the foregoing (collectively, the
“Manager Indemnified Parties”), defend the Manager Indemnified Parties and hold
the Manager Indemnified Parties harmless from and against any and all suits,
actions or claims and from resulting damages, losses, costs or expenses
(including reasonable attorneys’ fees and court costs, but excluding
consequential damages and punitive damages) incurred by the Manager Indemnified
Parties or any one or more of them due to or arising from, directly or
indirectly, the willful misconduct or breach of this Agreement by Owner or any
other loss not subject to the indemnification obligations set forth in
Section 4.3 arising from the performance of Development Manager’s obligations
under this Agreement (except to the extent resulting from the acts or omissions
of HF Member in violation of any provisions in the LLC Agreement).

Section 4.5 Records. Records of all time charged to the Project, and records of
Development Services performed shall be maintained on a customary and consistent
basis and shall be available to Owner at mutually convenient times and upon
reasonable prior written notice for review and audit. Development Manager shall
maintain all accounting records and receipts for at least three (3) years from
Completion of the Project. Records regarding any dispute involving this
Agreement shall be maintained until such dispute is resolved.

Section 4.6 Time Delays/Arbitration. Under the LLC Agreement, certain matters
may be submitted to binding arbitration. If, as a result of the institution of
any arbitration between HF Member and Skechers Member, the arbitrator determines
that there is a resulting change in the Project Schedule, then the Project
Schedule shall be modified accordingly.

ARTICLE 5

COMPENSATION

Section 5.1 Development Manager Fee. In consideration of Development Manager’s
Services hereunder, Owner shall pay to Development Manager a fee (the
“Development Manager Fee”), equal to three and one-half percent (3.5%) of the
total Project Costs (including both Hard Costs and Soft Costs, but exclusive of
the cost of the Land, as reflected in the Development Budget) minus the original
principal balance of the HF Loan (as defined in the LLC Agreement). Subject to
availability of draws under the Construction Loan, such fee shall be paid in
equal monthly installments over the pro-forma construction period (as set forth
in the Project Schedule). Development Manager shall not be entitled to
reimbursement of any expenses incurred in performing the Development Services
that represent compensation of any of Development Manager’s employees or
otherwise represent Development Manager’s overhead, but Development Manager
shall be entitled to reimbursement of reasonable out-of-pocket expenses incurred
in performing the Development Services.

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Section 5.2 Third Party Consultants. It is contemplated that Owner will engage
all contractors, architects, engineers, attorneys and other consultants and
professionals to be employed in connection with the Project. Development Manager
is not obligated to pay the compensation of any such third party consultants or
professionals (other than on behalf of Owner).

ARTICLE 6

INSURANCE

Section 6.1 Development Manager Insurance. Development Manager shall procure and
maintain (or cause the General Contractor to procure and maintain), throughout
the term of this Agreement all insurance required pursuant to this Section 6.1.

(a) The form and substance of all insurance policies obtained by Development
Manager in meeting the requirements under this Section 6.1 shall be subject to
reasonable approval by Owner. All such policies shall be issued by insurance
companies qualified to transact insurance in the state or commonwealth in which
the Project is located and with a minimum financial rating of A- Class IX by
A.M. Best, or otherwise acceptable to Owner. Development Manager shall furnish a
certificate from its insurance carrier(s) ten (10) days before commencement of
the work, and annually thereafter, demonstrating that it has complied with the
above requirements and stating that the insurer will provide not less than
thirty (30) days prior notice of the cancellation, non-renewal, or material
change in any of the coverages so required.

(b) Insurance provided under Section 6.1(c):

(i) Shall be primary and not in excess of or contributing to any insurance or
self-insurance maintained by Owner, any other party whom Owner identifies, or
its respective consultants and agents;

(ii) For insurance specified by Section 6.1(c) shall be endorsed to state that
Owner, and any other party whom Owner identifies and their respective partners,
members, managers, directors, officers, and employees are named as Additional
Insureds as per ISO Form CG2037 1001. if reasonably available, or its
substantial equivalent.

(c)       (i) Commercial General Liability Insurance, with a combined single
limit of $1,000,000 for bodily injury and property damage per occurrence and
annual project aggregate of $2,000,000, and $1,000,000 for completed operations.

(ii) Business Automobile Liability Insurance, with a combined single limit for
bodily injury and property damage per accident of $1,000,000 covering any and
all owned, non-owned and hired autos and including Broadened Pollution Coverage
per CA9948 or its equivalent.

(iii) Worker’s Compensation and Employer’s Liability Insurance that provides the
statutory benefits required by law (but not less than $1,000,000 for Employer’s
Liability Insurance) .

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(iv) Excess liability insurance, following the form, supplementing the general
liability, auto liability, and employers liability referenced above with minimum
limits of $5,000,000.

(d) Any insurance that contains a deductible or self-insured retention in excess
of $25,000 shall require Approval by Owner.

(e) Development Manager shall require the General Contractor to procure and
maintain insurance as specified in Section 6.1(c).

(f) If Development Manager desires to have limits in excess of those required or
desires to carry additional coverages for its own protection, the arrangements
therefor and the cost thereof shall be the sole responsibility of Development
Manager. Otherwise, such insurance shall be paid for by Owner, to the extent not
paid by the General Contractor.

(g) Within ten (10) days of Owner’s request, Development Manager shall provide
such requesting party copies of all insurance policies required under
Section 6.1(c).

(h) In the event Development Manager does not comply with the insurance
requirements as set forth under Section 6.1, Owner may, at its option (and
without waiving any other rights or remedies), to the extent possible, obtain
and maintain such insurance, and the cost of such insurance shall be paid by
Development Manager and may be deducted from Development Manager’s compensation.

Section 6.2 Owner Insurance. Owner shall procure and maintain all insurance
pursuant to this Section 6.2 covering Development Manager, the General
Contractor and all other contractors and professionals and Owner.

(a) All such policies shall be issued by insurance companies qualified to
transact insurance in the state or commonwealth in which the Project is located
and with a minimum financial rating of A- Class IX by A.M. Best.

(b) Insurance provided under Section 6.2(c):

(i) Shall be endorsed to state that the right of cancellation or material change
in coverage by the insurance carrier is waived, unless thirty (30) days’ written
notice is furnished by registered mail to Development Manager.

(c) Within thirty (30) days following the Effective Date and for so long as the
Improvements are under construction pursuant to the Project Construction
Contract, Owner shall obtain and maintain “Builders Risk” Property Insurance on
an “all risk” peril form ( including all usual and customary coverage for a
Project of this nature) for an amount equal to the completed replacement value
of the Improvements. Such insurance shall include the interests of Owner,
Development Manager, the General Contractor and subcontractors in the work, as
their interests may appear. A certificate of insurance evidencing the foregoing
shall be provided to Development Manager upon request.

19

 

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Section 6.3 Waiver of Subrogation. To the fullest extent permitted without
invalidating any insurance policies required hereunder, Owner and Development
Manager waive all rights against (a) each other and any of their subcontractors,
agents and employees, each of the other, and (b) the General Contractor, the
Project Architect, and any of their subcontractors, agents and employees, for
damages caused by fire or other perils to the extent covered by property
insurance obtained to this Section 6.3 or other property insurance applicable to
the construction of the Project, except such rights as they have to proceeds of
such insurance held by the Owner as fiduciary. The Owner or Development Manager,
as appropriate, shall require of the General Contractor, the Project Architect,
and the subcontractors, agents and employees of each of them, by appropriate
agreements, written where legally required for validity, similar waivers each in
favor of other parties enumerated herein. The policies shall provide such
waivers of subrogation by endorsement or otherwise. A waiver of subrogation
shall be effective as to a person or entity even though that person or entity
would otherwise have a duty of indemnification, contractual or otherwise, did
not pay the insurance premium directly or indirectly, and whether or not the
person or entity had an insurable interest in the property damaged.

ARTICLE 7

LIMITATION AS TO SERVICES AND AUTHORITY

Section 7.1 Limitation. Without otherwise relieving Development Manager of its
obligation to perform the Development Services:

(a) Nothing in this Agreement shall be construed to relieve the Project
Architect, the Project Engineers, or any other contractors, subcontractors,
consultants, suppliers, attorneys or other professionals rendering services in
connection with the Project of their responsibilities to perform their duties in
accordance with the terms of their respective contracts, or to preclude Owner or
Development Manager from pursuing their respective rights vis-à-vis such
consultants or professionals. Furthermore, the furnishing of services by the
Owner or other consultants of Owner shall not be construed to relieve
Development Manager of its responsibility to perform its duties in accordance
with this Agreement.

(b) Development Manager shall have no right or obligation to execute any
contract or agreement for or on behalf of Owner except as expressly authorized
in writing from time to time by Owner.

Section 7.2 Owner and Skechers Member Approvals. Except to the extent expressly
permitted under the Development Budget or this Agreement, and without limitation
on the other restrictions contained in this Agreement, Development Manager shall
not take any action, expend any sum, make any decision, give any consent,
approval or authorization, enter into any agreement or incur any obligation with
respect to any of the following matters unless and until the same have been
Approved by Owner and approved by Skechers Member: (a) any change in the
Approved Plans; or (b) any material expenditure or incurring of any material
obligation by or on behalf of Owner except for expenditures made and obligations
incurred pursuant to and specifically set forth in the Development Budget.

20

 

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ARTICLE 8

OWNER AND INDEPENDENT CONSULTANTS

Section 8.1 Owner’s Inspection Rights.

(a) Development Manager acknowledges that Owner has the right to inspect the
Project and to review all of General Contractor’s applications for payment and
all of Development Manager’s applications for disbursement of Construction Loan
proceeds during normal business hours and upon reasonable prior written notice
to Development Manager. Development Manager agrees (i) to reasonably cooperate
with Owner in connection with the performance by Development Manager of its
Development Services hereunder, (ii) to provide Owner and Skechers Member copies
of all correspondence, notices, schedules and other information that Development
Manager provides, or is required hereunder to provide to Lender, such delivery
to be simultaneous with delivery of such information to Lender, (iii) except as
expressly permitted under this Agreement and/or the LLC Agreement, not to amend
this Agreement, the Approved Plans, the Development Budget or the Project
Schedule without the Approval by Owner and approval by Skechers Member.

(b) Skechers Member may retain (at its expense) independent third-party
consultants to advise and assist with the Project. Development Manager agrees to
reasonably cooperate with such consultants, and to allow such consultants
access, with no time, place or prior notice requirement or other restrictions,
requirements or limitations (except as provided in this Agreement and reasonable
safety regulations of the General Contractor that apply also to Development
Manager) to inspect the Project, the work in progress, all work sites involved
in connection with construction of the Project (whether located on the Land or
otherwise) and Development Manager’s and the General Contractor’s books and
records in connection therewith. Without limiting the generality of the
foregoing, representatives of Skechers Member shall have the right to attend all
monthly construction meetings of the General Contractor and the Project
Architect or the Project Engineers, and all construction meetings of the General
Contractor and representatives of the Lender. Development Manager shall keep
Skechers Member reasonably informed of any such meetings so that representatives
of Skechers Member may attend.

ARTICLE 9

TERMINATION

Section 9.1 Termination by Owner. If (a) Development Manager defaults in the
performance of any of its obligations hereunder in any material respect and
fails to cure such failure within thirty (30) days following written notice
thereof or, in the case of any such failure which can be cured but not within
such thirty (30) day period, if Development Manager fails to begin reasonable
steps to cure such failure within thirty (30) days following written notice
thereof or does not thereafter diligently prosecute such cure to completion
within ninety (90) days in the aggregate following written notice thereof, or
(b) Development Manager commits any act in its capacity as Development Manager
involving fraud, bad faith, willful misconduct or gross negligence, or (c) the
HF Member defaults under the LLC Agreement (after any applicable

21

 

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notice and cure period) then Owner may, without prejudice to Owner’s other
rights or remedies under the LLC Agreement, at law or in equity, terminate this
Agreement and take possession of all work performed hereunder by Development
Manager and perform the Development Services by whatever method Owner may deem
expedient including continuing to use any contractors, subcontractors or other
professional consultants engaged on the Project. In the event this Agreement is
terminated pursuant to this Section 9.1, Development Manager shall not be
entitled to any portion of the Development Manager Fee not theretofore paid to
Development Manager, and if termination is pursuant to clauses (a) or (b) above,
in addition to any other measure of damages available under the LLC Agreement,
at law or in equity, Owner shall be entitled to recover from Development Manager
all actual damages (expressly excluding consequential or punitive damages)
incurred by Owner in connection with the Project resulting from Development
Manager’s default hereunder, including all costs and expenses incurred by Owner
in pursuing remedies hereunder or in contracting with another development
manager to complete the Project.

Section 9.2 Suspension and Termination by Development Manager. If Owner fails to
pay Development Manager any portion of the Development Manager Fee due to
Development Manager hereunder, then (except in the case of a good faith dispute
as to amounts due or in the case of a failure to pay resulting from the acts or
omissions of the HF Member), Development Manager may, without prejudice to
Development Manager’s other rights or remedies, after giving Owner ten
(10) days’ written notice, suspend performance unless Owner makes the required
payment within such ten (10) day period. If Development Manager suspends
performance, it will be without prejudice to Development Manager’s right to
terminate this Agreement at any time after the date that is thirty (30) days
following the date of such default by Owner unless Owner timely cures the
default in question within the aforesaid 30-day period. Any suspension by
Development Manager of its performance hereunder pursuant to this Section 9.2
shall in no event cause Development Manager to be in default hereunder and
(a) any additional costs incurred for the Completion of the Project as a result
of or in connection with such suspension of performance shall be deemed to be
included within the meaning of “Added Costs” as used in this Agreement; and
(b) any delays in the Completion of the Project as a result thereof or in
connection therewith shall be deemed to extend all affected dates set forth in
the Project Schedule. In addition, whether Development Manager suspends
performance or terminates this Agreement pursuant to this Section 9.2,
Development Manager shall be entitled to any and all rights and remedies
available at law or in equity (expressly excluding consequential or punitive
damages).

ARTICLE 10

MISCELLANEOUS

Section 10.1 Protection of Persons or Property. If Development Manager becomes
aware of any emergency on the Project affecting the safety of persons or
property, Development Manager shall take all commercially reasonable prudent
actions to prevent threatened damage, injury or loss, and Development Manager
shall notify Owner as soon as practicable thereafter of such emergency. Unless
such emergency was caused by the gross negligence or willful misconduct of
Development Manager, Owner shall reimburse Development Manager for all
reasonable costs incurred by it in connection with such actions.

22

 

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Section 10.2 Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of California.

Section 10.3 Jurisdiction. Jurisdiction for all legal actions, including cross
claims brought by Owner or Development Manager against the other, which may
arise as a result of any question, matter or dispute concerning the Project or
this Agreement shall lie exclusively with the appropriate California court in
the County of Los Angeles.

Section 10.4 Notices. All notices required under this Agreement shall be deemed
to have been received by the addressee if delivered to a duly authorized
representative of the Person for whom they are intended or if sent by certified
mail, return receipt requested, by hand or by overnight courier, addressed as
follows:

 

If to Owner:    Highland Fairview-SKX, LLC    c/o Highland Fairview Properties
   14225 Corporate Way    Moreno Valley, California 92553    Attention:    Iddo
Benzeevi With a copy to:    Skechers RB, LLC    c/o Skechers USA, Inc.    228
Manhattan Beach Boulevard    Manhattan Beach, California 90266   
Attention:    David Weinberg    Chief Operating Officer If to Development
Manager:    HFC Holdings, LLC    c/o Highland Fairview Properties    14225
Corporate Way    Moreno Valley, California 92553    Attention:    Iddo Benzeevi
With Additional Copy to:    James Lieb, Esq.    Executive Vice President    TG
Services, Inc.    4 Stage Coach Run    East Brunswick, New Jersey 08816    - and
-    Danette Fenstermacher    3070 Bristol Street, Ste 320    Costa Mesa,
California 92626

Either party may change its address for the giving of notices by notice given in
accordance with this Section.

23

 

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Section 10.5 Extent of Agreement. This Agreement represents the entire and
integrated agreement between the parties hereto with respect to Development
Services and supersedes all prior negotiations, representations or agreements,
either written or oral. This Agreement may only be amended by written instrument
executed by Development Manager, Owner, and Skechers Member.

Section 10.6 Severability. In the event that any of the provisions, or portions
or applications thereof, of this Agreement are held to be unenforceable or
invalid by any court of competent jurisdiction, such invalid or unenforceable
provision shall in no way affect the validity and enforceability of the
remaining provisions, or portions or applications thereof.

Section 10.7 Successors and Assigns. Owner and Development Manager,
respectively, bind themselves, their successors, assigns and legal
representatives to the other party to this Agreement and to the successors,
assigns and legal representatives of such other party with respect to all
covenants of this Agreement. Neither party may assign this Agreement or any of
its obligations to perform under this Agreement without the express written
consent of the other. However, Owner has the right to assign its rights
hereunder to the Lender.

Section 10.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original agreement and all of
which together shall constitute one agreement.

Section 10.9 Third Party Beneficiaries. This Agreement is intended for the
benefit of, and shall be enforceable by, only Development Manager, Owner,
Skechers Member and their respective permitted successors and assigns, and not
by any third parties, including creditors of Owner or Development Manager,
except to the extent that Owner’s rights under this Agreement have been assigned
to the Lender.

Section 10.10 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any party in the performance of that
party of its obligations under this Agreement is not a consent or waiver to or
of any other breach or fault in the performance by that party of the same or any
other obligation with that party with respect to this Agreement. Failure on the
part of that party to complain of any act of any party or to declare any party
in default with respect to this Agreement, irrespective of how long that failure
continues, does not constitute a waiver by that party of its rights with respect
to that default until the applicable statute of limitations has run.

Section 10.11 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each party shall execute and deliver any
additional documents and instruments in performing additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.

