Exhibit 10.18AGREEMENT OF LIMITED PARTNERSHIPOFLIBERTY WASHINGTON, LP
 

 
**TABLE OF CONTENTS**       **Page** ARTICLE I CERTAIN DEFINITIONS  1 ARTICLE II ORGANIZATION AND PURPOSE  12 2.01 Continuation of the Company  12 2.02 Name of Company  13 2.03 Principal Place of Business  13 2.04 Purpose  13 2.05 Exclusive Activities of Company  13 2.06 No Payment of Individual Obligations  13 2.07 Title to Assets  13 2.08 Term  13 2.09 Representations and Warranties  13 ARTICLE III CAPITAL  14 3.01 Initial Capital Contributions; Other Related Transactions  14 3.02 Additional Capital Contributions  15 3.03 Failure to Make Capital Contribution  15 3.04 Capital Accounts  16 3.05 Negative Capital Accounts  17 3.06 Return of Capital; No Interest on Amounts in Capital Account  17 ARTICLE IV ALLOCATIONS  17 4.01 Allocation of Profits and Losses  17 4.02 Special Allocations  18 4.03 Curative Allocations  19 4.04 Other Allocation Rules  20 
i

 
       **Page** 4.05 Tax Allocations: Code Section 704(c)  20 ARTICLE V DISTRIBUTIONS  20 5.01 Net Cash Receipts  20 5.02 Cash Flow from Liquidating Sale  21 5.03 Distributions on Liquidation  21 5.04 Distributions in Kind  22 5.05 REIT Distributions  22 5.06 Offsets  22 ARTICLE VI MANAGEMENT  23 6.01 Management and Control of Company Business  23 6.02 Delegation; Standards; Indemnification  25 6.03 Annual Business Plan  27 6.04 Matters Requiring Approval of NYSCRF  28 6.05 Hazardous Materials  30 6.06 Emergency Actions  30 6.07 Regular Meetings  31 6.08 Special Meetings  31 6.09 Third Parties  31 6.10 Other Activities of Partners  32 6.11 Withholding of Tax on Certain Company Distributions  32 6.12 Unrelated Business Taxable Income  33 6.13 Prohibited Transactions  34 6.14 Deemed Approval  35 6.15 Reporting Requirements  35 6.16 Action by Partners  36 
- ii -

 
       **Page** 6.17 Right to Disclose Information  36 6.18 Contracts with Affiliates  36 6.19 Loan Provisions  36 6.20 Project Financing  37 6.21 Title Holding Subsidiaries  38 6.22 Ratification of Recitals  39 ARTICLE VII COMPENSATION OF PARTNERS; PAYMENT OF COMPANY EXPENSES  39 7.01 Compensation from Company  39 7.02 Company Expenses  39 ARTICLE VIII COMPANY BOOKS, RECORDS AND STATEMENTS  40 8.01 Books and Records  40 8.02 Method of Accounting  40 8.03 Fidelity and Other Bonds  40 8.04 Financial Statements; Appraisals and Other Information  40 8.05 Bank Accounts  42 8.06 Tax Matters  42 8.07 Certain Elections  43 ARTICLE IX DEFAULT PROVISIONS  44 9.01 Events of Default  44 9.02 Grace Period  44 9.03 Remedies Reserved  45 ARTICLE X TRANSFER OF PARTNERSHIP INTERESTS; SALE OF PROPERTY  45 10.01 Transfer  45 10.02 Approved Transfers  45 10.03 Withdrawal of a Partner  46 
- iii -

 
       **Page** 10.04 Admission of Transferee as a Partner  47 10.05 Admission of Additional Partners  47 ARTICLE XI DISSOLUTION AND LIQUIDATION  48 11.01 No Dissolution, etc  48 11.02 Events Causing Dissolution  48 11.03 Rights to Continue Business of Company  48 11.04 Dissolution  49 11.05 Liquidation  49 11.06 Reasonable Time for Winding Up  49 11.07 Termination of Company  49 ARTICLE XII BUY-SELL  49 12.01 Invoking the Buy-Sell Provision  49 12.02 Closing  50 12.03 Assumption of Company’s Obligations  51 12.04 Payment of Debts  51 12.05 Assignment of Rights or Dissolution  51 ARTICLE XIII ACQUISITIONS, NEW DEVELOPMENTS AND REDEVELOPMENTS  51 13.01 Exclusive Operations  51 13.02 Yield Parameters  51 13.03 New Acquisitions  51 13.04 Initiation of New Developments and Redevelopments  53 13.05 Development Management Guaranty  53 13.06 Disapproval of Proposed New Development or Redevelopment  53 13.07 First Refusal and Repurchase Rights  54 ARTICLE XIV MISCELLANEOUS PROVISIONS  55 
- iv -

 
       **Page** 14.01 Additional Actions and Documents  55 14.02 Notices  55 14.03 Survival and Reliance  56 14.04 Waivers  56 14.05 Exercise of Rights  56 14.06 Binding Effect  56 14.07 Limitation on Benefits of this Agreement  56 14.08 Amendment Procedure  56 14.09 Entire Agreement  56 14.10 Pronouns, Time  57 14.11 Headings  57 14.12 Governing Law  57 14.13 Partner’s Representatives  57 14.14 Execution in Counterparts  57 14.15 Affirmative Action Policy  57 14.16 Advisor  57 14.17 Insurance  58 14.18 Legal Representation of the Company  58 14.19 Special Covenants  58    Exhibit A - Form of Development Management AgreementExhibit B - Form of Management and Leasing AgreementExhibit C - List of Contributed PropertiesExhibit D - Current Debt of the CompanyExhibit E - Business Plan for 2007Exhibit F - ReservedExhibit G - Form of Leasing Update
- v -

 
   Exhibit H - RecitalsExhibit I - Initial Yield ParametersExhibit J - Report of Independent Public AccountantsExhibit K - Due Diligence for New AcquisitionsExhibit L - Due Diligence for New Developments and RedevelopmentsExhibit M - Insurance Requirements
-vi-