Section 10.12 Attorneys’ Fees. If any litigation is instituted by any party
against another party relating to this Agreement or the subject matter thereof,
the party prevailing in such litigation shall be entitled to recover, in
addition to all damages allowed by law and other relief, all court costs and
reasonable attorneys’ fees incurred in connection therewith.

24

 

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Section 10.13 Independent Contractor; Licenses. In performing its services
hereunder, Development Manager shall be an independent contractor. Development
Manager shall, at its own expense, qualify to do business in California (if not
already qualified) and obtain and maintain such licenses, if any, as may be
required to be issued and held in its name for the performance by Development
Manager of the Development Services under this Agreement.

Section 10.14 Agreement Negotiation. This Agreement is the result of detailed
negotiations between the parties and the terms herein have been agreed upon
after prolonged discussions. All parties agree and acknowledge that they were
represented by competent counsel in such negotiations and that in construing
this Agreement neither party shall be considered to have drafted this Agreement.

Section 10.15 Skechers Member Approvals. Any approvals or consents to be given
by Skechers Member hereunder shall not be unreasonably withheld or delayed.

(signature pages follow)

25

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.

 

“OWNER”   “DEVELOPMENT MANAGER” HF LOGISTICS -SKX, LLC, a Delaware limited
liability company   HFC HOLDINGS, LLC, a Delaware limited liability company By:
 

HF Logistics I, LLC, a Delaware limited

liability company, it’s Managing Member

                By                 Iddo Benzeevi, its Chief Executive Officer  
By:                   Iddo Benzeevi, President and Chief Executive Officer      
By:            

Skechers RB, LLC, a Delaware limited

liability company, it’s Managing Member

        By:  

Skechers USA, Inc., a Delaware

Corporation, It’s sole member

          By:                 David Weinberg, Chief Operating Officer          
By:                 Robert Greenberg, Chief Executive Officer      

JOINDER

Skechers RB, LLC, a Delaware limited liability company and Skechers USA, Inc., a
Delaware corporation, each hereby joins in the execution of this Agreement as a
third party beneficiary of this Agreement and for the purposes of confirming
their agreement to comply with and perform those obligations applicable to
Skechers Member or Skechers Parent set forth herein.

 

“SKECHERS PARENT”     “SKECHERS MEMBER” SKECHERS USA, INC., a Delaware
corporation     SKECHERS RB, LLC, a Delaware limited liability company      

By:

  Skechers USA, Inc, a Delaware corporation, its sole member By:            
David Weinberg, Chief Operating Officer             By:             David
Weinberg, Chief Operating Officer By:             Robert Greenberg, Chief
Executive Officer             By:             Robert Greenberg, Chief Executive
Officer

26

 

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EXHIBIT “A”

DEVELOPMENT BUDGET AND

PROJECT SCHEDULE

EXHIBIT “A”

 

--------------------------------------------------------------------------------

Exhibit A

 

Land

      $ 30,000,000   

Construction Costs

        63,267,547   

Fees, Bonds and Permits

     

Governmental Fees

     3,057,566      

Construction Bonds

     336,622      

Impact Fees

     

MSHCP

     1,106,977      

Kangaroo Rat

     83,900      

Area Drainage Fee

     1,126,777      

DIF

     3,389,691      

TUMF

     506,462      

Schools

     855,615      

EMWD

     481,814         

 

 

    

Total Fees, Bonds and Permits

        10,945,424   

Technical Consultants

     

Entitlements

     2,537,209      

Engineering, Traffic and Other

     5,903,520      

Building Architectural & Structural

     1,370,000      

Landscaping

     425,000         

 

 

    

Total Technical Consultants

        10,235,728   

Other Costs

     

Leasing Commissions

     2,250,000      

Skechers Alternative Site Rental Cost

     1,000,000      

Development Management Fee [1]

     3,113,174      

Project and Construction Management

     3,228,966      

Insurance and Taxes

     1,269,684      

Solar Facility

     3,445,000      

Financing

     1,745,939      

Contingency

     6,819,834         

 

 

    

Total Other Costs

        22,872,597   

Total Project Cost

      $ 137,321,297         

 

 

 

Potential Reimbursements

     

Area Drainage Fee Credit

     (522,734)      

DIF Credit

     (2,686,995)      

Solar Grants and Incentives

     (1,133,500)      

State Grants

     (900,000)         

 

 

    

Total Potential Reimbursements

        (5,243,229)   

Net Project Cost

      $ 132,078,068         

 

 

 

Note: Recent requested changes to the electrical distribution system are not
reflected in this budget

[1] 3.5% on Total Project Cost, net of land, costs to date and management fee

 

--------------------------------------------------------------------------------

Exhibit A-1

Skechers T.I. Requests

 

LOGO [g255229g46t94.jpg]

  Date: 1/29/2010

 

CSI

  

Tenant Improvements - Current Plans & Requests thru 2009

       Total          General Conditions   

00-7213

   General Conditions    $ 23,691   

01-3100

   Project Management    $ 83,342   

01-5126

   Temporary Lighting    $ 15,000   

01-7423

   Final cleaning    $ 19,000       General Conditions — Subtotal:    $ 141,033
      Site   

32-1313

   Concrete Curb & gutter — Retail    $ 7,596   

32-1313

   Concrete Paving Drive Aisle — Retail    $ 16,733   

32-1313

   Paved Parking Area — Retail    $ 16,005   

32-1313

   4” Side Walk — Retail    $ 4,200   

32-1723

   Striping — Retail    $ 810   

32-1723

   ADA Signage — Retail    $ 350   

32-1313

   Guard Shack Foundation    $ 1,872   

32-1313

   7” PCC in lieu of AC Paving    $ 322,063   

32-3213

   Concrete Screen wall — Retail    $ 63,700   

32-3113

   8” Tube Steel Fence    $ 16,435       Sliding Gates & Motor Control    $
45,000       Pedestrian Tube Steel gate    $ 4,000   

33-1116

   1” Copper Water Service Guard Shack    $ 2,264   

33-3113

   6” Sanitary Sewer Service Guard Shack    $ 9,765       6” Sewer Clean-Out   
$ 6,000   

33-7139

   Electrical Service Guard Shack    $ 6,960       Site Underground Electrical —
North    $ 52,637       Transformer Electrical Service — North    $ 55,000   

33-8113

   Low Voltage to Guard Shack    $ 1,740       Gate Conduit to Building    $
3,900   

09-9113

   Paint    $ 2,000   

26-3213

   Site Electrical Generator    $ 63,000   

12-9213

   Bike Racks, Benches, Pots, Urns, Trash    $ 40,000   

10-7516

   Flag Poles    $ 8,000   

32-3119

   Structural Steel (Trash Gates & Lids)    $ 100,000       Additional Land Cost
— Retail    $ 250,000               Site — Subtotal:    $ 1,100,030   

See Additional Sheet for Continuation

1

 

--------------------------------------------------------------------------------

Exhibit A-1

Skechers T.I. Requests

 

LOGO [g255229g46t94.jpg]

  Date: 1/29/2010

 

CSI

  

Tenant Improvements - Current Plans & Requests thru 2009

       Total          Building   

03-2100

   Reinforcement Steel    $ 18,000   

03-3100

   Lightweight Concrete    $ 63,335       WEI Racking Foundations    $ 181,908
  

05-1223

   Structural Steel    $ 916,978   

05-3113

   Metal Decking    $ 50,000   

05-7313

   Glazed Decorative Hand Railing    $ 58,233   

06-1113

   Rough Carpentry    $ 1,357   

06-2033

   Finish Carpentry (Millwork)    $ 116,800       Solid Surface Fabrication    $
61,509   

06-8200

   Fiber Glass Reinforced Plastic (Marlite)    $ 1,450   

07-1113

   Bituminous Dampproofing    $ 1,650       Water Proofing Showers    $ 425   

07-2116

   Insulation    $ 47,000   

07-4213

   Metal Wall / Soffit Panels    $ 365,230   

07-6200

   Sheet Metal Flashing & trim    $ 15,000   

07-7236

   Skylights    $ 15,920   

08-1213

   Doors / Frames / Hardware    $ 127,745   

08-8000

   Glass & Glazing    $ 324,554   

09-2116

   Gypsum Board Assemblies    $ 541,400   

09-3100

   Thin-Set Tile    $ 190,000   

09-5113

   Acoustical Panel Ceilings    $ 117,490   

09-6223

   Bamboo Flooring & Base    $ 79,230   

09-6536

   Static Control Resilient Flooring    $ 15,000   

09-6816

   Carpeting    $ 104,585   

09-6953

   Access Flooring Accessories (Mats)    $ 20,000   

09-9100

   Paint & Wall Covering    $ 129,525   

10-1400

   Plastic Signage Restrooms    $ 1,000   

10-2813

   Metal Toilet Compartment & Accessories    $ 69,794   

10-4416

   Fire Extinguishers & Cabinets    $ 7,000   

10-5113

   Lockers & Benches    $ 26,453   

12-2413

   Roller Shades    $ 40,000   

14-2423

   Hydraulic Passenger Elevator    $ 56,000   

21-1313

   Wet-Pipe Sprinkler Systems    $ 164,500       Fm-200 Suppression System    $
34,800       Pre-Action Interlock    $ 13,000   

22-4213

   Commercial Water Closet, Urinals, Fixtures    $ 440,000   

23-0000

   Heating, Ventilating & Air Conditioning    $ 438,870   

26-0100

   Electrical    $ 1,000,000   

26-5113

   Lighting    $ 765,550   

28-3100

   Fire Alarm    $ 43,080       Building — Subtotal:    $ 6,664,371      
General Conditions / Site / Building — Subtotal:    $ 7,905,434       Liability
Insurance (1.1%)    $ 86,960         

 

 

     Subtotal:    $ 7,992,394       Profit and Overhead (1.75%)    $ 139,867   
   Total:    $ 8,132,261   

 

2

 

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AMENDMENT TO DEVELOPMENT MANAGEMENT AGREEMENT

THIS AMENDMENT TO DEVELOPMENT MANAGEMENT AGREEMENT (this “Amendment”) is made
and entered into effective as of the 30th day of January, 2010 (the “Effective
Date”), by and between HF LOGISTICS-SKX, LLC (“Owner”); and HFC HOLDINGS, LLC, a
Delaware limited liability company (“Development Manager”).

RECITALS:

A. Owner and Development Manager entered into a certain Development Management
Agreement (the “Agreement”) effective as of the Effective Date.

B. The Agreement provides that a Project Schedule was to be attached as Exhibit
“A” thereto, but inadvertently no Project Schedule was attached to the
Agreement.

C. The parties desire to amend the Agreement to include the Project Schedule.

NOW, THEREFORE, the parties agree as follows:

1. The Project Schedule, which is attached to this Amendment as Exhibit “A”,
shall be the Project Schedule, as defined in the Agreement.

2. In all other respects, the Agreement shall remain in full force and effect as
originally written.

3. Capitalized terms used in this Amendment shall have the same meanings as set
forth in the Agreement.

(signature page follows)

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
Effective Date.

 

“OWNER”     “DEVELOPMENT MANAGER” HF LOGISTICS -SKX, LLC, a Delaware limited
liability company     HFC HOLDINGS, LLC, a Delaware limited liability company
By:   HF Logistics I, LLC, a Delaware limited liability company, it’s Managing
Member             By             Iddo Benzeevi, its Chief Executive Officer By:
            Iddo Benzeevi, President and Chief Executive Officer       By:  
Skechers R.B., LLC, a Delaware limited liability company, it’s Managing Member  
    By:   Skechers U.S.A., Inc., a Delaware Corporation, It’s sole member      
By:             David Weinberg, Chief Operating Officer      

JOINDER

Skechers R.B., LLC, a Delaware limited liability company and Skechers U.S.A.,
Inc., a Delaware corporation, each hereby joins in the execution of this
Amendment as a third party beneficiary of the Agreement and for the purposes of
confirming their agreement to comply with and perform those obligations
applicable to Skechers Member or Skechers Parent set forth herein and therein.

 

“SKECHERS PARENT”     “SKECHERS MEMBER” SKECHERS U.S.A., INC., a Delaware
corporation     SKECHERS R.B., LLC, a Delaware limited liability company      
By:   Skechers U.S.A., Inc., a Delaware corporation, its sole member By:        
    David Weinberg, Chief Operating Officer             By:             David
Weinberg, Chief Operating Officer

2

--------------------------------------------------------------------------------

EXHIBIT “A”

PROJECT SCHEDULE

 

LOGO [g255229g33m63.jpg]

--------------------------------------------------------------------------------

EXHIBIT “C-1”

HF NOTE

Exhibit “C-1”

 

--------------------------------------------------------------------------------

UNSECURED PROMISSORY NOTE

 

$14,000,000

   January 30, 2010

FOR VALUE RECEIVED, HF LOGISTICS-SKX, LLC, a Delaware limited liability company
(“Maker”), does hereby promise to pay to the order of HF LOGISTICS I, LLC, a
Delaware limited liability company (“Payee”), at its office at 14225 Corporate
Way, Moreno Valley, CA 92553, or at such other place as the Payee may from time
to time designate in writing, the principal sum of FOURTEEN MILLION DOLLARS
($14,000,000), with interest thereon as provided in this Note.

1. Certain Definitions. For the purposes hereof, the terms set forth below shall
have the following meanings: (a) “Applicable Law” shall mean (i) the laws of the
United States of America applicable to contracts made or performed in the State
of Delaware, now or at any time hereafter prescribing or eliminating maximum
rates of interest on loans and extensions of credit, (ii) the laws of the State
of Delaware now or at any time hereafter prescribing or eliminating maximum
rates of interest on loans and extensions of credit, and (iii) any other laws at
any time applicable to contracts made or performed in the State of Delaware
which permit a higher interest rate ceiling hereunder.

(b) “Business Day” shall mean any day other than a Saturday, Sunday or any other
day on which commercial banks are authorized or permitted to be closed for
business in the State of Delaware.

(c) “Facility” shall mean the building, together with parking areas, landscaped
areas and other improvements, containing approximately 1,820,457 square feet to
be constructed by Maker in accordance with the Lease (as defined below).

(d) “Highest Lawful Rate” shall mean at the particular time in question the
maximum rate of interest which, under Applicable Law, Payee is then permitted to
charge Maker in regard to the loan evidenced by this Note. If the maximum rate
of interest which, under Applicable Law, Payee is permitted to charge Maker in
regard to the loan evidenced by this Note shall change after the date hereof,
the Highest Lawful Rate shall be automatically increased or decreased, as the
case may be, from time to time as of the effective date of each change in the
Highest Lawful Rate without notice to Maker. For purposes of determining the
Highest Lawful Rate under the Applicable Law, all fees and other charges
contracted for, charged or received by Payee in connection with the loan
evidenced by this Note which are either deemed interest under Applicable Law or
required under Applicable Law to be deducted from the principal balance hereof
to determine the rate of interest charged on this Note shall be taken into
account.

(e) “Interest Rate” shall mean six percent (6%) per annum.

1

 

--------------------------------------------------------------------------------

(f) “Lease” shall mean that certain Lease Agreement dated September 25, 2007, by
and between HF Logistics I, LLC, a Delaware limited liability company (“HF”), as
landlord, and Skechers USA, Inc., a Delaware corporation, as tenant, as the same
may be amended.

(g) “Maturity Date” shall mean the earlier to occur of (i) ten (10) years after
the date of this Note, or (ii) the sale or other disposition by Maker of the
entire Property, or (iii) the refinancing of the Property which provides
sufficient net proceeds to pay the entire Unpaid Principal Balance plus all
accrued but unpaid interest, or (iv) the dissolution of Maker, or (v) the
consummation of a buy-out of the membership interest of a member of Maker
pursuant to the buy-sell process as described in the Limited Liability Company
Agreement of Maker dated of even date herewith (the “LLC Agreement”), subject to
acceleration upon the occurrence of an Event of Default as provided herein.

(h) “Property” means the real property, together with all improvements now or
hereafter located thereon, situated in Moreno Valley, California, which is the
subject of the Lease.

(i) “Substantial Completion” shall have the meaning set forth in the Lease.
(j) “Unpaid Principal Balance” shall mean, at any time, the amount of principal
of this Note, less any amounts of principal repaid.

2. Payment of Principal and Interest.

(a) Interest on the Unpaid Principal Balance shall be computed at a rate equal
to the lesser of (i) the Interest Rate or (ii) the Highest Lawful Rate and shall
commence as of the date of this Note.

(b) Interest accruing under this Note shall be computed on the basis of the
actual number of days elapsed based upon a three hundred sixty (360) day year.

(c) If the date for any payment hereunder falls on a day which is not a Business
Day, then such payment shall be due on the next following Business Day, and such
additional time shall be included in the calculation of interest then due.

(d) Principal and interest under this Note shall be paid as follows:

(i) Payments of accrued interest and principal shall be paid on the first day of
each month, commencing on the first day of the month after the date of this
Note, but only to the extent that there is Available Cash (as such term is
defined in the LLC Agreement, and subject to any changes in priority of
distributions of Available Cash set forth therein) prior to any distributions of
Available Cash to the members of Maker. Provided however, that as long as there
is any unpaid balance of principal or accrued interest due to Skechers RB, LLC,
a Delaware limited liability company (“Skechers”) under that certain unsecured
promissory note of even date herewith from Maker to Skechers (the “Skechers
Note”), then payments under this Note and under the Skechers Note shall be made
pro rata according to the ratio of the unpaid principal balance of both this
Note and the

2

 

--------------------------------------------------------------------------------

Skechers Note. If there is insufficient Available Cash to pay any monthly
installment of interest due hereunder, the interest shortfall will accrue, but
the accrued amount will not bear additional interest.

(ii) The entire remaining Unpaid Principal Balance and all accrued but unpaid
interest shall be due and payable, together with accrued interest, on the
Maturity Date.