 
AGREEMENT OF LIMITED PARTNERSHIPOFLIBERTY WASHINGTON, LP     THIS AGREEMENT OF LIMITED PARTNERSHIP is made and entered into as of the 4th day of October,2007 (the “Effective Date”), by and between **LIBERTY WASHINGTON VENTURE, LLC**, a Delaware limitedliability company (“General Partner”) as general partner, and **NEW YORK STATE COMMON RETIREMENTFUND**, as limited partner (“NYSCRF”), (General Partner and NYSCRF are sometimes referred tocollectively as “Partners”).     NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, theparties hereby agree as follows:ARTICLE ICERTAIN DEFINITIONS     Unless the context otherwise specifies or requires, the terms defined in this ArticleI shall, for the purposes of this Agreement, have the meaning herein specified. Unlessotherwise specified, all references herein to Articles or Sections are to Articles or Sections ofthis Agreement.     “Acquisition Plan” shall have the meaning set forth in Section 13.03.     “Act” means the Delaware Revised Uniform Limited Partnership Act, as amended from timeto time (or any corresponding provisions of succeeding law).     “Additional Capital Contributions” means, with respect to any Partner, the totalamount contributed to the Company by such Partner pursuant to Section 3.02(a).     “Adjusted Capital Account Deficit” means, with respect to any Partner, the deficitbalance in such Partner’s Capital Account as of the end of the relevant Fiscal Year or period,after (a) crediting to such Capital Account any amounts which such Partner is deemed to beobligated to restore to the Company pursuant to the next-to-last sentences of Regulations Sections1.704-2(g)(1) and 1.704-2(i)(5), and (b) debiting to such Capital Account the items described inRegulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition is intended tocomply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpretedconsistently therewith.     “Advisor” has the meaning set forth in Section 14.16.     “Affiliate” means, when used with reference to a specific Person, any Person directlyor indirectly controlling, controlled by, or under common control with the Person in question. Asused in this definition, the terms “controlling”, “controlled” and “control” mean the possession,directly or indirectly, of the power to direct or cause the direction of the management and
 

 
policies of a Person, whether through the ownership of voting securities, by contract, orotherwise.     “Agreement” means this Agreement of Limited Partnership of Washington, LP, as amendedfrom time to time.     “Approved Vendor” means general contractors, subcontractors, surveyors, titlecompanies, environmental consultants, material suppliers, engineers and other professionals of goodstanding and reputation in the geographic region where the Property is located.     “Annual Business Plan” has the meaning set forth in Section 6.03.     “Auditor” shall mean such national firm of independent certified public accountantswhich shall be selected by the General Partner and reasonably approved by NYSCRF and engagedannually to audit the books and records of the Company and prepare the tax returns of the Company.The initial Auditor shall be Ernst & Young LLP.     “Bankrupt” and “Bankruptcy” each have the meaning set forth in Section11.02.     “Business Day” means Monday through Friday of each week, except that a legal holidayrecognized as such in any of the States of Illinois, New York, Virginia or Pennsylvania, or theDistrict of Columbia, shall not be regarded as a Business Day.     “Call for Capital” has the meaning set forth in Section 3.02(b).     “Capital Account” means the Capital Account maintained for each Partner pursuant toSection 3.04.     “Capital Contributions” means, with respect to any Partner, the total amountcontributed to the capital of the Company by such Partner pursuant to Sections 3.01, 3.02 and3.03(b).     “Capital Transaction” means the sale, exchange, condemnation (or similar eminentdomain taking or disposition in lieu thereof), destruction by casualty, financing or refinancing,or disposition of the Property or any portion thereof.     “Cause”means [The confidential material contained herein has been omitted and has been separately filed with the Commission.]     “Code” means the Internal Revenue Code of 1986, as amended from time to time (or anycorresponding provisions of succeeding law). References to Sections of the Code are to those ineffect on the date of this Agreement and shall include any corresponding future provision of theCode.     “Company” means Liberty Washington, LP, a Delaware limited partnership governed bythis Agreement, as it may from time to time be reconstituted.
- 2 -

 
     “Company Minimum Gain” has the meaning set forth in Regulations Sections 1.704-2(b)(2)and 1.704-2(d).     “Contributed Entities” means the entities identified as such on Exhibit C.     “Contributed Interests” means those ownership interests in the Contributed Entitiesheld by Liberty Property Limited Partnership, which are being contributed to the Company by or onbehalf of the General Partner pursuant to the Contribution Agreement, as identified on ExhibitC.     “Contribution Agreement” means that certain Contribution Agreement dated on or aboutthe date of this Agreement by and among LPLP, NYSCRF and the Company, pursuant to which LPLP iscontributing the Contributed Interests to the Company on behalf of the General Partner, and theGeneral Partner is receiving a credit to its Capital Account pursuant to Section 3.01.     “Cost Overrun” has the meaning set forth in the Development Management Agreement.     “DC Metropolitan Area” shall mean (i) the District of Columbia, (ii) those portions ofthe State of Maryland located within the Interstate 495 “Beltway”, and (iii) the Counties ofLoudon, Fairfax and Arlington, Virginia     “Default” has the meaning set forth in Section 9.01.     “Depreciation” means, for each Fiscal Year or other period, an amount equal to thedepreciation, amortization, or other cost recovery deduction allowable with respect to an asset forsuch Year or period, except that if the Gross Asset Value of an asset differs from its adjustedbasis for Federal income tax purposes at the beginning of such Year or period, then Depreciationshall be an amount which bears the same ratio to such beginning Gross Asset Value as the Federalincome tax depreciation, amortization, or other cost recovery deduction for such Year or periodbears to such beginning adjusted tax basis; provided, however, that if the adjusted tax basis forFederal income tax purposes of an asset at the beginning of such Year or period is zero, thenDepreciation shall be determined with reference to such beginning Gross Asset Value using anyreasonable method selected by the General Partner.     “Development Management Agreement” means an agreement, in substantially the formattached hereto as Exhibit A, to be entered into between the Company or its Subsidiariesthat own Property, and the General Partner (or its Affiliate) from time to time in connection withNew Developments in accordance with ARTICLE XIII, as such agreement may be amended from time totime as permitted herein.     “Effective Date” shall have the meaning set forth in the Preamble to this Agreement.     “Entities” shall mean collectively the Contributed Entities and the PurchasedEntities.     “ERISA” means the Employee Retirement Income Security Act of 1974 and the regulationsissued thereunder, as amended from time to time, and any successor to such Act.     “Extraordinary Cash Flow” means the cash proceeds (including, but not limited to, anyapplicable condemnation, insurance and refinancing proceeds) realized by the Company as a
- 3 -

 
result of a Capital Transaction, increased by the cash interest payments received on suchproceeds, decreased by the sum of the following: (i) any amounts applied in repayment ofany approved debt, (ii) the amount of such proceeds used, set aside or committed by the Company forrepair or replacement of any portion of the Property; (iii) any expenses, costs or liabilitiesincurred by the Company in effecting or obtaining any such Capital Transaction or the proceedsthereof (including, without limitation, attorneys’ fees, court costs, brokerage fees, commissions,title insurance and survey costs, recording fees, and transfer taxes), all of which expenses, costsand liabilities shall be paid from the gross amount of such cash proceeds to the extent thereof.     “Final Plans and Specifications” means the plans and specifications submitted toNYSCRF by the Company to support a request by the General Partner to commence a New Development inaccordance with the Preliminary Plans and Specifications and approved by NYSCRF.     “Final Project Budget” means, as to each New Development, the total budget for theconstruction and leasing of each New Development prepared by the General Partner in accordance withthe Preliminary Project Budget and approved by NYSCRF.     “Fiscal Year” means the calendar year.     “Functional Office Property” means a Property other than a Redevelopment Property thatis acquired, directly or indirectly, at any time by the Company and which at the time of itsacquisition is improved with an existing office building.     “General Partner” means Liberty Washington Venture, LLC.     “Gross Asset Value” means, with respect to any asset, such asset’s adjusted basis forFederal income tax purposes, with the following modifications:          (a) The initial Gross Asset Value of any asset contributed by a Partner to the Company shallbe the gross fair market value of such asset, as determined by the contributing Partner and theGeneral Partner, or where the General Partner is the contributing Partner, by the contributingPartner and NYSCRF. The initial Gross Asset Value of the Interests are set forth on ExhibitC.          (b) The Gross Asset Values of all Company assets shall be adjusted to equal their respectivegross fair market values, as determined by the General Partner subject to the approval of NYSCRF,which shall not unreasonably be withheld, as of the following times: (i) the acquisition of anadditional interest in the Company by any new or existing Partner in exchange for more than ademinimis Capital Contribution; (ii) the distribution by the Company to a Partnerof more than a deminimis amount of property as consideration for an interest inthe Company; and (iii) the liquidation of the Company within the meaning of Regulations Section1.704-1(b)(2)(ii)(g); provided, however that adjustments pursuant to clauses (i) and (ii) aboveshall be made only if the General Partner reasonably determines that such adjustments are necessaryor appropriate to reflect the relative economic interests of the Partners in the Company.
- 4 -

 
          (c) The Gross Asset Value of any Company asset distributed to any Partner shall be adjusted toequal the gross fair market value of such asset on the date of distribution as determined inaccordance with Section 5.04.          (d) The Gross Asset Values of each of the Properties contributed or sold to the Company as ofthe Effective Date, and the components thereof, shall be the amounts set forth next to the name ofthe Property on Exhibits C and D hereto, subject to adjustment of such Exhibits toreflect subsequent transactions and the determination of Gross Asset Values as provided for herein.          (e) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect anyadjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section743(b), but only to the extent that such adjustments are taken into account in determining CapitalAccounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), for purposes of paragraph (f) of thedefinition of Profits and Losses and for purposes of Section 4.02(h) hereof; provided,however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (e) tothe extent the General Partner determines that an adjustment pursuant to subparagraph (b)above in this definition is necessary or appropriate in connection with a transaction that wouldotherwise result in an adjustment pursuant to this subparagraph (e).          (f) If the Gross Asset Value of an asset has been determined or adjusted pursuant to thisSection, then such Gross Asset Value shall thereafter be adjusted by the Depreciation taken intoaccount with respect to such asset for purposes of computing Profits and Losses.          (g) This definition of Gross Asset Value is intended to comply with the Internal Revenue Code,with particular adherence to the provisions of Code Section 704(b) and the Regulations thereunder.     “Guarantors” shall have the meaning set forth in Section 6.20.     “Hazardous Materials” mean (i) any “hazardous waste” as defined by the ResourceConservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended fromtime to time, and regulations promulgated thereunder (“RCRA”); (ii) any “hazardous substance” asdefined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42U.S.C. Section 9601 et seq.), as amended from time to time, and regulations promulgatedthereunder (“CERCLA”) (including petroleum-based products as described therein); (iii) otherpetroleum and petroleum-based products; (iv) asbestos in any quantity or form which would subjectit to regulation under any applicable Hazardous Materials Law (hereinafter defined);(v) polychlorinated biphenyls; (vi) any substance, the presence of which on the Property isprohibited by any Hazardous Materials Law; (vii) any “extremely hazardous substance” or “hazardouschemical” as those terms are defined in the Emergency Planning and Community Right-To-Know Act (42U.S.C. Section 11001 et seq.) as amended from time to time, and regulations promulgated thereunder;(viii) any “chemical substance” as that term is defined in the Toxic Substances Control Act (15U.S.C. Section 2601) as amended from time to time, and regulations promulgated thereunder; (ix) anyhazardous substances identified under the
- 5 -

 
law of the state in which the Property is located; and (x) any other substance, includingtoxic substances, which, by any Hazardous Materials Laws, requires special handling in itscollection, storage, treatment, management, recycling or disposal.     “Hazardous Materials Law” means all Governmental Requirements, including, withoutlimitation, RCRA and CERCLA, relating to the handling, storage, existence of or otherwiseregulating any hazardous wastes, hazardous substances, toxic substances, radioactive materials,pollutants, chemicals, contaminants or industrial substances or relating to the removal orremediation of any of the foregoing.     “Indemnified Party” has the meaning set forth in Section 6.02(f).     “Initial Properties” means the Properties owned by the Entities on the date that theInterests are acquired by the Company pursuant to the Contribution Agreement.     “Interests” shall mean collectively the Contributed Interests and the PurchasedInterests.     “IRR” means the annualized discount rate, compounded as of the last day of eachcalendar month, which equates the sum of the present value of all contributions made by a Partnerto the Company with the sum of the present value of all distributions made to such Partner by theCompany (including distributions of Net Operating Cash Receipts and distributions of ExtraordinaryCash Flow and the value of any distributions in kind made in accordance with Section 5.04),as calculated by reputable and generally accepted financial software applications (such asMicrosoft Excel, Lotus 123 and Argus or, if they are no longer available or generally accepted,such other financial applications as from time to time have the general acceptance of the realestate finance community). For purposes of the foregoing, all contributions and distributions madeprior to the date of this Agreement shall be deemed to have been made on the date of thisAgreement.     “Lakeside, LLC” shall have the meaning set forth in the Recitals to this Agreement.     “Liberty Loan” shall have the meaning set forth in the Recitals to this Agreement.     “Liberty Loan Documents” shall have the meaning set forth in the Recitals to thisAgreement.     “Liquidating Sale” means the sale of substantially all of the then remainingProperties, either in one transaction or in a series of related transactions.     “Liquidation” means (a) when used with reference to the Company, the earlier of (i)the date upon which the Company is terminated under Code Section 708(b)(1)(A), (ii) the date uponwhich the Company ceases to be a going concern, or (iii) the date upon which the Company dissolvesin accordance with ARTICLE XI, and (b) when used with reference to a Partner, the earlier of (i)the date upon which there is a liquidation of such Partner, or (ii) the date upon which there is aliquidation of such Partner’s Partnership Interest for purposes of Code Section 761(d).
- 6 -