(e) All payments on this Note shall be applied first to accrued and unpaid
interest on the Unpaid Principal Balance, and then to the payment of the Unpaid
Principal Balance.

3. Prepayment. The Unpaid Principal Balance may be prepaid in whole or in part,
at any time, without penalty or prepayment premium.

4. Waivers. Maker and all sureties, endorsers, accommodation parties, guarantors
and other parties now or hereafter liable for the payment of this Note, in whole
or in part, hereby severally (a) waive demand, notice of demand, presentment for
payment, notice of nonpayment, notice of default, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, notice of dishonor and
all other notices, and further waive diligence in collecting this Note, in
taking action to collect this Note, in bringing suit to collect this Note, or in
enforcing this Note or any of the security for this Note; (b) agree to any
substitution, subordination, exchange or release of any security for this Note
or the release of any person primarily or secondarily liable for the payment of
this Note; (c) agree that Payee shall not be required to first institute suit or
exhaust its remedies hereon against Maker or others liable or to become liable
for the payment of this Note or to enforce its rights against any security for
the payment of this Note; and (d) consent to any extension of time for the
payment of this Note, made by agreement by Payee with any person now or
hereafter liable for the payment of this Note, even if Maker is not a party to
such agreement. This Note is payable in lawful money of the United States,
without prior notice or demand, and without offset or deduction of any nature.

5. Events of Default.

(a) Upon the happening of any of the following events (each an “Event of
Default”), Payee may, at its option, by notice to Maker, declare immediately due
and payable the entire Unpaid Principal Balance together with all accrued
interest. Events of Default are the following:

(i) If Maker fails to pay any principal and/or interest under this Note as and
when same becomes due and payable, and such failure to pay is not cured within
five (5) Business Days following the date written notice of such failure to pay
is given by Payee to Maker; or

(ii) Maker shall fail to observe or perform any other covenant contained in this
Note (other than that specified in Section 5(a)(i)) and such failure shall
continue for ten (10) days after notice to Maker of such failure.

3

 

--------------------------------------------------------------------------------

(iii) Maker shall (A) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part of
its property, (B) make a general assignment for the benefit of its creditors,
(C) be dissolved or liquidated, (D) become insolvent, (E) commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it or (F) take any action
for the purpose of effecting any of the foregoing.

(iv) Proceedings for the appointment of a receiver, trustee, liquidator or
custodian of Maker of all or a substantial part of the property of Maker, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to Maker or the debts of Maker under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within thirty (30) days of commencement.

(b) The failure of Payee to exercise the foregoing option of acceleration upon
the occurrence of an Event of Default shall not constitute a waiver of the right
to exercise the same or any other option of acceleration at any subsequent time,
and no such failure shall nullify any prior exercise of any such option without
the express written consent of Payee.

6. Intentionally Omitted.

7. Compliance with Law. All agreements between Maker and Payee, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand or acceleration of the
Maturity Date or otherwise, shall the interest contracted for, charged,
received, paid or agreed to be paid to Payee in regard to the loan evidenced by
this Note exceed the maximum amount permissible under Applicable Law. If, from
any circumstance whatsoever, interest would otherwise be payable to Payee in
excess of the maximum amount permissible under Applicable Law, the interest
payable to Payee shall be reduced to the maximum amount permissible under
Applicable Law; and if from any circumstance Payee shall ever receive anything
of value deemed interest by Applicable Law in excess of the maximum amount
permissible under Applicable Law, an amount equal to the excessive interest
shall be applied to the reduction of the principal hereof and not to the payment
of interest, or if such excessive amount of interest exceeds the Unpaid
Principal Balance hereof, such excess shall be refunded to Maker. All interest
paid or agreed to be paid to Payee shall, to the extent permitted by Applicable
Law, be amortized, prorated, allocated, and spread throughout the full period
(including any renewal or extension) until payment in full of the principal so
that the interest hereon for such full period shall not exceed the maximum
amount permissible under Applicable Law. Payee expressly disavows any intent to
contract for, charge or receive interest in an amount which exceeds the maximum
amount permissible under Applicable Law. This section shall control all
agreements between Maker and Payee.

8. Attorneys’ Fees and Costs. In the event that following an Event of Default
this Note is placed in the hands of an attorney for collection, or in the event
thereafter this Note is collected in whole or in part through legal proceedings
of any nature, then and in any such case Maker promises to pay on demand by
Payee, and, to the extent unpaid upon such demand, there

4

 

--------------------------------------------------------------------------------

shall be added to the Unpaid Principal Balance, all reasonable costs of
collection, including, but not limited to, reasonable attorneys’ fees incurred
by Payee on account of such collection, whether or not suit is filed (including
attorneys fees incurred in connection with any Bankruptcy proceeding (including
stay litigation) and on appeal).

9. Cumulative Rights. No delay on the Payee in the exercise of any power or
right under this Note shall operate as a waiver thereof, nor shall a single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right.

10. Headings. The section headings used in this Note are for convenience of
reference only, and shall not affect the meaning or interpretation of this Note.

11. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE AND THE LAWS OF THE UNITED STATES
APPLICABLE TO TRANSACTIONS IN THE STATE OF DELAWARE.

12. Successors and Assigns. The term “Payee” shall include any of Payee’s
permitted successors and assigns, to whom the benefits of this Note shall inure.
This Note shall bind Maker and its successors and assigns (but no assignment or
delegation of this Note by Maker shall release Maker from liability hereunder).

EXECUTED by Maker as of the date set forth above.

 

“OWNER”

HF LOGISTICS -SKX, LLC, a Delaware

limited liability company

By:  

HF Logistics I, LLC, a Delaware limited

liability company, It’s Managing Member

  By:         Iddo Benzeevi, President and Chief Executive Officer By:  

Skechers RB, LLC, a Delaware limited

liability company, it’s Managing Member

  By:  

Skechers USA, Inc., a Delaware Corporation,

It’s sole member

    By:           David Weinberg, Chief Operating Officer     By:          
Robert Greenberg, Chief Executive Officer

5

--------------------------------------------------------------------------------

EXHIBIT “C-2”

SKECHERS NOTE

Exhibit “C-2”

 

--------------------------------------------------------------------------------

UNSECURED PROMISSORY NOTE

 

$1,000,000

   January 30, 2010

FOR VALUE RECEIVED, HF LOGISTICS-SKX, LLC, a Delaware limited liability company
(“Maker”), does hereby promise to pay to the order of SKECHERS RB, LLC, a
Delaware limited liability company (“Payee”), at its office at 228 Manhattan
Beach Blvd, Manhattan Beach, CA 90266, or at such other place as the Payee may
from time to time designate in writing, the principal sum of ONE MILLION DOLLARS
($1,000,000), with interest thereon as provided in this Note.

1. Certain Definitions. For the purposes hereof, the terms set forth below shall
have the following meanings:

(a) “Applicable Law” shall mean (i) the laws of the United States of America
applicable to contracts made or performed in the State of Delaware, now or at
any time hereafter prescribing or eliminating maximum rates of interest on loans
and extensions of credit, (ii) the laws of the State of Delaware now or at any
time hereafter prescribing or eliminating maximum rates of interest on loans and
extensions of credit, and (iii) any other laws at any time applicable to
contracts made or performed in the State of Delaware which permit a higher
interest rate ceiling hereunder.

(b) “Business Day” shall mean any day other than a Saturday, Sunday or any other
day on which commercial banks are authorized or permitted to be closed for
business in the State of Delaware.

(c) “Facility” shall mean the building, together with parking areas, landscaped
areas and other improvements, containing approximately 1,820,457 square feet to
be constructed by Maker in accordance with the Lease (as defined below).

(d) “Highest Lawful Rate” shall mean at the particular time in question the
maximum rate of interest which, under Applicable Law, Payee is then permitted to
charge Maker in regard to the loan evidenced by this Note. If the maximum rate
of interest which, under Applicable Law, Payee is permitted to charge Maker in
regard to the loan evidenced by this Note shall change after the date hereof,
the Highest Lawful Rate shall be automatically increased or decreased, as the
case may be, from time to time as of the effective date of each change in the
Highest Lawful Rate without notice to Maker. For purposes of determining the
Highest Lawful Rate under the Applicable Law, all fees and other charges
contracted for, charged or received by Payee in connection with the loan
evidenced by this Note which are either deemed interest under Applicable Law or
required under Applicable Law to be deducted from the principal balance hereof
to determine the rate of interest charged on this Note shall be taken into
account.

(e) “Interest Rate” shall mean six percent (6%) per annum.

1

 

--------------------------------------------------------------------------------

(f) “Lease” shall mean that certain Lease Agreement dated September 25, 2007, by
and between HF Logistics I, LLC, a Delaware limited liability company (“HF”), as
landlord, and Skechers USA, Inc., a Delaware corporation, as tenant, as the same
may be amended.

(g) “Maturity Date” shall mean the earlier to occur of (i) ten (10) years after
the date of this Note, or (ii) the sale or other disposition by Maker of the
entire Property, or (iii) the refinancing of the Property which provides
sufficient net proceeds to pay the entire Unpaid Principal Balance plus all
accrued but unpaid interest, or (iv) the dissolution of Maker, or (v) the
consummation of a buy-out of the membership interest of a member of Maker
pursuant to the buy-sell process as described in the Limited Liability Company
Agreement of Maker dated of even date herewith (the “LLC Agreement”), subject to
acceleration upon the occurrence of an Event of Default as provided herein.

(h) “Property” means the real property, together with all improvements now or
hereafter located thereon, situated in Moreno Valley, California, which is the
subject of the Lease.

(i) “Substantial Completion” shall have the meaning set forth in the Lease.

(j) “Unpaid Principal Balance” shall mean, at any time, the amount of principal
of this Note, less any amounts of principal repaid.

2. Payment of Principal and Interest.

(a) Interest on the Unpaid Principal Balance shall be computed at a rate equal
to the lesser of (i) the Interest Rate or (ii) the Highest Lawful Rate and shall
commence as of the date of this Note.

(b) Interest accruing under this Note shall be computed on the basis of the
actual number of days elapsed based upon a three hundred sixty (360) day year.

(c) If the date for any payment hereunder falls on a day which is not a Business
Day, then such payment shall be due on the next following Business Day, and such
additional time shall be included in the calculation of interest then due.

(d) Principal and interest under this Note shall be paid as follows:

(i) Payments of accrued interest and principal shall be paid on the first day of
each month, commencing on the first day of the month after the date of this
Note, but only to the extent that there is Available Cash (as such term is
defined in the LLC Agreement, and subject to any changes in priority of
distributions of Available Cash set forth therein) prior to any distributions of
Available Cash to the members of Maker. Provided however, that as long as there
is any unpaid balance of principal or accrued interest due to HF under that
certain unsecured promissory note of even date herewith from Maker to HF (the
“HF Note”), then payments under this Note and under the HF Note shall be made
pro rata according to the ratio of the unpaid principal balance of both this
Note and the HF Note. If there is insufficient Available Cash to pay any monthly
installment of interest due hereunder, the interest shortfall will accrue, but
the accrued amount will not bear additional interest.

2

 

--------------------------------------------------------------------------------

(ii) The entire remaining Unpaid Principal Balance and all accrued but unpaid
interest shall be due and payable, together with accrued interest, on the
Maturity Date.

(e) All payments on this Note shall be applied first to accrued and unpaid
interest on the Unpaid Principal Balance, and then to the payment of the Unpaid
Principal Balance.

3. Prepayment. The Unpaid Principal Balance may be prepaid in whole or in part,
at any time, without penalty or prepayment premium.

4. Waivers. Maker and all sureties, endorsers, accommodation parties, guarantors
and other parties now or hereafter liable for the payment of this Note, in whole
or in part, hereby severally (a) waive demand, notice of demand, presentment for
payment, notice of nonpayment, notice of default, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, notice of dishonor and
all other notices, and further waive diligence in collecting this Note, in
taking action to collect this Note, in bringing suit to collect this Note, or in
enforcing this Note or any of the security for this Note; (b) agree to any
substitution, subordination, exchange or release of any security for this Note
or the release of any person primarily or secondarily liable for the payment of
this Note; (c) agree that Payee shall not be required to first institute suit or
exhaust its remedies hereon against Maker or others liable or to become liable
for the payment of this Note or to enforce its rights against any security for
the payment of this Note; and (d) consent to any extension of time for the
payment of this Note, made by agreement by Payee with any person now or
hereafter liable for the payment of this Note, even if Maker is not a party to
such agreement. This Note is payable in lawful money of the United States,
without prior notice or demand, and without offset or deduction of any nature.

5. Events of Default.

(a) Upon the happening of any of the following events (each an “Event of
Default”), Payee may, at its option, by notice to Maker, declare immediately due
and payable the entire Unpaid Principal Balance together with all accrued
interest. Events of Default are the following:

(i) If Maker fails to pay any principal and/or interest under this Note as and
when same becomes due and payable, and such failure to pay is not cured within
five (5) Business Days following the date written notice of such failure to pay
is given by Payee to Maker; or

(ii) Maker shall fail to observe or perform any other covenant contained in this
Note (other than that specified in Section 5(a)(i)) and such failure shall
continue for ten (10) days after notice to Maker of such failure.

(iii) Maker shall (A) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part of
its property, (B) make a general assignment for the benefit of its creditors,
(C) be dissolved or liquidated,

3

 

--------------------------------------------------------------------------------

(D) become insolvent, (E) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it or (F) take any action for the purpose of effecting any of
the foregoing.

(iv) Proceedings for the appointment of a receiver, trustee, liquidator or
custodian of Maker of all or a substantial part of the property of Maker, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to Maker or the debts of Maker under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within thirty (30) days of commencement.

(b) The failure of Payee to exercise the foregoing option of acceleration upon
the occurrence of an Event of Default shall not constitute a waiver of the right
to exercise the same or any other option of acceleration at any subsequent time,
and no such failure shall nullify any prior exercise of any such option without
the express written consent of Payee.

6. Intentionally Omitted.

7. Compliance with Law. All agreements between Maker and Payee, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand or acceleration of the
Maturity Date or otherwise, shall the interest contracted for, charged,
received, paid or agreed to be paid to Payee in regard to the loan evidenced by
this Note exceed the maximum amount permissible under Applicable Law. If, from
any circumstance whatsoever, interest would otherwise be payable to Payee in
excess of the maximum amount permissible under Applicable Law, the interest
payable to Payee shall be reduced to the maximum amount permissible under
Applicable Law; and if from any circumstance Payee shall ever receive anything
of value deemed interest by Applicable Law in excess of the maximum amount
permissible under Applicable Law, an amount equal to the excessive interest
shall be applied to the reduction of the principal hereof and not to the payment
of interest, or if such excessive amount of interest exceeds the Unpaid
Principal Balance hereof, such excess shall be refunded to Maker. All interest
paid or agreed to be paid to Payee shall, to the extent permitted by Applicable
Law, be amortized, prorated, allocated, and spread throughout the full period
(including any renewal or extension) until payment in full of the principal so
that the interest hereon for such full period shall not exceed the maximum
amount permissible under Applicable Law. Payee expressly disavows any intent to
contract for, charge or receive interest in an amount which exceeds the maximum
amount permissible under Applicable Law. This section shall control all
agreements between Maker and Payee.

8. Attorneys’ Fees and Costs. In the event that following an Event of Default
this Note is placed in the hands of an attorney for collection, or in the event
thereafter this Note is collected in whole or in part through legal proceedings
of any nature, then and in any such case Maker promises to pay on demand by
Payee, and, to the extent unpaid upon such demand, there shall be added to the
Unpaid Principal Balance, all reasonable costs of collection, including, but not
limited to, reasonable attorneys’ fees incurred by Payee on account of such
collection,

4

 

--------------------------------------------------------------------------------

whether or not suit is filed (including attorneys fees incurred in connection
with any Bankruptcy proceeding (including stay litigation) and on appeal).

9. Cumulative Rights. No delay on the Payee in the exercise of any power or
right under this Note shall operate as a waiver thereof, nor shall a single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right.

10. Headings. The section headings used in this Note are for convenience of
reference only, and shall not affect the meaning or interpretation of this Note.

11. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE AND THE LAWS OF THE UNITED STATES
APPLICABLE TO TRANSACTIONS IN THE STATE OF DELAWARE.

12. Successors and Assigns. The term “Payee” shall include any of Payee’s
permitted successors and assigns, to whom the benefits of this Note shall inure.
This Note shall bind Maker and its successors and assigns (but no assignment or
delegation of this Note by Maker shall release Maker from liability hereunder).

EXECUTED by Maker as of the date set forth above.