 
     “LPLP” means Liberty Property Limited Partnership, a Pennsylvania limited partnershipand the sole member of the General Partner.     “Management and Leasing Agreement” means the Agreement by and between the Company, orits Subsidiary that owns Property, and Manager attached hereto as Exhibit B, as amendedfrom time to time as permitted herein.     “Manager” means Liberty Property Limited Partnership, a Pennsylvania limitedpartnership (an Affiliate of General Partner), or its Affiliate.     “Merger” means that certain merger between Republic Property Trust, RPLP, LibertyProperty Trust, Liberty Acquisition LLC and Liberty Property Limited Partnership pursuant to thatcertain Agreement of Plan and Merger dated July 23, 2007.     “Merger Loan” shall have the meaning set forth in the Recitals to this Agreement.     “Net Cash Receipts” means the sum of Net Operating Cash Receipts and ExtraordinaryCash Flow for the applicable period.     “Net Operating Cash Receipts” means, for any period subject to annual audit ascontemplated by Section 8.04(a) below, the excess of (a) gross cash receipts fromoperations (excluding cash proceeds from Capital Transactions and any security or lease depositsuntil forfeited or otherwise applied to rent due under the leases) of the Company during suchperiod in excess of (b) the aggregate of (i) all operating costs and expenses during such period(not including interest on borrowed money) of the Company paid in cash during such period (withoutdeduction for any charge for cost recovery, depreciation or other expenses not paid in cash), (ii)the cost of debt service, including both interest and principal reductions and any applicable feesunder any approved debt (including, without limitation, the Liberty Loan) paid during such period,and (iii) principal and interest on any Tax Payment Loan. Any increase, from the previous periodto the period under determination, in the amounts of reserves and working capital as reasonablydetermined by the General Partner in accordance with the Annual Business Plan shall be treated as adeduction from Net Operating Cash Receipts for the latter period; and any decrease, from theprevious period to the period under determination, in the amounts of reserves and working capitalas reasonably determined by the General Partner in accordance with the Annual Business Plan shallbe treated as an addition to Net Operating Cash Receipts for the latter period.     “New Development” means any new improvements constructed by the Company pursuant toARTICLE XIII in accordance with the Annual Business Plan or a Development Plan on any Vacant LandProperty owned, directly or indirectly, by the Company.     “New Development Property” means a Property on which the Company has developed a NewDevelopment at any time during the term of this Agreement.     “Non-Recourse Carveouts” shall have the meaning set forth in Section 6.20.
- 7 -

 
     “Nonrecourse Deductions” has the meaning set forth in Regulations Section1.704-2(b)(1). The amount of Nonrecourse Deductions for a Fiscal Year shall be determined inaccordance with the provisions of Regulations Section 1.704-2(c).     “Nonrecourse Liability” has the meaning set forth in Regulations Section1.704-2(b)(3).     “Partner” or “Partners” means General Partner, NYSCRF and such successors,assigns or additional Partners as may be admitted to the Company pursuant to the terms of thisAgreement.     “Partner Nonrecourse Debt” has the meaning set forth in Regulations Section1.704-2(b)(4).     “Partner Nonrecourse Debt Minimum Gain” means an amount, with respect to each PartnerNonrecourse Debt, equal to the Company Minimum Gain that would result if such Partner NonrecourseDebt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section1.704-2(i)(3).     “Partner Nonrecourse Deductions” has the meaning set forth in Regulations Sections1.704-2(i)(1) and 1.704-2(i)(2).     “Partnership Interest” means, as to any Partner, all of the interest of such Partnerin the Company including, without limitation, such Partner’s right to a distributive share of theprofits, losses, and distributions of the Company and to a distributive share of Company Assets.     “Percentage Interest” means, as of the Effective Date, seventy-five percent (75%) forNYSCRF and twenty-five percent (25%) for General Partner respectively, unless and until changed asprovided in this Agreement.     “Performance Standards” means (i) achieving leasing rates on renewals and new leasesat each Property substantially consistent with market rates for similar properties in suchsubmarket, (ii) achieving and maintaining occupancy rates on average for the Properties in asubmarket substantially consistent with occupancy rates for similar type properties in suchsubmarket, (iii) maintaining in each Fiscal Year on a Company wide basis non-reimbursed capitalexpenditures at or below the amounts budgeted in the approved Annual Business Plan, (iv) timelydelivery of financial and managerial reports in accordance with the provisions of Section8.04 and (v) performance substantially economically consistent with the Annual Business Plan.     “Person” means any individual, corporation, association, company, limited liabilitycompany, joint venture, trust, estate, or other entity or organization.     “Preliminary Plans and Specifications” means the plans and specifications submitted toNYSCRF by the Company to support a request by the General Partner to commence a New Development orthe redevelopment of a Redevelopment Property.     “Preliminary Project Budget” means the budget for a New Development submitted toNYSCRF by the Company to support a request by the General Partner to commence a New Development orthe redevelopment of a Redevelopment Property, including a pro forma operating budget.
- 8 -

 
     “Prime Rate” means the prime rate published by the Wall Street Journal, or anysuccessor publication reasonably approved by the Partners, from time to time.     “Profits” and “Losses” means, for each Fiscal Year or other period, an amountequal to the Company’s taxable income or loss for such Year or period, determined in accordancewith Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction requiredto be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income orloss), with the following adjustments:          (a) Any income of the Company that is exempt from Federal income tax and not otherwise takeninto account in computing Profits or Losses pursuant to this Section shall be added to such taxableincome or loss;          (b) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as CodeSection 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and nototherwise taken into account in computing Profits or Losses pursuant to this Section, shall besubtracted from such taxable income or loss;          (c) In the event the Gross Asset Value of any Company Asset is adjusted pursuant to anyprovision of this Agreement in accordance with the definition of “Gross Asset Value” above, theamount of such adjustment shall be taken into account as gain or loss from the disposition of suchAsset for purposes of computing Profits or Losses;          (d) Gain or loss resulting from any disposition of property with respect to which gain or lossis recognized for Federal income tax purposes shall be computed by reference to the Gross AssetValue of the property disposed of, notwithstanding that the adjusted tax basis of such propertydiffers from its Gross Asset Value;          (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken intoaccount in computing such taxable income or loss, there shall be taken into account Depreciationfor such Fiscal Year or other period, computed in accordance with the definition of “Depreciation”above;          (f) To the extent an adjustment to the adjusted tax basis of any Company Asset pursuant toCode Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section1.704-1(b)(2)(iv)(m)(2) or (4) to be taken into account in determining Capital Accounts as a resultof a distribution other than in liquidation of a Partner’s interest in the Company, the amount ofsuch adjustment shall be treated as an item of gain (if the adjustment increases the basis of suchasset) or loss (if the adjustment decreases the basis of such asset) from the disposition of suchasset and shall be taken into account for purposes of computing Profits or Losses;          (g) Notwithstanding any other provision of this Section, any items, which are speciallyallocated pursuant to Section 4.02, or Section 4.04 shall not be taken into accountin computing Profits or Losses; and          (h) The amounts of the items of Company income, gain, loss, or deduction available to bespecially allocated pursuant to Sections 4.02 and 4.03 but not previously taken
- 9 -

 
into account because of the restrictions of paragraph (g) shall be determined by applyingrules analogous to those set forth in this Section.     “Project Financing” shall have the meaning set forth in Section 6.20.     “Property” or “Properties” means each and all of the real estate including,but not limited to (i) the land and improvements thereon owned, directly or indirectly, by theEntities and acquired by the Company by contribution of the Contributed Interests pursuant to theContribution Agreement and purchase of the Purchased Interests as described in the Recitals to thisAgreement, (ii) all additional real estate acquired in accordance with the Annual Business Plan oran Acquisition Plan, and (iii) all improvements, fixtures and personal property owned, directly orindirectly, by the Company and located thereon, in each case until disposed of by the Company inaccordance with this Agreement. The present and future Properties are comprised of New DevelopmentProperties, Redevelopment Properties, Functional Office Properties, and Vacant Land Properties.     “Purchase Money Loan Documents” shall have the meaning set forth in the Recitals tothis Agreement.     “Purchase Money Note” shall have the meaning set forth in the Recitals to thisAgreement.     “Purchase Price” shall have the meaning set forth in the Recitals to this Agreement.     “Purchased Entities” shall have the meaning set forth in the Recitals to thisAgreement.     “Purchased Interests” shall have the meaning set forth in the Recitals to thisAgreement..     “Recitals” means the recitals set forth on Exhibit H attached hereto.     “Recourse Obligations” shall have the meaning set forth in Section 6.20.     “Redevelopment Property” means an improved Property or a land position acquired by theCompany that the Partners mutually agree should be considered as such due to any one or more of thefollowing factors: existing occupancy; anticipated tenant expirations; amount of capitalexpenditures intended to be invested to rehabilitate the Property, or; the anticipated yields onthe investment. The Partners acknowledge that among the Initial Properties, 1129 29th Avenue andthe potential additional Floor Area Ratio that may become available in Republic Park are deemed tobe Redevelopment Property     “Regulations” means the Income Tax Regulations promulgated under the Code as suchregulations may be amended from time to time (including Temporary Regulations). References toSections of the Regulations are to those in effect on the date of this Agreement and shall includeany corresponding future provision of the Regulations.     “Regulatory Allocations” has the meaning set forth in Section 4.03.     “REIT” means a “real estate investment trust” within the meaning of the Code.
- 10 -

 
     “RPLP” means Republic Property Limited Partnership, a Delaware limited partnership.     “Section 12.01 Notice” means the notice given pursuant to Section 12.01 ofthis Agreement.     “Subsidiary” means any entity taxable as a company for federal income tax purposes inwhich the Company owns any direct or indirect interest in the profits, losses or capital of theentity.     “Tax Matters Partner” has the meaning set forth in Section 8.06(b).     “Tax Payment Loan” has the meaning set forth in Section 6.11(a).     “Title Holding Subsidiary” has the meaning set forth in Section 6.21.     “Transfer” has the meaning set forth in Section 10.01(a)     “Transferee Partner” means any Partner who has acquired any Partnership Interest bytransfer or otherwise from any other Partner.     “UBTI” means unrelated business taxable income within the meaning of Section 512 ofthe Code.     “Unleveraged Development IRR” shall mean the IRR for all contributions by and alldistributions to NYSCRF with respect solely to New Development Properties, Redevelopment Propertiesand Vacant Land Properties, calculated based on the assumptions that: (a) all funds borrowed by theCompany from third parties from the execution of this Agreement through the Liquidating Sale withrespect to such Properties shall be treated as though such funds had been obtained by the Companyas Capital Contributions from the Partners in proportion to their respective Percentage Interestsat the time of each such borrowing by the Company, (b) all payments of principal and interest onsuch borrowed funds with respect to such Properties shall be treated as though such payments hadbeen distributed by the Company to the Partners in proportion to their respective PercentageInterests at the time of each such payment, and (c) all such borrowed funds to the extent nottheretofore repaid shall be treated as having been repaid at the time of calculation. If acontribution, distribution or third-party loan relates partly to one or more New DevelopmentProperties, Redevelopment Properties and Vacant Land Properties, and partly to one or moreFunctional Office Properties, the amount thereof (or the amount of principal or interest relatingthereto, in the case of a third-party loan) shall be allocated in an equitable manner based on theextent to which the respective class of Properties contributed to or was responsible for the amountin question.     “Unleveraged IRR Target” shall be satisfied if, in connection with a Liquidating Sale,both of the following are true: [The confidential material contained herein has been omitted and has been separately filed with the Commission.]
- 11 -

 
     “Unleveraged Functional Office IRR” shall mean the IRR for all contributions by andall distributions to NYSCRF with respect solely to Functional Office Properties, calculated basedon the assumptions that: (a) all funds borrowed by the Company from third parties from theexecution of this Agreement through the Liquidating Sale with respect to such Properties shall betreated as though such funds had been obtained by the Company as Capital Contributions from thePartners in proportion to their respective Percentage Interests at the time of each such borrowingby the Company, (b) all payments of principal and interest on such borrowed funds with respect tosuch Properties shall be treated as though such payments had been distributed by the Company to thePartners in proportion to their respective Percentage Interests at the time of each such payment,and (c) all such borrowed funds to the extent not theretofore repaid shall be treated as havingbeen repaid at the time of calculation. If a contribution, distribution or third-party loanrelates partly to one or more New Development Properties, Redevelopment Properties and Vacant LandProperties, and partly to one or more Functional Office Properties, the amount thereof (or theamount of principal or interest relating thereto, in the case of a third-party loan) shall beallocated in an equitable manner based on the extent to which the respective class of Propertiescontributed to or was responsible for the amount in question.     “Unreturned Capital Contribution” means the cumulative Capital Contributions of aPartner, reduced, but not below $0, by the cumulative amounts distributed to that Partner pursuantto Section 5.02(a) hereof.     “Vacant Land Property” means a Property which is acquired at any time by the Companyand which is either (a) unimproved except for site work, or (b) improved with buildings orstructures which pursuant to the Acquisition Plan relating to such Property are planned to besubstantially demolished by the Company.     “WillowWood, LLC” shall have the meaning set forth in the Recitals to this Agreement.ARTICLE IIORGANIZATION AND PURPOSE     2.01 Continuation of the Company. A Certificate of Limited Partnership has been filedwith the State of Delaware and a certificate to do business has been filed with the State ofVirginia and the District of Columbia. The Partners hereby form the Company as a limitedpartnership pursuant to the provisions of the Act and enter into this Agreement in order toestablish the rights, duties, and relationship of the Partners. The General Partner shall causethe Company to continuously maintain in the State of Delaware a registered agent and registeredoffice for services of process, and to continuously maintain the Company’s qualification to dobusiness in the State of Virginia, the District of Columbia and, if the Company or its Subsidiariesown Property in Maryland, the State of Maryland. If the laws of any jurisdiction in which theCompany transacts business so require, the General Partner shall file, with the appropriate officein that jurisdiction, all documents necessary for the Company to qualify to transact business. ThePartners shall execute, acknowledge, and cause to be filed for record, in the place or places
- 12 -