 

“OWNER”

HF LOGISTICS -SKX, LLC, a Delaware limited

liability company

By:  

HF Logistics I, LLC, a Delaware limited

liability company, it’s Managing Member

  By:        

Iddo Benzeevi, President and Chief

Executive Officer

By:  

Skechers RB, LLC, a Delaware limited liability

company, it’s Managing Member

By:  

Skechers USA, Inc., a Delaware

Corporation, It’s sole member

  By:        

David Weinberg, Chief Operating

Officer

  By:        

Robert Greenberg, Chief Executive

Officer

5

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EXHIBIT “D”

INITIAL APPROVED OPERATING BUDGET

Exhibit “D”

--------------------------------------------------------------------------------

Exhibit D

1 of 5

HF Logistics-SKX LLC Operating Budget

Building and Expansion Sites

LOGO [g255229g46t94.jpg]   Date: 1/29/2010

Operating Budget Estimate

 

   

Year

Duration in Months

   2011
6     2012
12     Physical Occupancy      50 %      100 %    Rent Building    $ 0.513     
$ 0.513      Sq Ft Building      1,820,457            

REVENUES (D-1)

         6,739,057        9,275,589   

EXPENSES

      

Building (D-1)

       (1,071,416 )      (2,142,832 ) 

Parcel 2:

        

Maintenance (D-3)

     (14,284 )      (28,568 )   

POA (D-4)

     (6,663 )      (13,326 )   

Property Taxes (1)

     (10,000 )      (20,000 )        

TOTAL OPERATING EXPENSES

     (1,102,363 )      (2,204,726 )        

NET OPERATING INCOME

     5,636,694        7,070,863          

DEBT SERVICE (D-1)

     (3,090,616 )      (6,181,233 )        

CAPITAL RESERVES (D-1)

     (45,511 )      (91,023 )        

NET

   $ 2,500,566      $ 798,607   

 

(1) Based upon actual for 2009/2010

--------------------------------------------------------------------------------

Exhibit D-1

2 of 5

HF Logistics-SKX LLC Building Site — Operating Budget

Skechers Building Site Only

LOGO [g255229g46t94.jpg]   Date: 1/29/2010

Operating Budget Estimate

 

   

Year

Duration in Months

       

2011

6

   

2012

12

   

Physical Occupancy

      50 %      100 %           

Rent Building Site

    $ 0.513      $ 0.513             

Sq Ft Building

      1,820,457              REVENUES      

2011

$/SF/MO

             

Scheduled Base Rent

    $ 0.513      $ 5,603,367      $ 11,206,733   

Base Rent Abatement

          (4,202,525 )         

Total Scheduled Base Rent

                5,603,367        7,004,208           

Expense Reimbursements

      0.098        1,071,416        2,142,832           

Solar Revenue (1)

        64,274        128,549           

EFFECTIVE GROSS REVENUE

        0.425        6,739,057        9,275,589           

OPERATING EXPENSES

       

Repairs

      (0.003 )      (32,768 )      (65,536 ) 

Maintenance (D-2)

      (0.009 )      (67,926 )      (138,852 ) 

POA (D-4)

      (0.002 )      (20,087 )      (40,173 )         

Insurance

      (0.016 )      (176,983 )      (353,965 ) 

Real Estate Taxes

      (0.056 )      (609,811 )      (1,219,622 ) 

CFD Assessment

      (0.015 )      (163,841 )      (327,682 )         

TOTAL OPERATING EXPENSES

        (0.098 )      (1,071,416 )      (2,142,832 )         

NET OPERATING INCOME

        0.327        5,667,641        7,132,757           

DEBT SERVICE ON LOANS (2)

      (0.283 )      (3,090,616 )      (6,181,233 )         

CAPITAL RESERVES

      (0.004 )      (45,511 )      (91,023 )         

NET CASH FLOW

        0.039      $ 2,531,513      $ 860,501   

 

(1) 602kW(AC) system running 1,810 hours per year at an 11.8-cent average charge
per kilowatt-hour

(2) Debt service on $55 million bank loan and $15 million of partner loans

--------------------------------------------------------------------------------

Exhibit D-2

3 of 5

LOGO [g255229g46t94.jpg]   Date: 1/29/2010

 

Building Site - Maintenance   No.        Description    Unit      Quantity     
Unit Price            Total                 1         Detention / Water Quality
Basins      SF         200,375       $ 0.06          $ 12,023      2        
Landscape - Slope      SF         248,300       $ 0.10          $ 24,830      3
        Landscape - Flat      SF         104,500       $ 0.24          $ 25,080
     4         Utilities - Common Sewer/Cleanouts      LS         1       $
2,000.00          $ 2,000      5         Sign Maintenance      LS         1   
   $ 3,000.00          $ 3,000      6         Annual Water Cost      AF        
37.5       $ 1,008.00          $ 37,800      7         Palm Tree Maintenance   
  LS         1       $ 5,400.00          $ 5,400      8         Screen Wall
Maintenance - Eucalyptus S      LS         1       $ 8,000.00          $ 8,000
                                                                            
                Subtotal:    $ 118,133                                    
Contingency (15%):    $ 17,720                                           

 

 

                                      Total:    $ 135,852                       

 

 

                                      Building SF:      1,820,000              
                            

 

 

                                      Cost/SF:    $ 0.07                       

 

 

 

Maintenance Costs Include-

 

Yearly Inspection, Flushing, Camera of Sewer/Cleanouts

Graffiti Repair, Bulbs/Fixtures

Based upon Recycled Water Use Exhibit and EMWD water rates

Assume 54 palm trees trim 2 times per year at $50/tree/trimming

Graffiti Repair, Periodic Painting

 

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Exhibit D-3

4 of 5

LOGO [g255229g46t94.jpg]   Date: 1/29/2010

 

Expansion Site - Maintenance   No.      Description    Unit        Quantity  
     Unit Price            Total   1      Detention / Water Quality B      SF   
       89,275         $     0.06          $     5,357    2      Landscape -
Slope      SF           46,500         $ 0.06          $ 2,790    3     
Landscape - Flat      SF           834,750         $ 0.02          $ 16,695    4
     Landscape - Parkway      SF              $ 0.02          $ 0    5     
Annual Water Cost      AF              $ 1,008.00          $ 0                 
                                                                            
       Subtotal:    $ 24,842                                                   
               Contingency (15%):    $ 3,726                           

 

 

                                              Total:    $ 28,568                
          

 

 

 

Maintenance Costs Include-

 

Assumes undeveloped condition. Unit Price assumes mowing/weed wacking 2 times
per year No irrigation in undeveloped condition

 

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Exhibit D-4

5 of 5

LOGO [g255229g46t94.jpg]   Date: 1/29/2010

Date: 1/29/2010

 

Property Owners Association (POA) - Maintenance   No.      Description    Unit
     Quantity        Unit Price        Total           1      Landscape -
Parkway    SF        87,000         $ 0.16         $ 13,920       2     
Drainage - Spreading Facility    SF        400,750         $ 0.08         $
32,060       3      Common Driveway - Maintenance    LS        1         $
4,000.00         $ 4,000       4      Insurance    annual           $ 8,500.00
        $ 5,000                                                               
               Subtotal:         $ 54,980                                     
                                    Contingency (15%):         $ 8,247      
                                                

 

 

                                                   Total:         $ 63,227      
                      

 

 

                                 Acres                                     
Allocated to Building Site           40,173         82.6                     
                Allocated to Expansion Site           13,326         27.4   
                      

 

 

                              53,500         110                             
        Other Parcels           9,727         20                          

 

 

                                       Total           63,227         130   

Maintenance Costs Include

 

Hydroseed Slopes, Trash, Graffiti, Growth Control

Yearly Re-Stripe, Monthly Sweeping, Red Curb Paint

General Liability, Personal Property & Professional Liability Insurance

 

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EXHIBIT “E”

INTENTIONALLY OMITTED

Exhibit “E”

 

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EXHIBIT “F”

CONSTRUCTION LOAN COMMITMENT

Exhibit “F”

 

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  LOGO [g255229g94l65.jpg]     Commercial Real Estate Banking

FL7-528-15-08

1 Alhambra Plaza Penthouse

Coral Gables, FL 33134

February 1, 2009

HF Logistics-SKX, LLC,

a Delaware limited liability company

4000 Island Boulevard, Penthouse 2

Williams Island, FL 33160

 

    Re:   $55,000,000 Construction Loan (the “Loan”) to finance a portion of the
cost to construct an approximately 1,820,000 square foot industrial warehouse
(the “Building”) located Moreno Valley, California to be leased to Skechers USA,
Inc. (“Skechers”)

Gentlemen:

Bank of America, N.A., as administrative agent and as a leader (“Bank of
America” or the “Agent”) offers to make a portion of the Loan to HF Logistics —
SKX, LLC, a Delaware limited liability company (the “Borrower”), upon the
following terms and conditions:

1. Loan Amount: The lesser of $55,000,000 or (i) 58% of the Lender approved
appraised value of the Project (as hereinafter defined); (ii) 55% of the cost to
construct; (iii) 1.40 times the coverage ratio using stress tests of 8% rate,
30-year amortization and first year NOI as per the approved appraisal. The
$55,000,000 loan amount is predicated upon Agent loaning $35,000,000 and the
balance of $20,000,000 being arranged by Banc of America Securities, LLC (“BAS”
or “Arranger”).

2. Interest Rate:

(a) “BBA LIBOR Daily Floating Rate” means a daily fluctuating rate of interest
per annum equal to (i) the applicable London Interbank Offered Rate

“London Interbank Offered Rate” means the rate per annum equal to the British
Bankers’ Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other
commercially available source providing quotations of BBA LIBOR as selected by
Administrative Agent from time to time) as determined each Business Day at
approximately 11:00 a.m. London time two (2) London Banking Days before the
commencement of the Interest Period, for deposits in U.S. Dollars (for delivery
on the first day of such Interest Period) with a term equivalent to such
Interest Period as adjusted from time to time in Lender’s sole discretion for
reserve requirements deposit insurance assessment rates and other regulatory
costs. If such rate is not available at

such time for any reason, then the rate for that Interest Period will be
determined by such alternate method as reasonably selected by Administrative
Agent;

 

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(b) Interest on the Loan shall be charged at a per annum rate equal to the sum
of (i) BBA LIBOR Daily Floating Rate (which Rate will be not less than 150 basis
points) and (ii) 450 basis points until default.

(c) After default, interest on the Loan shall be charged at a per annum rate
equal to non-default rate plus 400 basis points.

3. Interest Payments: Interest on the outstanding principal balance of the Loan
shall be payable monthly commencing on the 15th day of the first calendar month
following the date of closing of the Loan and continuing on the 15th day of each
and every calendar month thereafter until the Loan has been repaid in full.
Interest reserve must be acceptable to Agent.

4. Late Charge: Four percent (4%) of any payment more than fifteen (15) days
late.

5. Principal Payments: Commencing with the first day of the first month
following the first payment of rent by Skechers pursuant to the Lease, the
Borrower shall make principal payments in an amount derived assuming a thirty
(30) year amortization and interest at the rate of the greater of eight percent
(8%) per annum or the rate then paid on ten (10) year Treasury Notes plus 250
basis points. The entire principal balance of the Loan shall be paid in full on
the Maturity Date.

6. Maturity Date: Twenty-four (24) months from the “Closing Date” (as herein
defined), subject to extension as hereinafter provided.

7. Maturity Date Extensions: Borrower shall have one (1) option to extend the
Maturity Date of the Loan, for an additional six (6) month period, upon
satisfaction of all of the following conditions: (i) no event of default shall
have occurred and is continuing during the term of the Loan, and no act or event
shall be then occurring which would be an event of default but for the giving of
notice or the passage of time, or both; (ii) the Borrower shall have paid to
Lender, a fee in the amount of $25,000 the (“Extension Fee”) for such extension;
(iii) the Borrower shall have received an unconditional certificate of occupancy
for the use of the Building; (iv) Skechers shall have taken occupancy and
commenced to pay rent pursuant to the Lease; (v) revenue from the building shall
equal or exceed a 1.40 times to debt coverage ratio using stress tests of the
greater of an 8% rate or the 10-year Treasury plus 250 basis points and a
30-year amortization and (vi) the loan to value ratio does not exceed 58% based
upon an updated appraisal which may be required by the Lender.

8. Prepayment: Borrower may prepay all or any portion of the Loan at any time
without fee premium or penalty.

9. Borrower’s Entity: Borrower shall be single purpose entity whose sole
business shall be the development and operation of the Project.

2

 

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10. Guarantor: The full repayment of the Loan and the payment and performance of
all of the obligations of the Borrower under the Loan Documents shall be
unconditionally and irrevocably guaranteed by TG Development Corp., a Delaware
corporation. Upon Skechers taking occupancy of the Bidding and commencing rent
payments, the principal repayment portion of Guarantors obligations hereunder
shall be reduced to fifty percent (50%) of the Loan Amount. Until the Loan has
been repaid, Guarantor must (i) maintain a minimum book net worth of
$150,000,000.00 during the term of the Loan (The covenant will be tested
quarterly based on unaudited financial statements); (ii) not incur contingent
liability in an aggregate amount exceeding $25,000,000.00 other than the Loan
without the prior written consent of Lender which consent Leader may withhold in
its sole and absolve discretion; provided further that there shall be no
restriction on contingent liability incurred by Guarantor in connection with any
loan made for the acquisition or development of income producing commercial real
estate; and (iii) not transfer any assets except: (x) in the ordinary course of
business for fair value (w) to an entity that is wholly owned by the Guarantor,
(y) to any unrelated third parry for fair and reasonably equivalent value or
(z) with the Lender’s prior written approval of other assets. The Borrower shall
promptly notify the Lender of any transfer of material assets whether or not the
Lender’s approval is required.

11. Borrower’s Equity: Prior to the Closing Date, the Borrower shall have
provided evidence to the Agent’s sole satisfaction of its having contributed
total equity in the Project of $60,120,000.

12. Collateral: To secure the repayment of the Loan the Borrower shall grant the
Lender a first Construction Deed of Trust lien and security interest in and to
the following property (the “Mortgaged Property”):

(a) Land. An approximately 83-acre parcel of real property located in Moreno
Valley, Riverside County, California being more particularly described in
Exhibit “A” attached; hereto.

(b) Improvements. A build to suit industrial warehouse containing approximately
1,820,000 square feet to be leased to Skechers. General Contractor must be
acceptable to Agent and provide a bonded Guaranteed Maximum Price Contract also
acceptable to Agent. Funding of hard cost contingency not to exceed pace of
construction and amount must be acceptable to Bank and Bank’s consultant.

(c) Personal Property. All tangible and intangible personal property now or
hereafter located on or used in the construction of or in connection with or
arising from the operation of the Project.

(d) Certificate of Deposit. A $5,500,000 Certificate of Deposit issued by Agent
in the name of Borrower, which shall be assigned unto Agent until such time as
the Loan has been fully repaid. At Borrower’s option, Borrower may satisfy the
aforementioned condition by having Guarantor maintain minimum liquidity of
$7,000,000.00 during the term of the Loan (The covenant will be tested quarterly
based on unaudited financial statements).

13. Purpose of the Loan Advance: The purpose of the Loan is to finance the
construction of the Building expected to be LEED certified and necessary on and
off site improvement as required by the Lease (collectively, the “Improvement”).

3

 

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14. Commencement and Completion of Improvements: The Borrower shall commence
construction of the Improvements within thirty (30) days following the closing
of the Loan (the “Commencement Date”), and shall diligently and continuously
proceed with the completion of all of the site work and the construction of all
Improvements, all of which shall be completed no later than the sooner of the
date that the Improvements must be delivered to Skechers pursuant to the lease
or twenty (20) months from the Closing Date.

15. Budget and Advance of the Loan.

(a) The cost of the development of the Project shall not exceed a budget which
has been approved by the Agent; the line item for the Land in such budget shall
not exceed the As-Is Land Value per the Agent-approved appraisal.

(b) Advances of the Loan shall be made pursuant to the Agent’s customary terms
and conditions.

16. Fees: Borrower shall pay fees pursuant to a fee letter of even date
herewith.

17. Payment and Performance Bond: A dual obligee payment and performance bond
issued by a surety acceptable to Agent naming Agent as co-insured with Borrower
is required with respect to the construction of the Project.

18. Prelease Requirements. At or before closing of the Loan, the Borrower shall
have entered into a Lease with Skechers for the lease of 100% of the
Improvements which Lease shall be acceptable to the Agent in sole and absolute
discretion and shall provide for a term of not less than twenty (20) years. In
addition, the Borrower, Tenant and Agent shall have entered into a Subordination
and Non-Disturbance Agreement satisfactory to Agent in its sole and absolute
discretion.

19. Agent’s Counsel: Our attorney (“Agent’s Counsel”) in this matter is Chava
Genet, of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 2200 Museum
Tower, 150 West Flagler Street, Miami, Florida 33130 (305) 789-3200.

20. Agent’s Costs: Whether or not the Loan is closed (for any reason
whatsoever), the Borrower shall be responsible for the payment of, and shall
promptly pay, all fees, expenses, taxes (except income taxes payable by Agent),
other charges and any out-of-pocket expenses that may be charged to the Agent or
incurred by the Agent in connection with this Commitment or any events,
transactions, or documents required or contemplated by this Commitment,
including, without limitation legal fees and disbursements charged by counsel
for the Agent plus all costs and expenses incurred in connection therewith;
premiums for title insurance; recording fees; abstracting charges; brokerage
fees or commissions (whether earned or claimed); documentary stamp taxes;
intangible taxes; appraisal fees; construction advisors’ fees; and survey costs.

21. Indemnification. The Borrower shall indemnify and hold the Agent harmless
from any loss or damage, including reasonable attorneys fees and costs, incurred
or arising by reason of this Commitment or the making of the Loan (except for
liability, loss, expense or damage arising from the gross negligence or willful
misconduct of the Agent or its directors, officers, agents, employees, and
attorney).

4

 

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22. Inspections: Borrower shall pay all costs and expenses incidental to
engineering and architectural review and construction inspections performed by
an inspector appointed by Agent, and for an environmental assessment of property
which shall be reviewed and accepted by Agent prior to closing of Loan. Borrower
shall advance all sums required for such review and inspection. A third party
construction consultant engaged by Bank shall review the plans, specifications,
permits, budget, construction schedule, and other construction related matters,
as well as each progress payment. A Plan & Cost Review will be required prior to
closing.

23. Syndication: The Facility is required to be pre-syndicated before closing.
Syndication will not commence until the Borrower has delivered executed Fee and
Mandate Letters and paid the required fees.

24. Assignment and Participations: Usual and customary for facilities of this
type, including customary provisions allowing the Lenders to assign or grant
participations with the consent of the Agent and Borrower, which consent shall
not be unreasonably withheld or delayed.

25. Waivers/Amendments & Required Lenders: Usual and customary for facilities of
this type, including amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will require the approval of
Lenders holding loans and commitments representing more than 66 2/3% of the
aggregate amount of loans and commitments under the loan documents (“Required
Lenders”), except that the consent of all of the Lenders affected thereby shall
be required with respect to (a) increases in commitment amounts, (b) reductions
of principal, interest, or fees, (c) extensions of scheduled maturities or times
for payment, (d) modification to the guaranty from the Guarantors, (e) release
of a material obligor, and (f) such other items as may be negotiated in the
final loan documents.