 
and manner prescribed by law, any amendments to this Agreement as may be required, either bythe Act, by the laws of any jurisdiction in which the Company transacts business, or by thisAgreement, to reflect changes in the information contained herein or otherwise to comply with therequirements of law for the continuation, preservation, and operation of the Company as apartnership under the Act.     2.02 Name of Company. The name of the Company shall be Liberty Washington, LP, andall business of the Company shall be conducted in such name.     2.03 Principal Place of Business. The principal place of business of the Companyshall be located at 500 Chesterfield Parkway, Malvern, PA 19355, or such other place or places asthe General Partner may from time to time determine, provided that the General Partner shall givewritten notice thereof to the Partners within five (5) days after the effective date of any suchchange. The General Partner may establish and maintain such other offices and additional places ofbusiness of the Company as it deems appropriate.     2.04 Purpose. The purpose of the Company shall be: (a) to acquire, own, develop,re-develop, improve, operate, lease and manage office properties in the DC Metropolitan Area, (b)to sell and otherwise dispose of any or all such properties, (c) to undertake any and all actionsnecessary or incidental to any of the foregoing activities, and (d) to take or cause to be takenall actions and to perform or cause to be performed all functions necessary or appropriate topromote the business of the Company and to realize and carry out its purposes.     2.05 Exclusive Activities of Company. Except as otherwise provided in this Agreement,the Company shall not engage in any other activity or business other than as specified underSection 2.04, and no Partner shall have any authority to hold itself out as the agent ofany other Partner or as a Partner of the Company with respect to any other business or activity.     2.06 No Payment of Individual Obligations. The Partners shall use the Company’scredit and assets solely for the benefit of the Company. No asset of the Company shall betransferred or encumbered for or in payment of any individual obligation of any Partner.     2.07 Title to Assets. All Company assets shall be owned by and held in the name ofthe Company or in the name of a wholly-owned subsidiary of the Company. No Partner shall have anyownership interest in any Company asset in its individual name or right, and each Partner’sinterest in the Company shall be personal property for all purposes.     2.08 Term. The Company shall continue in perpetuity unless and until the Company isdissolved and liquidated in accordance with the provisions of ARTICLE XI.     2.09 Representations and Warranties.          (a) Each Partner hereby represents and warrants to the Company and to the other Partners that:               (i) it is duly organized, validly existing, and in good standing under applicable law, it hasfull and unrestricted right, authority and power to enter into this Agreement
- 13 -

 
and to perform its obligations hereunder; this Agreement constitutes a valid and bindingobligation of such Partner, enforceable in accordance with its terms; and               (ii) the representations and warranties made by such Partner in the Contribution Agreement aretrue and correct in all material respects on and as of the date of this Agreement.          (b) The representationsand warranties made by each Partner under Section 2.09(a)(i)shall be deemed to have been remade by such Partner as of the date of each Call for Capital andeach Capital Contribution pursuant to such Call, and shall survive the dissolution and liquidationof the Company or such Partner.ARTICLE IIICAPITAL     3.01 Initial Capital Contributions; Other Related Transactions. In accordance withthe Contribution Agreement, the following events and transactions have occurred, or will occur, onor before the Effective Date:          (a) On or before the Effective Date, NYSCRF has made a contribution to the Company in theamount of $415,063,748.00, which amount shall be credited to NYSCRF’s Capital Account.          (b) On or before the Effective Date, LPLP, on behalf of the General Partner, has contributedor shall contribute and convey the Contributed Interests to the Company, in satisfaction of theMerger Loan, to the extent thereof, and the balance as a contribution to the capital of theCompany. The Contributed Interests shall be free and clear of all liens, security interests,pledges, assignments, claims, options, encumbrances, charges, commitments, and equitable interestsor rights of others, of any kind whatsoever, other than the Liberty Loan. On the Effective Date,the Property owned directly or indirectly by the Contributed Entities shall be free and clear ofall mortgages and other liens and encumbrances, except for the Assumed Financing (defined below) oras otherwise approved under the Contribution Agreement. Simultaneously with the contribution tothe Company of the Contributed Interests, LPLP has or shall contribute to the Company, on behalf ofthe General Partner, the lender’s rights and interests in and to the Purchase Money Loan Documents.The foregoing contributions described in this Section 3.01(b) have an aggregate value forpurposes of this Agreement of $138,354,583.00, which amount shall be credited to the CapitalAccount of the General Partner.          (c) Certain of the Properties owned (directly or indirectly) by certain of the Entities haveexisting mortgage financing with those lenders, and in those amounts, identified on ExhibitD hereto (the “Assumed Financing”). By acceptance of the contribution of the ContributedInterests to the Company and the purchase of the Purchased Interests by the Company, the Companyshall be deemed to have assumed the Assumed Financing.          (d) By virtue of the assignment to, and assumption by, the Company of the Liberty LoanDocuments, as described in the Recitals to this Agreement, the Company shall be
- 14 -

 
deemed to have obtained secured financing in the principal amount of $59,500,000.00. Theprincipal amount of, and interests securing the Liberty Loan are depicted on Exhibit D.          (e) The Partners acknowledge that the contribution amounts set forth in Section3.01(a) and Section 3.01(b) include estimated closing costs of the Company, and thePartners intend to adjust their initial capital contributions based on a reconciliation andproration of such costs undertaken post-Closing in accordance with the Contribution Agreement.     3.02 Additional Capital Contributions.          (a) NYSCRF and the General Partner shall each make Additional Capital Contributions to theCompany in proportion to their Percentage Interests from time to time as may be required to (i)fund the costs of development, construction and lease-up (net of the proceeds of any third-partydebt incurred for such development activities) of any New Development or Redevelopment pursuant toARTICLE XIII (but not including Cost Overruns which shall be the responsibility of theDevelopment Manager under the Development Management Agreement), or (ii) fund the acquisition costs(net of the proceeds of any third-party debt incurred for such acquisition) of any additionalProperty acquired by the Company in accordance with a jointly-approved Acquisition Plan adoptedpursuant to Section 13.03. The Partners expect and intend that, except in the case of thedevelopment, construction and lease-up costs of the New Developments and Redevelopments and theacquisition costs for additional property acquisitions, any cash requirements of the Company willbe provided from the rentals received by the Company and, if approved by the Partners, by loansfrom one or more Partners, at such Partners’ option, and loans from third parties, and no Partnershall be required to make any additional capital contribution to the Company therefor.          (b) When required pursuant to Section 3.02(a), each Partner shall contribute in cashits respective Additional Capital Contribution to the Company on not less than ten (10) days priorwritten notice after the General Partner’s call therefor (each a “Call for Capital”).          (c) If any amounts shall become due and payable under the Purchase Money Loan Documents, theGeneral Partner shall make an Additional Capital Contribution to the Company equal to twenty-fivepercent (25%) of all such amounts.     3.03 Failure to Make Capital Contribution. If any Partner fails to make any CapitalContribution required to be made by such Partner under Section 3.01 or Section 3.02within 10 days after the same becomes due and payable (the “Defaulting Partner”), one or more ofthe other Partners (the “Contributing Partner”) may (but without obligation to do so), within 15days after the expiration of said 10-day period, contribute to the Company an additional amountequal to the Defaulting Partner’s unpaid Capital Contribution and elect to treat such contributionas provided in either Section 3.03(a) or Section 3.03(b). If the ContributingPartner fails to make such election within said 15-day period, it shall be deemed to have electedto treat such contribution as provided in Section 3.03(b).          (a) The Contributing Partner may treat such contribution as a loan to the Defaulting Partner(to be due and payable solely out of distributions otherwise payable to the Defaulting Partnerhereunder) followed by a contribution of the proceeds thereof to the Company
- 15 -