26. Voting Rights: Amendments, consents, or waivers to the Facility will require
consent of the Required Lenders, except for any amendment, consent, or waiver
that would: (i) extend the maturity of the Facility; (ii) reduce the amount of
any interest, fees, principal, or other amount payable to the Lenders;
(iii) reduce or increase the commitment of any Lender; and (iv) change the
percentage specified for Required Lenders; all of which will require unanimous
consent of the Lenders.

27. Termination: The Loan shall be closed and the first advance of the Loan
shall be made on or before April 15, 2010 (the “Closing Date”), in accordance
with all provisions hereof. If such closing and advance have not been
consummated by the Closing Date, Agent’s obligation to make the Loan shall
terminate and the Agent shall have no further obligation hereunder.

28. Material Adverse Effect: Bank of America’s obligations hereunder shall
terminate if, prior to closing, Bank of America determines, in its sole
judgment, that there shall exist any conditions regarding the Project, or the
operations, business, assets, liabilities or condition (financial or otherwise,
including credit rating) of Borrower, Guarantor, or Skechers or there shall have
occurred a material adverse change in, or there shall exist any material adverse
conditions in, the market for syndicated bank credit facilities or the
financial, banking, credit or debt capital markets generally, that could be
expected to cause the Facility to become delinquent or prevent any Guarantor
from performing its obligations under any guaranty or to materially and
adversely affect the value or marketability of the Facility or the Project or
Bank of America’s ability to syndicate the Facility.

5

 

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29. Clear Market: From the date of acceptance of the these terms and conditions
and continuing until Closing, there shall be no competing offering, placement or
arrangement of any debt securities or bank financing by or on behalf of the
Borrower or Sponsor. The Borrower or Guarantor would immediately notify the
Arranger if any such transaction were contemplated.

30. USA Patriot Act Notice: The Agent hereby notifies the Borrower, Guarantor
and Sponsor that pursuant to the requirements of the USA Patriot Act (Title III
of Pub. L. 10756 (signed into law October 26, 2001)) (the “Act”), the Agent are
required to obtain, verify and record information that identifies Borrower,
Guarantor and Sponsor, which information includes that name and address of
Borrower, Guarantor and Sponsor and other information that will allow the Agent
to identify Borrower, Guarantor and Sponsor in accordance with the Act.

31. Confidentiality: All provisions of this Commitment Letter are to be kept
strictly confidential and the Borrower agrees not to disclose the contents or
existence of this Commitment Letter to any third party(s) without prior written
consent of the Agent.

32. Dispute Resolution. Any dispute between the parties shall be resolved
pursuant to procedures described in Exhibit B hereto.

If within five (5) days after the date hereof this offer has not been accepted
by the execution of a copy hereof and the delivery of the same to the Agent’s
office, together with payment of the required portion of the Upfront Fee, it
shall be withdrawn and cancelled unless such acceptance date is extended in
writing by the Agent.

 

Very truly yours, BANK OF AMERICA, N.A. By:   /s/ Kim Abreu   Kim Abreu, Senior
Vice President

6

 

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BANC OF AMERICA SECURITIES LLC

By:

      Name:       Title:    

Agreed and Accepted this 1st day of February, 2010:

 

BORROWER:

HF LOGISTICS — SKX, LLC.,

a Delaware limited liability company

By:   HF Logistics I, LLC, managing member By:   /s/ Donald Elbert   Donald
Elbert, Senior Vice President GUARANTOR:

TG DEVELOPMENT Corp.,

a Delaware Corporation

By:   /s/ Donald Elbert   Donald Elbert, Senior Vice President

7

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EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

 

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EXHIBIT B

DISPUTE RESOLUTION

Dispute Resolution.

(a) Arbitration. Except to the extent expressly provided below, any Dispute
shall, upon the request of any party, be determined by binding arbitration in
accordance with the Federal Arbitration Act, Title 9, United States Code (or if
not applicable, the applicable state law), the then-current rules for
arbitration of financial services disputes of AAA and the “Special Rules” set
forth below. In the event of any inconsistency, the Special Rules shall control.
The filing of a court action is not intended to constitute a waiver of the right
of Borrower, Administrative Agent or any Lender, including the suing party,
thereafter to require submittal of the Dispute to arbitration. Any party to this
Agreement may bring an action, including a summary or expedited proceeding, to
compel arbitration of any Dispute in any court having jurisdiction over such
action. For the purposes of this Dispute Resolution Section only, the terms
“party” and “parties” shall include any parent corporation, subsidiary or
affiliate of Administrative Agent involved in the servicing, management or
administration of any obligation described in or evidenced by this Agreement,
together with the officers, employees, successors and assigns of each of the
foregoing.

(b) Special Rules.

(i) The arbitration shall be conducted in any U.S. state where real or tangible
personal property collateral is located, or if there is no such collateral, in
the city and county where Administrative Agent is located pursuant to its
address for notice purposes in this Agreement.

(ii) The arbitration shall be administered by AAA, who will appoint an
arbitrator. If AAA is unwilling or unable to administer or legally precluded
from administering the arbitration, or if AAA is unwilling or unable to enforce
or legally precluded from enforcing any and all provisions of this Dispute
Resolution Section, then any party to this Agreement may substitute, without the
necessity of the agreement or consent of the other party or parties, another
arbitration organization that has similar procedures to AAA but that will
observe and enforce any and all provisions of this Dispute Resolution Section.
All Disputes shall be determined by one arbitrator; however, if the amount in
controversy in a Dispute exceeds Five Million Dollars ($5,000,000), upon the
request of any party, the Dispute shall be decided by three arbitrators (for
purposes of this Agreement, referred to collectively as the “arbitrator”).

(iii) All arbitration hearings will be commenced within ninety (90) days of the
demand for arbitration and completed within ninety (90) days from the date of
commencement; provided, however, that upon a showing of good cause, the
arbitrator shall be permitted to extend the commencement of such hearing for up
to an additional sixty (60) days.

 

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(iv) The judgment and the award, if any, of the arbitrator shall be issued
within thirty (30) days of the close of the hearing. The arbitrator shall
provide a concise written statement setting forth the reasons for the judgment
and for the award, if any. The arbitration award, if any, may be submitted to
any court having jurisdiction to be confirmed and enforced, and such
confirmation and enforcement shall not be subject to arbitration.

(v) The arbitrator will give effect to statutes of limitations and any waivers
thereof in determining the disposition of any Dispute and may dismiss one or
more claims in the arbitration on the basis that such claim or claims is or are
barred. For purposes of the application of the statute of limitations, the
service on AAA under applicable AAA rules of a notice of Dispute is the
equivalent of the filing of a lawsuit.

(vi) Any dispute concerning this Dispute Resolution Section, including any such
dispute as to the validity or enforceability hereof or whether a Dispute is
arbitrable, shall be determined by the arbitrator; provided, however, that the
arbitrator shall not be permitted to vary the express provisions of these
Special Rules or the Reservations of Rights in subsection (c) below.

(vii) The arbitrator shall have the power to award legal fees and costs pursuant
to the terms of this Agreement

(viii) The arbitration will take place on an individual basis without reference
to, resort to, or consideration of any form of class or class action.

(c) Reservations of Rights. Nothing in this Agreement shall be deemed to
(i) limit the applicability of any otherwise applicable statutes of limitation
and any waivers contained in this Agreement, or (ii) apply to or limit the right
of Administrative Agent or any Lender (A) to exercise self help remedies such as
(but not limited to) setoff, or (B) to foreclose judicially or nonjudicially
against any real or personal property collateral, or to exercise judicial or
nonjudicial power of sale rights, (C) to obtain from a court provisional or
ancillary remedies such as (but not limited to) injunctive relief, writ of
possession, prejudgment attachment, or the appointment of a receiver, or (D) to
pursue rights against a party to this Agreement in a third-party proceeding in
any action brought against Administrative Agent or any Lender in a state,
federal or international court, tribunal or hearing body (including actions in
specialty courts, such as bankruptcy and patent courts). Subject to the terms of
this Agreement, Administrative Agent and any Lender may exercise the rights set
forth in clauses (A) through (D), inclusive, before, during or after the
pendency of any arbitration proceeding brought pursuant to this Agreement.
Neither the exercise of self help remedies nor the institution or maintenance of
an action for foreclosure or provisional or ancillary remedies shall constitute
a waiver of the right of any party, including the claimant in any such action,
to arbitrate the merits of the Dispute occasioning resort to such remedies. No
provision in the Loan Documents regarding submission to jurisdiction and/or
venue in any court is intended or shall be construed to be in derogation of the
provisions in any Loan Document for arbitration of any Dispute.

(d) Conflicting Provisions for Dispute Resolution. If there is any conflict
between the terms, conditions and provisions of this Section and those of any
other provision or agreement for

 

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arbitration or dispute resolution, the terms, conditions and provisions of this
Section shall prevail as to any Dispute arising out of or relating to (i) this
Agreement, (ii) any other Loan Document, (iii) any related agreements or
instruments, or (iv) the transaction contemplated herein or therein (including
any claim based on or arising from an alleged personal injury or business tort).
In any other situation, if the resolution of a given Dispute is specifically
governed by another provision or agreement for arbitration or dispute
resolution, the other provision or agreement shall prevail with respect to said
Dispute.

(e) Waiver of Trial By Jury: BORROWER. GUARANTORS AND AGENT HEREBY KNOWINGLY,
IRREVOCABLY VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS COMMITMENT AND ANY DOCUMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF BORROWER, THE GUARANTORS OR
AGENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT ENTERING INTO THIS
COMMITMENT.

THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
PARTIES.

 

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EXHIBIT “G”

HF REPRESENTATIONS AND WARRANTIES

The following constitute representations and warranties of HF to Skechers and
the Company, which are made as of the Effective Date, and also as of the date
that fee title to the Property is contributed to the Company and which may be
enforced by either Skechers or the Company:

a. HF has all legal power, right and authority to convey, or cause to be
conveyed, HF’s interest in the Property (and, when applicable, the fee interest
in the Property) to the Company pursuant to this Agreement and to execute and
deliver, or cause the execution and delivery, of all documents required to
consummate the transactions contemplated hereby.

b. All requisite action has been taken in connection with the conveyance of HF’s
interest in the Property to the Company pursuant to this Agreement and the
execution of all documents required to consummate the transactions contemplated
hereby.

c. The execution and delivery of the conveyance documents contemplated hereby do
not require the consent or approval of any third party nor shall such execution
and delivery result in a breach or violation of any applicable law or conflict
with, breach, result in a default under or violate any contract or agreement to
which HF is a party, or by which HF or the Property is bound.

d. Neither HF nor any HF Affiliate has received written notice or has actual
knowledge of any pending or threatened actions, suits, arbitrations, claims or
proceedings, at law or in equity, affecting the Property, or in which HF or the
Master Landlord is, or will be, a party by reason of Master Landlord’s ownership
or HF’s interest in the Property (except for the Sierra Club Litigation (as
defined herein)).

e. Neither HF nor any HF Affiliate has received written notice of or has actual
knowledge of any attachments, execution proceedings, assignments for the benefit
of creditors, insolvency, bankruptcy, reorganization or other proceedings
pending against HF.

f. Neither HF nor any HF Affiliate has entered into any contracts for the sale,
exchange or other disposition of the Property, or any portion thereof, which are
still in force and effect, nor do there exist any rights of first refusal,
options or other rights of any other Person to purchase all or any portion of
the Property.

g. HF’s sole interest in the Property is a leasehold interest in the Property
pursuant to the Master Lease, and Master Landlord holds fee simple title to the
Property. Pursuant to the Master Lease, HF will acquire fee title to the
Property prior to the time that it is obligated to convey the Property to the
Company, or the Master Landlord will convey fee title to the Property directly
to the Company.

h. Neither HF nor any HF Affiliate has received written notice of or has actual
knowledge of the commencement or intended commencement of any proceeding in
eminent domain, or similar proceeding by any governmental authority which would
affect the Property.

 

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i. In accordance with California Health and Safety Code §25359.7, HF hereby
gives Skechers and the Company notice and informs them that HF has no knowledge
of the release of any hazardous materials located on or beneath the Property,
except to the extent (if any) reflected in environmental reports delivered to
Skechers.

j. The Lease is in full force and effect. Neither HF nor to HF’s knowledge,
Skechers Parent, are in default thereunder, nor to HF’s knowledge do any facts
or circumstances exist that, with the passage of time or the giving of notice,
or both, will or could constitute a default by Skechers Parent thereunder.

k. Neither HF nor any of its Affiliates has received any written notice or has
other actual knowledge of any change contemplated in any laws, ordinances or
restrictions affecting the Property, or any judicial or administrative action,
or any action by adjacent landowners with respect to the Property, and neither
HF nor any of its Affiliates has received any written notice or has other actual
knowledge or any other fact, circumstance or condition, financial or otherwise,
which would materially present, limit, impede or render materially more costly
the construction of the Project or the use or operation of the Property as
contemplated by this Agreement.

l. To HF’s and its Affiliates’ actual knowledge, except as disclosed in the
environmental reports delivered by HF to Skechers, there are no acts, omissions,
events, circumstances or conditions on, at, under or in connection with the
Property that constitute a material violation of, or require remediation under,
any applicable environmental law, including any pollution, contamination,
degradation, damage or injury caused by, related to, arising from or in
connection with the generation, use, handling, treatment, storage, disposal,
discharge, emission or release of a hazardous material at the Property (an
“Environmental Condition”). HF or its Affiliate has satisfied all material
applicable governmental reporting requirements in connection with any known
Environmental Condition existing on the Property. To HF’s actual knowledge,
there is no basis for a claim by any third party against HF in connection with
an Environmental Condition at the Property.

m. Neither HF nor its Affiliates has entered into or is subject to any leases,
occupancy agreements, licenses or similar agreements affecting the occupancy or
possession of the Property, other than the Lease (and the Master Lease).

n. Except for required construction permits, HF or its Affiliates have obtained
(or will obtain prior to the closing of the Construction Loan) all material
necessary entitlements to construct the Project as contemplated by this
Agreement and the Project will not constitute a violation of the Property’s
zoning classification or other similar governmental requirements (including,
without limitation, parking requirements).

o. The Master Lease is in full force and effect and neither party is in default
thereunder, nor do any facts or circumstances exist which would, with the
passage of time and/or the giving of notice, constitute a default by either
party thereunder.

p. The Property is not subject to any monetary liens or encumbrances (other than
the lien of current real property taxes), or to any nonmonetary encumbrances
which would have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or Skechers Parent’s ability to
perform its obligations under the Lease, or which could result in the
termination or extinguishment of the Lease.

 

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q. Neither HF nor any HF Affiliate has caused any changes in the zoning or other
entitlements affecting the Property since the date of execution of the Lease
which would have a material adverse effect on Skechers Parent’s rights under the
Lease or to operate its intended business (as described in the Lease) on the
Property.

 

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EXHIBIT “H”

SIERRA CLUB LITIGATION SETTLEMENT AGREEMENT

Exhibit “H”

 

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SETTLEMENT AGREEMENT

This settlement agreement (this “Agreement”) is made at Moreno Valley,
California as of January 7, 2010, between the SIERRA CLUB, a California
not-for-profit corporation, on the one hand, and THE CITY OF MORENO VALLEY (the
“City”), HIGHLAND FAIRVIEW PARTNERS, I, a California general partnership,
HIGHLAND FAIRVIEW PARTNERS, II, a California general partnership, HIGHLAND
FAIRVIEW PARTNERS, III, a Delaware general partnership, and HIGHLAND FAIRVIEW
PARTNERS, IV, a Delaware partnership, and HF LOGISTICS I, LLC, a California
limited liability company, (collectively, “Highland Fairview”), on the other
hand, with the respect to the following facts:

A. Highland Fairview is the owner of a site located in the City. The site, which
contains approximately 158 acres, is bounded on the north by State Route 60, on
the east by Theodore Street, on the south by future Eucalyptus Avenue and on the
west by Redlands Boulevard (the “Project Site”).

B. Highland Fairview intends to develop the Project Site in three phases with a
total of 2,620,000 square feet of logistic uses, associated office space, and
commercial uses (the “Project”). The Project is known as the Highland Fairview
Corporate Park.

C. The first phase of the Project will include a building containing 1,820,000
square feet which has been leased to Skechers USA, Inc. (“Skechers”). The
building will be used primarily for logistic uses and some associated office and
commercial facilities (the “Skechers Building”).

D. Highland Fairview also owns approximately 1,800 acres of land located south
and east of the Project Site which is subject to the Moreno Highlands Specific
Plan (the “Specific Plan Area”) which has vested development rights under a
development agreement. Highland Fairview is considering developing the Specific
Plan Area in the near future and may, as part of that development, seek to
include industrial uses in areas not currently so designated in the Moreno
Highlands Specific Plan.

E. On February 10, 2009, the City Council certified that environmental impact
report P07-157 (the “EIR”) analyzing the environmental impacts of the Project
had been prepared in compliance with the California Environmental Quality Act
(“CEQA”) and then granted a number of approvals including general plan amendment
PA07-0089, change of zone PA07-0088, tentative parcel map 35629, PA07-0090 and
plot plan PA07-0091 for the Project (the “Project Approvals”).

F. The development of the Specific Plan Area is unrelated to the that of the
Project and no development of the Specific Plan Area has been authorized by the
Project Approvals.

G. On February 20. 2009, the Sierra Club filed a lawsuit entitled Sierra Club v.
City of Moreno Valley, Riverside Superior Court Case No. RIC 519566, which
sought to set aside the Project Approvals, primarily on the basis that the EIR
failed to comply with CEQA (the “Lawsuit”).

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H. The Sierra Club, the City and Highland Fairview wish to resolve the dispute
between them concerning the Lawsuit, the Project and the development of the
Project Site on the terms set forth in this Agreement. Further, they seek to
work together to pursue areas of common interest.

I. The Sierra Club wants the City to adopt a climate action plan and a solar
energy incentive program and to require additional Code enforcement for
commercial properties in order to decrease the emission of greenhouse gases,
conserve energy and protect the health of the City’s inhabitants. Highland
Fairview concurs that the plans, programs and actions sought by the Sierra Club
could be beneficial, endorses them and will use its best efforts to encourage
the City to consider them. The City believes that the actions desired by the
Sierra Club are worthy of consideration, but cannot and does not commit to their
adoption. The City Council, in response to the Sierra Club’s concerns, has
directed staff to prepare both a climate action plan, projected to be available
for consideration by the Council within 18 months, and to review possible
participation in the Western Riverside County Council of Governments’ proposed
program to facilitate the production of solar energy, including the use of the
financing mechanism available under AB 811. However, because all of the plans,
programs and actions are solely within the City Council’s legislative authority
which cannot be contracted away neither the City nor Highland Fairview can
guarantee that either of them will be adopted.

J. The Sierra Club is concerned that truck traffic serving the Project could
unduly impact Redlands Boulevard and wants that truck traffic to use. Theodore
Street to the greatest extent practical. Neither the City nor Highland Fairview
has any objection to reducing the amount of truck traffic using Redlands
Boulevard.

K. The Sierra Club has been concerned about truck traffic on a portion of
Ironwood Avenue. The City Council, in response to the Sierra Club’s concerns,
has eliminated the truck route designation for Ironwood Avenue between Moreno
Beach Drive and Theodore Street.

L. The Sierra Club further wants Skechers to take several steps to minimize the
emission of greenhouse gases. These steps are solely within the control of
Skechers and require Skechers’ agreement in order to allow Highland Fairview to
take the actions specified in this Agreement. Highland Fairview concurs that the
actions sought by the Sierra Club could be beneficial and wants to assist the
Sierra Club in seeing that they are seriously considered. However, because
Highland Fairview does not control Skechers’ actions, it cannot guarantee that
any of them will occur.

M. This Agreement is acknowledged by the parties to be a compromise settlement
and does not constitute an admission of the validity of any claims which have
been, or might have been, made in the Lawsuit. However, Highland Fairview
desires that the settlement be comprehensive with respect to the Project and
that there shall be no further opposition to the Project on the terms set out in
this Agreement.

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N. Civil Code § 1542 states:

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release which
if known by him or her must have materially affected his or her settlement with
the debtor.”

IN LIGHT OF THE FOREGOING FACTS, II IS MUTUALLY AGREED THAT:

1. Immediately upon the execution of this Agreement, the Sierra Club shall
dismiss the Lawsuit in its entirety and as to all parties, with prejudice, and
shall then provide conformed copies of the dismissal to Robert L. Hansen, the
City’s Interim City Attorney, and to Kenneth B. Bley, Highland Fairview’s
counsel.

2. Highland Fairview shall include a requirement in the contract with the
general contractor for the Project that all off-road equipment with a horsepower
rating of 25 hp or greater used on the Project Site during the construction of
the Project will meet a minimum Tier II rating and at least 80% of such
equipment will meet a minimum Tier III rating and that the general contractor
certify that this requirement has been satisfied. Highland Fairview shall
provide a copy of the certification to the Sierra Club upon receipt of the
certification from the general contractor

3. Highland Fairview shall include a requirement in the contract with the
general contractor for the Project that diesel-powered portable generators not
be used during the construction of the Project.

4. Highland Fairview shall:

a. Provide the amount of electrical power generated through solar cells mounted
on the roof of the Skechers Building to the extent needed to provide for the
estimated energy demand of the 50,000 sq ft office portion of the Skechers
Building. The construction of the solar cells will be initiated within six
months of Skechers’ occupancy of the Building and completed within 18 months of
Skechers’ occupancy of the Building. Highland Fairview anticipates that AB 811
sources of funds will be used to finance the construction of the solar cells as
well as incentive programs from the City electrical utility which axe comparable
to the programs offered by Southern California Edison, i.e., which will yield
the same economic result, but such programs are not yet adopted by the City and
may not be; and

b. Provide the City and the Sierra Club with the appropriate design documents
demonstrating that the electrical energy demand of the 50,000 sq ft office
portion of the Skechers Building will be met by the solar cells to be mounted on
the roof of the Skechers Building; and

c. Design and construct the roof of the Skechers Building to accommodate the
maximum number of solar cells; and

d. Increase the amount of electrical power generated through solar cells mounted
on the roof of the Skechers Building within ten years to provide 100% of the

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energy needed for the Project to the extent that it is reasonably and
economically feasible for Highland Fairview to do so. This will largely depend
upon the policies adopted by the City’s electrical utility with respect to the
subsidization of solar-generated electrical energy, which requires a rate of not
less than $0.22 per kilowatt-hour, the rate currently paid by Southern
California Edison under its performance-based incentive program, and provisions
on a par with Southern California Edison’s solar subsidy programs. Further,
Highland Fairview will expand the solar energy generating capacity of the
Skechers Building based upon the benefits afforded through AB 811 financing and
grants, incentives provided by the City’s electrical utility, federal and state
tax programs and commercially reasonable financing such that the maximum
investment does not exceed $7,500,000 and the projected after-tax return
generated is at least 5.5% over the rate for 20 year United States Treasury
bonds but not less than 10% in any event. Should Highland Fairview develop solar
capacity beyond the energy usage required by the Project, the excess energy will
be sold to a utility provider at a mutually agreeable negotiated rate. Highland
Fairview can not guarantee that any increase in the amount of electrical power
generated through solar cells will occur because neither the necessary policies
nor the rate to be paid have been adopted by the City and may not be.

5. Highland Fairview shall provide solar water heaters, which may include
supplemental conventional heating sources, throughout the Project for all
personal uses, such as bathrooms and showers, but not for industrial uses.

6. Highland Fairview shall provide the signs required by Mitigation Measure
AQ-11 at locations, and of a size, to be easily readable from future Eucalyptus
Avenue.

7. Highland Fairview shall physically configure the access areas to future
Eucalyptus Avenue so that large trucks (over 10,000 pounds) will be required to
make a left turn, towards Theodore Street, when exiting the Project Site unless
prohibited by the City from doing so.

8. Highland Fairview shall provide on-site signs directing large trucks (over
10,000 pounds) leaving the Project Site to use Theodore Avenue unless prohibited
by the City from doing so.

9. Highland Fairview shall provide the landscaped median in Eucalyptus Avenue
between Redlands Boulevard and Theodore Street in substantially the form
currently planned, as shown on Exhibit A, subject to final approval by the City.

10. Highland Fairview shall provide a disclosure document in substantially the
following form to each buyer/lessee of any residential unit developed on
property owned by Highland Fairview which is located southerly of State Route 60
and within 300 feet of the Project Site. The document shall be signed by the
buyer/lessee and recorded against the unit:

“Buyer/Lessee acknowledges that the property which Buyer/Lessee is
purchasing/leasing is located in the vicinity of the Highland Fairview Corporate
Park project. Buyer/Lessee acknowledges that, in addition to commercial and
office uses, there are, or may be, distribution warehouses for national and
regional

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Companies located within the Corporate Park project. As a result of these uses,
there will be automobile and truck traffic, which may operate on a 24/7 basis
for pick up and delivery of products from various buildings from within the
Corporate Park project. There may also be increased diesel fumes, which contain
toxic air contaminants which are known to cause cancer, noise and light as a
result of the operations of these facilities. A copy of the Highland Fairview
Corporate Park Environmental Impact Report, which includes a detailed evaluation
of the potential impacts of the Corporate Park project, has been made available
for the Buyer’s/Lessee’s review.”

11. Highland Fairview shall within 30 days of the receipt of a written request
from the Sierra Club, contribute $100,000 to the Riverside Land Conservancy. The
contribution may only be used for the preservation of agriculture through the
purchase of agricultural land or of agricultural conservation casements on
agricultural land located in Riverside County.

12. If Highland Fairview includes industrial uses in areas not currently
designated for industrial uses in the Moreno Highlands Specific Plan, it shall
provide buffers of commercial uses within the Specific Plan Area between
industrial uses and residential uses. The extent of the buffers shall be
determined by appropriate technical studies conducted by a qualified third party
air quality expert, selected and paid for by Highland Fairview, subject to the
City’s approval.

13. The Skechers building has been designed with the goal of achieving LEED
silver certification. Highland Fairview shall seek to obtain the highest
commercially reasonable level of LEED certification of the Skechers Building and
shall, in any event, take all of the actions set forth on Exhibit B. As used in
this Agreement, “commercially reasonable” shall mean that the actions involved
are capable of being accomplished in a successful manner within a reasonable
period of time taking into account economic and other circumstances that would
be considered by a prudent commercial entity.

14. Highland Fairview shall submit a formal request to the California Department
of Transportation (“CalTrans”) for the installation of signs to be installed, at
Highland Fairview’s expense, along State Route 60, east bound and west bound,
directing Project traffic to the Theodore Street exit.

15. To the extent consistent with the Project Approvals and adopted City
regulations and policies:

a. The design and installation of improvements and signs shall direct all large
trucks (over 10,000 pounds) to use Theodore Street, rather than Redlands
Boulevard, when entering or leaving the Project Site unless the site-specific
traffic analysis required prior to the approval of a plot plan for Phase III
(condition TE3 of the Project Approvals. City Council Resolution 2009-10)
provides compelling evidence that: ands

(i) Keeping large trucks (over 10,000 pounds) off of Redlands Boulevard will
cause Eucalyptus Avenue. Theodore Street or its on – or off-ramps to State Route
60 to fall below the City’s Level of Service standard; and

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(ii) Mitigation within the limits of the currently planned right of way of
Theodore Street is unavailable to improve the Level of Service to acceptable
levels; and

(iii) Allowing large trucks (over 10,000 pounds) to use Redlands Boulevard will
not cause Redlands Boulevard to fall below the applicable City’s Level of
Service Standards after mitigation.

b. To the extent that any part of subparagraph a above is found not to be
consistent with existing Project Approvals or City regulations or policies,
Highland Fairview shall apply for and the City will consider, under its existing
procedures and preserving the Council’s legislative and discretionary policy
authority, modifications of conditions, and/or amendments to existing Project
Approvals, regulations and policies.

16. The City Council has, in Study Session of October 20, 2009 or previously,
directed City staff to analyze, as quickly as feasible, and then to report back
to the Council, for its consideration without commitment to adoption, each of
the following:

a. The adoption/enforcement of a City-wide commercial truck idling ordinance;
and

b. The acquisition, generation and distribution of “green” energy by the City’s
electric utility; and

c. An amendment of the City’s Municipal Code current lighting standards to
incorporate the guidelines of the International Dark Sky Association and the
exterior lighting standards set forth in the Palm Desert Municipal Code; and

d. The submission of a request to CalTrans and/or the Riverside County
Transportation Commission that a regional traffic mitigation fee be adopted for
the Improvement of State Route 60; and

e. The use of LED lamps in City-owned streetlights.

17. Highland Fairview shall require any user of the Skechers facility, other
than Skechers, and will use reasonable efforts to seek to have Skechers:

a. Have its trucking fleet (all trucks owned and operated by Skechers) and all
trucking carriers that distribute Skechers’ products to its retail stores be
classified as SmartWay 1.0 or higher at the time that it takes possession of the
Skechers building, increase the SmartWay classification to 1.25 for Skechers’
trucking fleet and such other trucking carriers within five years and provide an
annual report to Highland Fairview, which Highland Fairview shall then provide
to the Sierra Club; and

b. Continue to provide incentives to its employees to encourage carpooling; and

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c. Conduct an annual review for five years following the occupancy of the
Skechers Building to determine the level of use of alternatively fueled vehicles
and the demand for designated spaces for such vehicles, beyond the 37 spaces
already designated. Spaces located closest to building entries will be converted
by Highland Fairview from general parking to alternatively fueled vehicle
parking to meet the demand; and

d. Conduct an annual review for five years following the occupancy of the
Skechers Building to determine the level of use of plug-in electrical vehicles
and the demand for plug-in-stations. Additional plug-in-stations will be
provided by Highland Fairview to meet the demand; and

e. Not use diesel-powered “yard goats” in its operations.

18. Highland Fairview shall provide the Sierra Club with notice of the
submission of any application for a discretionary permit for the development of
the Project within five business days of the submission.

19. The Sierra Club shall not sue to invalidate the development, use or
modification of the Project, including, but not limited to, any approvals needed
for the development of any phase of the Project, as long as the development or
use is consistent with the terms of this Agreement and the Project, as analyzed
in the EIR, and any modification will not result in a significant adverse impact
on the environment, as defined in CEQA Guidelines § 15382, as determined by the
City. For the purpose of this Agreement, changes in the manner in which the
Project is financed, in whole or in part, and removal of vegetation within State
Route 60 right-of- way shall not be considered to be significant adverse impacts
on the environment by the Sierra Club. Nothing in this paragraph 19 shall apply
to a modification of the terms of this Agreement.

20. Highland Fairview shall pay Johnson & Sedlack, the Sierra Club’s attorneys,
$183,000 within 10 days of the dismissal of the Lawsuit. Except for this
payment, each party shall bear its own attorneys’ fees and costs incurred in
connection with the Lawsuit and the preparation of this Agreement.

21. Any party alleging a breach of this Agreement shall provide written notice
of the alleged breach to the party alleged to be in breach. That party shall
then have 30 days from receipt of the notice in which to cure the breach or to
begin curing the breach if it is one which cannot be cured within 30 days. If
the breach has not been cured within the 30 day period or, if no effort has been
begun within the 30 day period for a breach which cannot be cured within the
30 day period, then the party alleging the breach shall be entitled to avail
itself of its legal remedies.

22. All notices and communications shall be provided in writing, which may be
delivered by e-mail, to the following addresses:

 

Sierra Club Environmental Law Program:    85 Second Street    San Francisco, CA
94105    Aaron.Isherwood@sierraclub.org

 

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Sierra Club, San Gorgonio Chapter:    Chapter Chair/Conservation Chair    4079
Mission Inn Avenue    Riverside, CA 92501-3204   
san.gorgonio.chapter@sierraclub.org    Sierra Club, Moreno Valley Group:    Ann
Turner-McKibben and George    Hague    P.O. Box 1325    Moreno Valley, CA
92556-1325    morenovalleygroup@yahoo.com with a copy to Raymond W. Johnson,
Esq.:    Johnson & Sedlack    26785 Camino Seco    Temecula, CA 92590   
esqaicp@wildblue.net

The City attention of the City Manager,

w/ copy attention of the City Attorney:

   14177 Frederick Street    P.O. Box 88005    Moreno Valley, CA 92552   
CMOffice@moval.org    CityAttorney@moval.org Highland Fairview:    14225
Corporate Way    Moreno Valley, CA 92553    ibenzeevi@highlandfairview.com with
a copy to Kenneth B. Bley, Esq.:    Cox, Castle & Nicholson LLP    2049 Century
Park East, 28th Floor,    Los Angeles CA 90067    kbley@coxcastle.com

Any address may be changed by providing written notice to all of the other
parties.

23. Except as set forth in this Agreement, the Sierra Club releases the City and
Highland Fairview and their owners, affiliates, members, officers, employees,
agents and attorneys from any and all claims, demands, liabilities, obligations,
costs, expenses, fees, actions, and/or causes of action arising out of, or
connected to, the Lawsuit or the Project, whether known, unknown or suspected
and the Sierra Club hereby waives the provisions of Civil Code § 1542 set forth
in Recital N. The release in this paragraph 23 is a separate consideration for
the release contained in paragraph 24 and the Sierra Club would not have
executed this Agreement nor agreed to this paragraph 23 but for the release
contained in paragraph 24.

24. Except as set forth in this Agreement, the City and Highland Fairview
release the Sierra Club and its members, officers, employees, agents and
attorneys from any and all claims, demands, liabilities, obligations, costs,
expenses, fees, actions, and/or causes of action arising out of, or connected
to, the Lawsuit or the Project, whether known, unknown or suspected and the

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City and Highland Fairview hereby waive the provisions of Civil Code § 1542 set
forth in Recital N. The release in this paragraph 24 is a separate consideration
for the release contained in paragraph 23 and neither the City nor Highland
Fairview would have executed this Agreement nor agreed to this paragraph 24 but
for the release contained in paragraph 23.

25. The rights and obligations of the Sierra Club under this Agreement are
personal to it and may not be transferred or assigned to any other person or
entity. This Agreement is entered into solely for the benefit of the parties
hereto and, with the exception of the Sierra Club, their successors, transferees
and assigns. Other than the parties hereto and, with the exception of the Sierra
Club, their successors, transferees and assigns, no third party shall be
entitled, directly or indirectly, to base any claim, or to have any right
arising from, or related to, this Agreement.

26. The parties to this Agreement shall act in good faith and shall take all
further actions reasonably necessary to effectuate the letter and the spirit of
this Agreement.

27. This Agreement and all rights and obligations arising out of it shall be
construed in accordance with the laws of the State of California.

28. Any litigation arising out of this Agreement shall be conducted only in the
Riverside Superior Court. Only equitable remedies shall be available to the
prevailing party in any such litigation, damages for breach of this Agreement
being expressly waived. Each party to any such litigation shall bear its own
attorneys’ fees and costs, the right to recover them under any statute,
including, but not limited to Code of Civil Procedure § 1021.5, any Rule of
Court or any rule of law being expressly waived.