 
to fund the Capital Contribution otherwise required to be made from the Defaulting Partner.Until the loan to the Defaulting Partner shall have been repaid together with interest at the rateequal to the Prime Rate plus five percentage points, or the maximum rate permitted under applicablelaw, whichever is less, calculated upon the outstanding principal balance of such loan as of thefirst day of each month, all distributions otherwise to be made to the Defaulting Partner hereundershall be distributed, for the Defaulting Partner’s account, by payment of the same to theContributing Partner, and shall be applied against the balance owed by the Defaulting Partner tothe Contributing Partner.          (b) [The confidential material contained herein hasbeen omitted and has been separately filed with the Commission.]          (c) Any change in Percentage Interests pursuant to this Section 3.03(b) shall notaffect the amount of any Partner’s Capital Contributions for purposes of determining the amount towhich such Partner is entitled pursuant to Section 5.02(a), to the extent attributable toSection 5.02(a).     3.04 Capital Accounts.          (a) The Company shall establish and maintain a separate Capital Account for each Partner inaccordance with the following provisions:               (i) To each Partner’s Capital Account there shall be credited (A) the amount of moneycontributed by such Partner to the Company, (B) the fair market value of property contributed bysuch Partner to the Company (net of any liabilities secured by such property that the Company isconsidered to assume or take subject to under Code Section 752) (the Partners agreeing that thefair market value of the Properties contributed by the General Partner to the Partnership on thedate of this Agreement have fair market values equal to their Gross Asset Value as set forth inSection 3.01), and (C) such Partner’s distributive share of Profits and any items in thenature of income or gain which are specially allocated to such Partner pursuant to ARTICLE IV; and               (ii) To each Partner’s Capital Account there shall be debited (A) the amount of moneydistributed to such Partner by the Company, (B) the fair market value of any
- 16 -

 
Company Asset distributed to such Partner by the Company (net of any liabilities secured bysuch Asset that such Partner is considered to assume or take subject to under Code Section 752),and (C) such Partner’s distributive share of Losses and any items in the nature of expenses orlosses which are properly allocated to such Partner pursuant to any Section of ARTICLE IV.     The foregoing provisions and the other provisions of this Agreement relating to themaintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), andshall be interpreted and applied in a manner consistent with such Regulations. In the event theGeneral Partner shall determine that it is prudent to modify the manner in which the CapitalAccounts, or any debits or credits thereto, are computed in order to comply with such Regulations,the General Partner may make such modification, provided that it will not have any adverse effecton the amounts distributable to any Partner pursuant to this Agreement. The General Partner alsoshall (1) make any adjustments that are necessary or appropriate to maintain equality between thecombined Capital Accounts of the Partners and the total amount of Company capital reflected on theCompany’s balance sheet, as computed for book purposes in accordance with Regulations Section1.704-1(b)(2)(iv)(g), and (2) make any appropriate modifications in the event unanticipated eventsmight otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) subject,however, to the limitation on modifications having any adverse effect on amounts to be distributedto a Partner as provided in the preceding sentence. Any questions with respect to a Partner’sCapital Account shall be resolved by the General Partner in its reasonable discretion, applyingprinciples consistent with this Agreement.          (b) Any transferee of a portion or all of a Partner’s Partnership Interest shall succeed tothe Capital Account of the transferor Partner to the extent it relates to the Partnership Interesttransferred.     3.05 Negative Capital Accounts. Except to the extent Partners are required to makecontributions to the capital of the Company under Section 3.01 and Section 3.02, noPartner shall be required to pay to the Company or to any other Partner any deficit or negativebalance which may exist in such Partner’s Capital Account from time to time or upon Liquidation ofthe Company. A negative Capital Account shall not be considered a loan from or an asset of theCompany.     3.06 Return of Capital; No Interest on Amounts in Capital Account. Except upondissolution of the Company or as may be expressly set forth in this Agreement, no Partner shallhave the right to demand or receive the return of any of its aggregate Capital Contributions or anypart of its Capital Account or be entitled to receive any interest on its Capital Contributions orits outstanding Capital Account balance.ARTICLE IVALLOCATIONS     4.01 Allocation of Profits and Losses.           (a) After giving effect to the allocations required by Section 4.03 of this Agreement,if any, and subject to the other limitations in this ARTICLE IV, Profits and Losses
- 17 -

 
for any taxable year of the Partnership shall be allocated to the Capital Accounts of thePartners so as to produce, as nearly as possible, Capital Account balances for the Partners (takinginto account all prior allocations and distributions) which equal the amount to which the Partnerswould be entitled as a liquidating distribution from the Partnership upon a hypotheticalliquidation in which the net proceeds were distributed in accordance with the priorities set forthin Section 5.02 and as if the net proceeds available for distribution were an amount equalto the aggregate positive balance in the Partners’ Capital Accounts computed after taking intoaccount all allocations of Profits and Losses (or items thereof) for the taxable year, includingthose pursuant to this Section 4.01.          (b) If the allocation of all or any portion of Partnership Losses for a taxable year (or itemsthereof) would cause or increase a negative balance in the Adjusted Capital Account of any LimitedPartner, such Loss (or item thereof) shall be allocated to those Limited Partners, if any, havingpositive remaining Adjusted Capital Account balances. Any remaining amount of such PartnershipLosses (or items thereof) shall be allocated 100 percent (100%) to the General Partner.     4.02 Special Allocations. The following special allocations shall be made in thefollowing order:          (a) Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding any otherprovision of this ARTICLE IV, if there is a net decrease in Company Minimum Gain with respect toany Fiscal Year, each Partner shall be specially allocated items of Company income and gain forsuch Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Partner’s shareof the net decrease in Company Minimum Gain, determined in accordance with Regulations Section1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to therespective amounts required to be allocated to each Partner pursuant thereto. The items to be soallocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and1.704-2(j)(2). This Section 4.03(a) is intended to comply with the minimum gain chargebackrequirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.          (b) Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding anyother provisions of this ARTICLE IV, if there is a net decrease in Partner Nonrecourse Debt MinimumGain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Person who has a shareof the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated itemsof Company income and gain for such Year (and, if necessary, subsequent Fiscal Years) in an amountequal to such Partner’s share of the net decrease in Partner Nonrecourse Debt Minimum Gainattributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to therespective amounts required to be allocated to each Partner pursuant thereto. The items to be soallocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and1.704-2(j)(2). This Section 4.02(b) is intended to comply with the minimum gain chargebackrequirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
- 18 -