29. This Agreement contains the entire agreement and understanding concerning
the Lawsuit and the Project and supersedes and replaces all prior negotiations
or proposed agreements, written or oral. Each of the parties hereto acknowledges
that no other party, nor the agents nor the attorneys for any party, has made
any promise, representation or warranty whatsoever, express or implied, not
contained herein, to induce the execution of this Agreement and acknowledges
that this Agreement has not been executed in reliance upon any promise,
representation or warranty not contained herein.

30. This Agreement may not be amended except in a writing signed by all the
parties hereto.

31. The parties to this Agreement hereby acknowledge that they have undertaken
an independent investigation of the facts concerning the Lawsuit and the
Project. The parties expressly assume the risk that the true facts concerning
the foregoing may differ from those currently understood by them.

32. Each individual signing this Agreement represents and warrants that he or
she has been authorized to do so by proper action of the party on whose behalf
he or she has signed.

33. This Agreement may be signed in one or more counterparts and, when all
parties have signed the original or a counterpart, such counterparts, whether
originals, facsimiles or email attachments, together shall constitute one
original document.

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January 7, 2010     SIERRA CLUB     By:   [ILLEGIBLE]       Its: CHAPTER CHAIR,
SAN GORGONIO CHAPTER

 

January 11, 2010     THE CITY OF MORENO VALLEY     By:   [ILLEGIBLE]       Its:
MAYOR

 

January 7, 2010     HIGHLAND FAIRVIEW PARTNERS I     By:   HFP Realty
Investment, LP, its Managing Partner     By:   HFP Realty Holdings, LLC, its
General Partner     By:   /s/ Iddo Benzeevi       Its: President

 

January 7, 2010     HIGHLAND FAIRVIEW PARTNERS II     By:   New Sands Holdings,
LP, its Managing Partner     By:   Sand Holdings, LLC, its General Partner    
By:   /s/ Iddo Benzeevi       Its: President

 

January 7, 2010     HIGHLAND FAIRVIEW PARTNERS III     By:   HFP Realty
Investment, LP, its Managing Partner     By:   HFP Realty Holdings, LLC, its
General Partner     By:   /s/ Iddo Benzeevi       Its: President

10

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January 7, 2010     HIGHLAND FAIRVIEW PARTNERS IV     By:   Sinclair Holdings,
LP, its Managing Partner     By:   Sinclair Realty Holdings, LLC, its General
Partner     By:   Iddo Benzeevi       Its: President

 

January 7, 2010     HF LOGISTICS I, LLC     By:   Iddo Benzeevi       Its:
President

APPROVED AS TO FORM:

 

January 11, 2010     JOHNSON & SEDLACK     By:   /s/ Raymond W. Johnson      

Raymond W. Johnson

Attorneys for the SIERRA CLUB

 

January 11, 2010    

CITY ATTORNEY

OF THE CITY OF MORENO VALLEY

    By:   [ILLEGIBLE]       Its: INTERIM CITY ATTORNEY

 

January 7, 2010     COX CASTLE & NICHOLSON LLP     By:   /s/ Kenneth B. Bley    
Kenneth B. Bley      

Attorneys for HIGHLAND FAIRVIEW

PARTNERS I; HIGHLAND FAIRVIEW

PARTNERS, II, HIGHLAND FAIRVIEW

PARTNERS, III, HIGHLAND FAIRVIEW

PARTNERS, IV and HF LOGISTICS I, LLC

11

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EXHIBIT A

 

LOGO [g255229g98i82.jpg]

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Exhibit B

Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)

 

  •  

Alternative Transportation:

Bicycle Storage & Changing Rooms

The project will provide secure bicycle racks within 200 yards of the building
entrances for 5% or more of all building users and will provide shower and
changing facilities in the building for 0.5% of full-time equivalent occupants.

Low Emission and Fuel Efficient Vehicles

The project will provide preferred parking for low-emission and fuel efficient
vehicles for 5% of the total vehicle parking capacity of the site.

Parking Capacity

The project will meet, but not exceed the number of parking stalls required by
the local zoning requirements and will provide preferred parking for carpools
and vanpools for 5% of the total parking spaces.

Site Development:

Maximum Open Space

As approved by the City of Moreno Valley, the project will provide vegetated
open space within the project boundary in accordance with the local zoning’s
open space requirement.

 

  •  

Storm Water Design:

Quality Control

Highland Fairview will implement the City approved Storm Water Pollution
Prevention Program (SWPPP).

 

  •  

Heat Island Effect:

Roof

The project will use roofing materials having a Solar Reflectance Index
(SRI) equal to or greater than 78 for a minimum of 75% of the roof surface.

 

  •  

Water Efficient Landscaping:

The project will reduce potable water consumption for irrigation by 50% from a
calculated mid-summer baseline case.

The above are based upon existing design criteria and availability of material
and labor. Should some of these conditions adversely change, the above items may
need to be modified.

1 of 5

 

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Exhibit B

Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)

 

  •  

Water Use Reduction:

Reduce Water Usage by 30%

The project will employ strategies that in aggregate use 30% less water than the
water use baseline calculated for the building (not including irrigation).

 

  •  

Optimize Energy Performance:

The project will demonstrate a percentage improvement in the proposed building
performance rating compared to the baseline building performance rating.

 

  •  

On-Site Renewable Energy:

The project will use on-site renewable energy systems (solar) to offset a
portion of building energy cost.

 

  •  

Enhanced Commissioning:

The project began the commissioning process during the design process and will
execute additional activities after systems performance verification is
completed.

 

  •  

Construction Waste Management:

The project will recycle and/or salvage a minimum of 50% (by weight) of
non-hazardous construction and demolition debris.

 

  •  

Recycled Content:

The project will use materials with recycled content such that the sum of
post-consumer recycled content plus one-half of the pre-consumer content
constitutes at least 10% (cost-based) on the total value of the materials in the
project.

 

  •  

Regional Materials:

The project will use building materials or products that have been extracted,
harvested or recovered, as well as manufactured, within 500 miles of the project
site for a minimum of 10% (cost-based) of the total materials value.

The above are based upon existing design criteria and availability of material
and labor. Should some of these conditions adversely change, the above items may
need to be modified.

2 of 5

 

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Exhibit B

Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)

 

  •  

Increased Ventilation:

The project will increase breathing zone outdoor air ventilation rates to all
occupied spaces by at least 30% above the minimum rates required by ASHRAE Std.
62.1-2004.

 

  •  

Construction IAQ Management Plan:

The project will develop and implement an Indoor Air Quality (IAQ) Management
Plan for the construction and pre-occupancy phases of the building.

 

  •  

Low Emitting Materials:

The project will utilize only those paints and coatings that comply with Credit
4.2, 4.3 and 4.4 of the LEED standards.

 

  •  

Indoor Chemical & Pollutant Source Control:

The project will provide entryway systems to reduce the infiltration of dirt and
particulates into the indoor environment. Separate ventilation systems will be
provided for storage areas for hazardous chemicals in order to minimize and
control pollutants in the building.

 

  •  

Daylight and Views:

The project, will achieve day-lighting via skylights for building occupants in
75% of all regularly occupied areas.

 

  •  

Innovation In Design:

The project will utilize locally-sourced concrete and interior fixtures
providing a 40% water use savings.

 

  •  

LEED Accredited Professional:

At least one principal participant of the project team is a LEED Accredited
Professional (AP).

The above are based upon existing design criteria and availability of material
and labor. Should some of these conditions adversely change, the above items may
need to be modified.

3 of 5

 

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Exhibit B

Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)

The Following are Energy-Saving and Other Design Features:

 

  •  

Use of More Shade Trees vs. Palm Trees to Reduce Temperature

As shown in the City-approved Plot Plan package, palm trees used on the site
will be located at the building’s primary entry as part of the decorative entry
treatment, and along the freeway, near gates and building corners as accent
elements. All other trees on the site, in the parking areas, adjacent to the
building, in the landscape areas, and along the freeway will be varieties of
shade trees.

 

  •  

Waterless Urinals

Use of these products was investigated but ultimately rejected based upon
marginal performance and excessive maintenance costs. Very low flow urinals will
be used in the facility which will provide a 30% reduction in water use over
typical low-flow urinals.

 

  •  

Automatic turn on and off for lavatory faucets—only allow 1/2 gal per minute

These products will be installed throughout the building.

 

  •  

Monitoring system that keeps track of all systems so that response can be quick
if one of the systems does not function properly

The Skechers building will include a building systems monitoring program which
will immediately notify maintenance personnel of any system malfunction.

 

  •  

Photo Sensors for Lighting

Motion sensors will be installed in the office areas of the building to turn off
all lighting (except security lighting) when theses areas of the building are
not occupied. A network of thousands of roof-mounted skylights will provide
substantial natural light in the warehouse areas. Sensors will be installed in
the warehouse areas to automatically turn off artificial area lighting when
ambient light is adequate.

 

  •  

Reduce carpet and flooring glue toxics by environmentally friendly carpet and
non toxic glue.

Low VOC carpeting, paint and adhesives will be used throughout the building.
Polished concrete flooring will replace vinyl flooring originally planned for
the warehouse restrooms, break rooms and shipping/receiving areas.

The above are based upon existing design criteria and availability of material
and labor. Should some of these conditions adversely change, the above items may
need to be modified.

4 of 5

 

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Exhibit B

Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)

 

  •  

Recycle of All Used Materials

Recycling bins will be provided at the site for recycling during the operation
of the building. Recycling of construction waste will be required to the
greatest degree practicable. Skechers currently bundles and recycles all
cardboard waste and will provide recycling bins for employee use throughout the
facility. Skechers is exploring opportunities for recycling (mulching) of
damaged wood pallets.

 

  •  

75% of Construction Waste Salvaged or Recycled

The project will salvage or recycle as much construction waste as is feasible,
but in no case less that 50% by weight of such waste. The project will utilize
recycled (crushed) concrete during construction for temporary access roads and
for paving base where acceptable. The project is directing green waste from
clearing operations during construction, to a location for mulching and will be
re-used.

 

  •  

Independent Venting for Toxic Places

The storage of toxic materials, as identified by the State of California, will
be in accordance with all applicable building code requirements including the
independent venting of such storage areas.

 

  •  

Thermal Controls in Various Work Spaces

The warehouse area is not heated or cooled, utilizing a controlled air exchange
system to moderate interior temperatures. The office and commercial areas will
be served by a number of HVAC zones each with its own controls. The units are
equipped with an automatic time switch with an accessible manual override that
allows operation of the system during off-hours.

 

  •  

The building occupant/owner must share whole-project energy and water usage data
for at least five years with the US Green Building Council or Green Building
Certification Institute.

Highland Fairview will provide all documentation used to secure LEED
certification, including any tenant operational documentation. Such
documentation requirements will be addressed in the lease documents.

The above are based upon existing design criteria and availability of material
and labor. Should some of these conditions adversely change, the above items may
need to be modified.

5 of 5

 

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EXHIBIT “I”

SECOND LEASE AMENDMENT

Exhibit “I”

 

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SECOND AMENDMENT TO LEASE AGREEMENT

THIS SECOND AMENDMENT TO LEASE AGREEMENT (“Second Amendment”) is made and
entered into this 12th day of April, 2010 by and between HF LOGISTICS-SKX T1,
LLC, a Delaware limited liability company (“Landlord”) and SKECHERS U.S.A.,
INC., a Delaware corporation (“Tenant”).

RECITALS

A. HF LOGISTICS I, LLC, a Delaware limited liability company and Tenant entered
into that certain Lease Agreement dated September 25, 2007 (the “Original
Lease”), as amended by that certain Amendment to Lease Agreement dated
December 18, 2009 (the “First Amendment”, and collectively, the “Lease”)
pursuant to which HF LOGISTICS I, LLC leased to Tenant certain premises situated
at the northwest corner of Theodore Street and Eucalyptus Avenue in Moreno
Valley, California, as more fully described therein.

B. HF Logistics I, LLC has assigned all of its right, title and interest as
landlord under the Lease to Landlord, and Landlord has assumed the obligations
of HF Logistics I, LLC, as landlord under the Lease.

C. The parties desire to further amend the Lease.

NOW, THEREFORE, for a good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1. The definition “Premises” as defined on page 1 of the Original Lease and
modified in Section 4 of the First Amendment shall mean:

“The Building, together with the parking areas, landscaped areas and other areas
consisting of approximately 82.59 acres of land situated at the NWC of Theodore
Street and Eucalyptus Avenue in Moreno Valley (Rancho Belago), California, as
shown on the draft of Parcel Map No. 35629 attached to this Second Amendment as
“Exhibit “A” (Revised)”.”

For clarification, the approximately 22.37 acres shown on Exhibit “A” (Revised)
attached hereto (which area is identified as Parcel 2), which area comprises the
“Expansion Area”, is not included within the definition of “Premises”.

Notwithstanding the foregoing, it is agreed that until the recordation of a
final parcel map, the Premises and the Expansion Area have been established by
lot line adjustments, and that accordingly the acreage and dimensions thereof
may not be exactly the same as set forth on Exhibit A (Revised). However,
Landlord represents and warrants to Tenant that the acreage and dimensions
thereof will be substantially the same, and that any discrepancies will not
materially impact the rights or obligations of Tenant or Landlord under the
Lease.

 

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2. The Final Plans (as originally defined in Addendum 2 Paragraph 1 of the
Lease) shall be the Plans and Specifications transmitted by HF Logistics I, LLC
to Tenant (by “You Send It”) on January 29, 2010.

3. Tenant acknowledges that title to the Expansion Area is or will be held by HF
Logistics-SKX T2, LLC, a Delaware limited liability company (“T2”), which is an
affiliate of Landlord. In the event that Tenant timely exercises its right to
the Expansion Area pursuant to the Lease, T2 agrees to immediately convey its
interest in the Expansion Area to Landlord; provided, however, if (x) the
Premises are encumbered by a deed of trust at the time Tenant exercises its
expansion option and the beneficiary thereunder will not either finance the
construction of the Expansion Building or consent to the Expansion Area being
encumbered by a new construction loan (or if the ownership of the Expansion Area
by T1 will otherwise impede obtaining construction financing for the
construction of the Expansion Building), or (y) the Premises have been taken by
foreclosure or a transaction in lieu thereof, then T2 shall retain the Expansion
Area, Tenant and T2 shall enter into a new lease on the same terms and
conditions as would have applied to the Expansion Area pursuant to the Lease,
and the Expansion Area shall be deemed removed from the Lease.

4. Tenant acknowledges that the Base Rent under the Lease is Nine Hundred
Thirty-Three Thousand Eight Hundred Ninety-Four and 44/100 Dollars ($933,894.44)
per month, but that it has prepaid only the amount of Six Hundred Seventy-Nine
Thousand Five Hundred Forty Dollars ($679,540). The differential (being Two
Hundred Fifty-Four Thousand Three Hundred Fifty-Four Dollars ($254,354)) shall
be paid by Tenant to Landlord no later than the Commencement Date (as defined in
the Lease).

5. Capitalized terms used in this Second Amendment shall have the same meanings
as set forth in the Lease, unless a different definition is set forth herein.

6. Except as amended herein, all terms and conditions of the Lease shall remain
in full force and effect.

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

 

“LANDLORD”     “TENANT” HF LOGISTICS I, LLC, a Delaware     SKECHERS U.S.A.,
INC., a Delaware limited liability company     corporation By         By      
Iddo Benzeevi, President and       David Weinberg, Chief Operating Officer  
Chief Executive Officer      

2

 

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HF Logistics-SKX T2, LLC, a Delaware limited liability company, hereby joins in
the execution of this Second Amendment to confirm its obligation to be bound by
the provisions of the Lease insofar as they relate to the Expansion Area and
Tenant’s expansion option regarding the same.

 

HF LOGISTICS-SKX T2, LLC, a Delaware

limited liability company

By:  

HF LOGISTICS SKX, LLC, a Delaware

limited liability company, its sole member

  By:  

HF LOGISTICS I, LLC, a

Delaware limited liability

company, its managing member

    By          

Iddo Benzeevi, President and

Chief Executive Officer

  By:  

SKECHERS R.B., LLC, a

Delaware limited liability

company, its managing member

    By:  

SKECHERS U.S.A., Inc., a

Delaware limited liability

company, its sole member

    By          

David Weinberg, Chief

Operating Officer

3

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EXHIBIT “A”

(REVISED)

SITE PLAN

 

LOGO [g255229g92g66.jpg]

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EXHIBIT “J”

INTENTIONALLY OMITTED

Exhibit “J”

 

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EXHIBIT “K”

ESCROW AGREEMENT

Exhibit “K”

 

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ESCROW AGREEMENT

This Escrow Agreement (“Agreement”) is made and entered into this ______ day of
March, 2010, by and between SKECHERS R.B., LLC, a Delaware limited liability
company (“Skechers”), HF LOGISTICS-SKX, LLC, a Delaware limited liability
company (“HF Logistics”), HF LOGISTICS-SKX T1, LLC, a Delaware limited liability
company (“LLC”) and BANK OF AMERICA, N.A. (“Escrow Agent”).

WITNESSETH:

Escrow Agent does hereby acknowledge receipt from Skechers, the sum of Thirty
Million Dollars ($30,000,000), by wire transfer into Escrow Agent’s Account
No. 1499708217 entitled in the name of “Bank of America, N.A. for the benefit of
HF Logistics-SKX T1, LLC” (the “Account”), which funds constitute Skechers’
initial capital contribution to HF Logistics, upon the Closing Date (as defined
below), and the subsequent capital contribution by HF Logistics to the LLC
immediately thereafter.

Escrow Agent shall hold all funds in the Account (including accrued interest) in
escrow, and shall disburse same only in accordance with the provisions of this
Agreement. The Account shall bear interest at Escrow Agent’s usual interest rate
for demand deposit accounts which the parties hereto acknowledge and agree may
be subject to fluctuations in accordance with Escrow Agent’s normal business
practices.

The terms and conditions of the escrow are as follows:

The parties hereto for themselves, their successors and assigns, do hereby agree
as follows:

1. Subject to the provisions of Paragraph 11 below, Escrow Agent shall hold all
funds (including accrued interest) in the Account, to be disbursed on the date
of closing (“Closing Date”) of the construction loan to be extended by Bank of
America, N.A. (as administrative agent and as a lender, “Lender”) to the LLC in
accordance with the commitment dated February 1, 2010 (the “Construction Loan”),
as follows:

(a) all accrued interest in the Account (at Lender’s demand deposit rate)
through the Closing Date shall be promptly disbursed to Skechers on the Closing
Date pursuant to written wire transfer or other disbursement instructions to be
provided by Skechers provided that Escrow Agent shall have no obligation to
disburse such accrued interest unless and until Skechers provides Escrow Agent
with such disbursement instructions, and

(b) the balance of funds in the Account (including interest at Lender’s demand
deposit rate accruing after the Closing Date) shall be disbursed in accordance
with the terms and conditions of the loan documents which evidence and govern
the Construction Loan (collectively, the “Loan Documents”).

 

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(c) Notwithstanding the foregoing, in the event the Closing Date does not occur
on or before June 1, 2010 (unless on or before June 1, 2010, Skechers has given
Escrow Agent written notice to hold the funds in the Account beyond that date),
all funds in the Account (including accrued interest) shall be immediately
disbursed to Skechers according to wire transfer or other disbursement
instructions to be provided to Escrow Agent in writing by Skechers, provided
that Escrow Agent shall have no obligation to disburse such funds unless and
until Skechers provides Escrow Agent with written wire instructions or other
disbursement instructions. Once the funds have been so disbursed, this Agreement
shall automatically terminate and Escrow Agent shall have no further obligations
hereunder.

(d) Upon the occurrence of the Closing Date and the disbursement of the accrued
interest pursuant to Paragraph 1(b) above, (1) this Agreement shall
automatically terminate and Escrow Agent shall have no further obligations
hereunder; and (2) Bank of America, N.A.’s sole obligations with respect to the
Account shall be governed by the terms and conditions of the Loan Documents and
shall arise only in Bank of America, N.A.’s capacity as Administrative Agent and
a Lender under the Loan Documents.

2. This Agreement is a personal one between the parties hereto and the Escrow
Agent, and no amendment of this Agreement by the parties (which shall be in
writing) shall be binding on the Escrow Agent unless and until the Escrow Agent,
in its reasonable discretion, shall give its written consent thereto.

3. No person, firm, corporation or other entity will be recognized by the Escrow
Agent as a successor or assign of any party hereto until there shall be
presented by the Escrow Agent evidence satisfactory to it of such succession or
assignment.

4. The Escrow Agent shall have no duties or responsibilities except as expressly
provided in this Agreement (and no duties or obligations of the Escrow Agent
shall be implied by virtue of this Agreement). The Escrow Agent shall not be
obligated to recognize nor have any liability or responsibility arising under
any other agreement to which the Escrow Agent is not a party, even though
reference thereto may be made herein or a copy thereof attached hereto.

5. The Escrow Agent shall not be responsible for the identity, authority or
rights of any person, firm, corporation or other entity, executing or delivering
or purporting to execute or deliver this Agreement or any document or security
deposited hereunder or any endorsement thereof or assignment thereof.

6. The Escrow Agent shall not be responsible for the sufficiency, genuineness or
validity of or title to any document or funds deposited or to be deposited with
it pursuant to any provisions of this Agreement.

7. The Escrow Agent may rely upon any instrument in writing reasonably believed
by it to be genuine and sufficient and properly presented by the parties hereto,
and shall not be liable or responsible for any action taken or omitted in
accordance with the provisions

2

 

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thereof. The Escrow Agent may assume the validity and accuracy of any statements
or assertions contained in such writing or instrument; and may assume that any
person purporting to give any writing, notice, advice or instruction in
connection with the provisions hereof has been duly authorized to do so. The
Escrow Agent shall not be liable in any manner for the sufficiency or
correctness as to form, manner of execution or validity of any written
instructions delivered to it; nor as to the identity, authority or rights of any
person executing the same.

8. The Escrow Agent shall not be liable or responsible for any act it may do or
omit to do in the exercise of reasonable care.

9. The Escrow Agent may consult with counsel of its own choice and shall have
full and complete authorization and protection for any action taken or suffered
by it hereunder in good faith and in accordance with the opinion of such
counsel. The Escrow Agent shall not be liable for any mistakes of fact or error
of judgment, or for any acts or omissions of any kind unless caused by its
willful misconduct or gross negligence or uncured breach of this Agreement.

10. In case any property held by the Escrow Agent hereunder shall be attached,
garnished or levied upon under any order of court, or the delivery thereof shall
be stayed or enjoined by any order of court, or any other order, judgment or
decree shall be made or entered by any court affecting such property, or any
part thereof, the Escrow Agent is hereby expressly authorized, in its reasonable
discretion, to obey and comply with all writs, orders, judgments or decrees so
entered or issued, and in case the Escrow Agent obeys and complies with any such
writ, order, judgment or decree, except for Escrow Agent’s gross negligence,
willful misconduct or breach of this Agreement, it shall not be liable to any of
the parties hereto, their successors or assigns, or to any other person, firm or
corporation, by reason of such compliance notwithstanding that such writ, order,
judgment or decree be subsequently reversed, modified, annulled, set aside or
vacated.

11. In the event of doubt by the Escrow Agent as to its duties or liabilities
under the provisions of this Agreement, the Escrow Agent may, in its sole
discretion, continue to hold the monies and other property which are the subject
of this escrow until the parties mutually agree to the disbursement thereof and
evidence such agreement by a written instrument delivered to the Escrow Agent,
or until a judgment is entered by a court of competent jurisdiction.
Alternatively, Escrow Agent may deposit all the monies and other property then
held pursuant to this Agreement with the Clerk of the Superior Court in Los
Angeles County, California, and upon notifying all parties concerned of such
action, all liability on the part of the Escrow Agent shall fully terminate,
except to the extent of accounting for any monies or property theretofore
delivered out of escrow. In the event of any suit among the parties hereto, the
prevailing party(ies) shall be entitled to recover from the other party(ies)
reasonable attorneys’ fees and costs incurred, said fees and costs to be charged
and assessed as court costs in favor of the prevailing party(ies). In the event
of any suit wherein Escrow Agent interpleads the subject matter of this escrow,
Escrow Agent shall be entitled to recover from the other parties its reasonable
attorneys’ fees and costs incurred. All parties agree that the Escrow Agent
shall not be liable to any party to this Agreement or any other person, firm,
corporation or other entity for

3

 

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monies and other property subject to this escrow, except for misdelivery thereof
due to breach of this Agreement or gross negligence on the part of the Escrow
Agent.

12. The Escrow Agent shall not be entitled to compensation for its services.
However, Escrow Agent shall be entitled to reimbursement of reasonable
attorneys’ fees and costs to the extent provided in Paragraph 11 above. The
Escrow Agent, at is own cost and expense (except as provided in Paragraph 11),
may employ agents and attorneys for the reasonable protection of the escrow
property held hereunder and of itself. The parties hereto jointly and severally
agree to pay Escrow Agent for any and all costs, expenses and attorneys’ fees to
which it is entitled hereunder upon demand.

13. This Agreement is entered into in the State of Florida and the rights and
obligations of the parties hereto shall be governed by, construed and enforced
in accordance with the laws of such State.

14. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT. ANY OF THE PARTIES HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF SUCH PARTY’S
RIGHT TO TRIAL BY JURY.

15. This Agreement may be executed and delivered (including by facsimile or
other electronic transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.

(signature pages follow)

4

 

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

 

“SKECHERS”      “LLC”

SKECHERS R.B., LLC, a Delaware limited

liability company

    

HF LOGISTICS-SKX T1, LLC, a Delaware

limited liability company

By:  

Skechers U.S.A., Inc, a Delaware

corporation, its sole member

     By:  

HF LOGISTICS -SKX, LLC, a Delaware

limited liability company, its sole member

By:          By:  

HF Logistics I, LLC, a Delaware limited

liability company, its Managing Member

  David Weinberg, Chief Operating Officer               By:             

Iddo Benzeevi, President and Chief

Executive Officer

       By:  

Skechers R.B., LLC, a Delaware limited

liability company, its Managing Member

       By:  

Skechers U.S.A., Inc., a Delaware

Corporation, its sole member

       By:              David Weinberg, Chief Operating Officer

5

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“HF LOGISTICS”      

HF LOGISTICS-SKX, LLC, a Delaware

limited liability company, its sole member

      By:   

HF Logistics I, LLC, a Delaware limited

liability company, its Managing Member

      By:              

Iddo Benzeevi, President and Chief

Executive Officer

      By:   

Skechers R.B., LLC, a Delaware limited

liability company, its Managing Member

      By:   

Skechers U.S.A., Inc., a Delaware

Corporation, its sole member

      By:               David Weinberg, Chief Operating Officer      

6

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By executing this Agreement below, Escrow Agent acknowledges its duties as
Escrow Agent hereunder and agrees to perform its obligations hereunder.

 

“ESCROW AGENT” BANK OF AMERICA, N.A. By:       Its:    

7

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EXHIBIT “L”

ASSIGNMENT OF MASTER LEASE AGREEMENT

Exhibit “L”

 

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ASSIGNMENT OF LEASE

(MASTER LEASE)

THIS ASSIGNMENT OF LEASE (“Assignment”) is made and entered into this 12th day
of April, 2010 (the “Effective Date”) by and among HF LOGISTICS I, LLC, a
Delaware limited liability company (“Assignor”), HF LOGISTICS-SKX T1, LLC, a
Delaware limited liability company (“T1”), and HF LOGISTICS-SKX T2, LLC, a
Delaware limited liability company (“T2”), and together with T1, collectively,
“Assignees”).

WITNESSETH:

For valuable consideration, receipt of which is acknowledged, Assignor and
Assignees agree as follows:

1. Assignment and Assumption.

(a) Assignor hereby assigns and transfers to T1 all right, title and interest of
Assignor in, to and under the lease (the “Lease”) described as follows with
respect to the Development Parcel (as such term is defined in the Limited
Liability Company Agreement of T1): Amended and Restated Master Lease Agreement
dated as of September 25, 2007 between HIGHLAND FAIRVIEW PARTNERS I (formerly
known as Westcoast Properties Partners, a California general partnership),
HIGHLAND FAIRVIEW PARTNERS IV, (formerly known as Sinclair Property Partners, a
Delaware general partnership), HIGHLAND FAIRVIEW PARTNERS III (formerly known as
HF Educational Partners, a Delaware general partnership), and HIGHLAND FAIRVIEW
PARTNERS II (formerly known as Sand Properties Partners, a California general
partnership), as landlord (collectively “Landlord”), and Assignor, as tenant.

(b) Assignor hereby assigns and transfers to T2 all right, title and interest of
Assignor in, to and under the Lease with respect to the Expansion Parcel (as
such term is defined in the Limited Liability Company Agreement of T2):

(c) Assignees hereby accept the foregoing assignment, and assume and agree to
perform all of the covenants and agreements in the Lease to be performed by the
landlord with respect to its respective property that arise from and after the
Effective Date.

2. Assignor Representations. Assignor represents to Assignees as follows:

(a) It is the sole, lawful owner of the tenant’s interest in the Lease and
Assignor has not sold, assigned, encumbered or transferred any interest in the
Lease, or any part thereof, to any other person or entity.

 

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(b) To the best of Assignor’s knowledge, the Lease is in full force and effect
and neither Landlord nor Assignor, as tenant, is in default thereunder.

3. Indemnification. Assignor agrees to indemnify, defend and hold harmless
Assignees from and against any and all claims, liabilities, obligations, losses,
causes of action, judgments, settlements, demands, threats, costs, fines,
penalties (including reasonable fees, expenses, disbursements and investigative
costs of attorneys and consultants) arising out of the performance or
nonperformance by Assignor of all duties and obligations of tenant under the
Lease (to the extent that they relate to the Development Parcel) arising or
accruing prior to the Effective Date. The foregoing indemnification shall
terminate upon the closing of the “Construction Loan” (as defined in that
certain Amended and Restated Limited Liability Company Agreement of HF
LOGISTICS-SKX, LLC entered into as of April 12, 2010, but effective as of
January 30, 2010).

4. Governing Law. This Assignment shall be governed by and construed in
accordance with the laws of the State of California.

5. Successors and Assigns. This Assignment shall be binding upon and shall inure
to the benefit of Assignor and Assignees and their respective successors and
assigns.

6. Capitalized Terms. Capitalized terms used in this Assignment shall have the
same meanings as set forth in the Lease, unless a different definition is set
forth herein.

(signature pages follow)

2

 

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IN WITNESS WHEREOF, Assignor and Assignees have executed this Assignment as of
the Effective Date.

 

“ASSIGNOR”       “T1”

HF LOGISTICS I, LLC, a Delaware

limited liability company

     

HF LOGISTICS-SKX T1, LLC, a

Delaware limited liability company

By            By:  

HF LOGISTICS-SKX, LLC, a

Delaware limited liability company,

  

Iddo Benzeevi, President and

Chief Executive Officer

        its sole member            By:  

HF Logistics I, LLC, a

Delaware limited liability

company, its managing

member

             By:                   

Iddo Benzeevi, President

and Chief Executive

Officer

           By:  

SKECHERS R.B., LLC, a

Delaware limited liability

company, its managing

member

             By:  

Skechers U.S.A., Inc., a

Delaware corporation, its

sole member

               By:                     

David Weinberg, Chief

Operating Officer

3

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“T2”

HF LOGISTICS-SKX T2, LLC, a

Delaware limited liability company

By:  

HF LOGISTICS-SKX, LLC, a

Delaware limited liability company,

its sole member

  By:  

HF Logistics I, LLC, a

Delaware limited liability

company, its managing

member

    By:          

Iddo Benzeevi, President

and Chief Executive

Officer

  By:  

Skechers R.B., LLC, a

Delaware limited liability

company, its managing

member

    By:  

Skechers U.S.A., Inc., a

Delaware corporation, its

sole member

      By:            

David Weinberg, Chief

Operating Officer

4

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EXHIBIT “M”

ASSIGNMENT OF LEASE

Exhibit “M”

 

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ASSIGNMENT OF LEASE

(SKECHERS LEASE)

THIS ASSIGNMENT OF LEASE (“Assignment”) is made and entered into this 12th day
of April, 2010 (the “Effective Date”) by and between HF LOGISTICS I, LLC, a
Delaware limited liability company (“Assignor”) and HF LOGISTICS-SKX T1, LLC, a
Delaware limited liability company (“Assignee”).

WITNESSETH:

For valuable consideration, receipt of which is acknowledged, Assignor and
Assignee agree as follows:

1. Assignment and Assumption.

(a) Assignor hereby assigns and transfers to Assignee all right, title and
interest of Assignor in, to and under the lease (the “Lease”) described as
follows: Lease Agreement dated September 25, 2007 between Assignor, as landlord,
and Skechers U.S.A., Inc., a Delaware corporation (“Tenant”), as tenant, as
amended by that certain Amendment to Lease Agreement dated December 18, 2009, by
and between Assignor and Tenant. The foregoing assignment includes the transfer
by Assignor to Assignee of all rights to prepaid rents (including, without
limitation, operating expenses) under the Lease. It is understood and agreed
that the actual transfer of the prepaid rent and operating expenses (Eight
Hundred Ninety-Eight Thousand Two Hundred Eighty-One Dollars ($898,281)) shall
be made by Assignor to Assignee no later than the Commencement Date (as defined
in the Lease).

(b) Assignee hereby accepts the foregoing assignment, and assumes and agrees to
perform all of the covenants and agreements in the Lease to be performed by the
landlord thereunder that arise from and after the Effective Date.

2. Assignor Representations. Assignor represents to Assignee as follows:

(a) It is the sole, lawful owner of the landlord’s interest in the Lease and
Assignor has not sold, assigned, encumbered or transferred any interest in the
Lease, or any part thereof, to any other person or entity.

(b) To the best of Assignor’s knowledge, the Lease is in full force and effect
and neither Tenant nor Assignor, as landlord, is in default thereunder.

3. Indemnification. Assignor agrees to indemnify, defend and hold harmless
Assignee from and against any and all claims, liabilities, obligations, losses,
causes of action, judgments, settlements, demands, threats, costs, fines,
penalties (including reasonable fees, expenses, disbursements and investigative
costs of attorneys and consultants) arising out of the performance or
nonperformance by Assignor of all duties and obligations of landlord under the
Lease arising or accruing prior to the Effective Date. The foregoing
indemnification shall terminate upon the closing of the “Construction Loan” (as
defined in that certain Amended and Restated Limited Liability Company Agreement
of HF LOGISTICS-SKX, LLC entered into as of April 12, 2010, but effective as of
January 30, 2010).

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4. Governing Law. This Assignment shall be governed by and construed in
accordance with the laws of the State of California.

5. Successors and Assigns. This Assignment shall be binding upon and shall inure
to the benefit of Assignor and Assignee and their respective successors and
assigns.

(signature page follows)

2

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IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as of
the Effective Date.

 

“ASSIGNOR”    “ASSIGNEE”

HF LOGISTICS I, LLC, a Delaware limited

liability company

  

HF LOGISTICS-SKX T1, LLC, a

Delaware limited liability company

By:         By:   

HF LOGISTICS-SKX, LLC, a Delaware

limited liability company, its sole

Iddo Benzeevi, President and Chief Executive Officer       member          By:  

HF Logistics I, LLC, a Delaware

limited liability company, its

managing member

           By:                 

Iddo Benzeevi, President and

Chief Executive Officer

         By:  

SKECHERS R.B., LLC, a

Delaware limited liability

company, its managing member

           By:  

Skechers U.S.A., Inc., a

Delaware corporation, its

sole member

             By:                   

David Weinberg, Chief

Operating Officer

3