 
          (c) In the event any Partner unexpectedly receives any adjustments, allocations ordistributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items ofCompany income and gain shall be specially allocated to such Partner in an amount and mannersufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital AccountDeficit of such Partner as quickly as possible, provided that an allocation pursuant to thisSection 4.02(c) shall be made if and only to the extent that such Partner would have anAdjusted Capital Account Deficit after all other allocations provided for in this ARTICLE IV havebeen tentatively made as if this Section 4.02(c) were not in this Agreement.          (d) In the event any Partner has a deficit Capital Account at the end of any Company FiscalYear which is in excess of the sum such Partner is obligated, or is deemed to be obligated, torestore pursuant to the next-to-last sentences of Regulations Sections 1.704-2(g)(1) and1.704-2(i)(5), each such Partner shall be specially allocated items of Company income and gain inthe amount of such excess as quickly as possible, provided that an allocation pursuant to thisSection 4.02(d) shall be made if and only to the extent that such Partner would have adeficit Capital Account in excess of such sum after all other allocations provided for in thisARTICLE IV have been tentatively made as if this Section 4.02(d) and Section4.02(c) were not in this Agreement.          (e) In the event that the Profits available to be allocated to the Partners for any FiscalYear pursuant to Section 4.01 are less than the maximum amount otherwise allocable to thempursuant thereto, then there shall be specially allocated to the Partners items of Company incomeand gain equal to such maximum amount.          (f) Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocatedamong the Partners in the same manner as if they were Losses for such Year or period.          (g) Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to thePartner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to whichsuch Partner Nonrecourse Deductions are attributable in accordance with Regulations Section1.704-2(i)(1).          (h) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant toCode Section 734(b) or Code Section 743(b) is required pursuant to Regulations Sections1.704-1(b)(2)(iv)(m) (2) or (4) to be taken into account in determining Capital Accounts as theresult of a distribution to a Partner in complete liquidation of such Partner’s interest in theCompany, the amount of such adjustment to the 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 suchbasis) and such gain or loss shall be specially allocated to the Partners in a manner consistentwith the manner in which their Capital Accounts are required to be so adjusted.     4.03 Curative Allocations. The allocations set forth in Section 4.02, otherthan Section 4.02(e) (the “Regulatory Allocations”), are intended to comply with certainrequirements of the Regulations. It is theintent of the Partners that, to the extent possible, all Regulatory Allocations shall beoffset either with other Regulatory Allocations or with special allocations of other items
 - 19 - 

 
ofCompany income, gain, loss, or deduction pursuant to this Section 4.03. Therefore,notwithstanding any other provision of this ARTICLE IV (other than the Regulatory Allocations), theGeneral Partner shall make such offsetting special allocations of Company income, gain, loss, ordeduction in whatever manner it determines appropriate so that, after such offsetting allocationsare made, each Partner’s Capital Account balance is, to the extent possible, equal to the CapitalAccount balance such Partner would have had if the Regulatory Allocations were not part of thisAgreement and all Company items were allocated pursuant to Sections 4.01, and 4.04.In exercising its discretion under this Section 4.03, the General Partner shall take intoaccount future Regulatory Allocations under Sections 4.02(a) and (b) that, althoughnot yet made, are likely to offset other Regulatory Allocations previously made under Sections4.02(f) and 4.02(g).     4.04 Other Allocation Rules.          (a) For purposes of determining the Profits, Losses, or any other items allocable to anyperiod, Profits, Losses, and any such other items shall be determined on a daily, monthly, or otherbasis, as determined by the General Partner using any permissible method under Code Section 706 andthe Regulations thereunder.          (b) Except as otherwise provided in this Agreement, all items of Company income, gain, loss,deduction, and any other allocations not otherwise provided for shall be divided among the Partnersin the same proportions as they share Profits and Losses, as the case may be, for the year.     4.05 Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) andthe Regulations thereunder, income, gain, loss, and deduction with respect to any propertycontributed to the capital of the Company shall, solely for tax purposes, be allocated among thePartner so as to take account of any variation between the adjusted basis of such property to theCompany for federal income tax purposes and its initial Gross Asset Value (computed in accordancewith the definition of “Gross Asset Value” above). In the event the Gross Asset Value of anyCompany asset is adjusted pursuant to any provision of this Agreement in accordance with suchdefinition, subsequent allocations of income, gain, loss and deduction with respect to such assetshall take into account any variation between the adjusted basis of such asset for Federal incometax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and theRegulations thereunder. Any elections or other decisions relating to such allocations shall bemade by the General Partner in accordance with the “Traditional Method” described in RegulationsSection 1.704-3(b). Allocations pursuant to this Section 4.05 are solely for purposes ofFederal, state, and local taxes and shall not affect, or in any way be taken into account incomputing, any Partner’s Capital Account or share of Profits, Losses or other items, ordistributions pursuant to any provision of this Agreement.ARTICLE VDISTRIBUTIONS     5.01 Net Cash Receipts. Subject to year end adjustments based on annual auditcontemplated at Section 8.04 below and in the definition of Net Operating Cash Receipts, and
 - 20 - 

 
the corresponding adjustment of distributions as soon as practicable after such audit, Net CashReceipts (including, without limitation, Extraordinary Cash Flow from Capital Transactions that donot constitute a Liquidating Sale – e.g., the sale of one or more, but less than all, of theProperties) shall be distributed by the Company to the Partners in proportion to their PercentageInterests [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.], by wire transfer to an account as directed from time to time by each of thePartners. Concurrently with each such distribution the General Partner shall provide to eachPartner an explanation of the sources of such Net Cash Receipts, detailed on a Property-by-Propertybasis.     5.02 Cash Flow from Liquidating Sale. Except as provided in Section 5.03,Extraordinary Cash Flow from a Liquidating Sale shall be distributed by the Company in thefollowing order of priority:          (a) First, to the Partners until the Partners have received distributions pursuant to thisSection 5.02(a) equal to the amount of their Unreturned Capital Contributions (and in thesame proportion as the Unreturned Capital Contribution of a Partner bears to the aggregateUnreturned Capital Contributions of all Partners) until the Unreturned Capital Contribution amountof each Partner equals $0.00;          (b) Next, to the Partners in the amount needed to cause the aggregate distributions to meetthe Unleveraged IRR Target amount, and in the same proportion as the Percentage Interests of thePartners at the time of the distribution.          (c) Next, the balance, if any, [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]% to NYSCRF and [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]% to the General Partner; provided,however, that if such balance consists, in whole or in part, of Extraordinary Cash Flow from NewDevelopment Properties, Redevelopment Properties or Vacant Land Properties (as determined inaccordance with the allocation rules set forth in the definition of Unleveraged Development IRR)(such portion of the balance being referred to herein as the “Development Portion”), then theDevelopment Portion shall instead be distributed as follows if either of the following conditionsis met: [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]     5.03 Distributions on Liquidation. If prior to a Liquidating Sale the Company shallhave undergone one or more Capital Transactions with respect to which the Extraordinary Cash Flowwould have been eligible, if it had been received in a Liquidating Sale as of the date of suchCapital Transaction, fordistribution pursuant to Section 5.02(c), then, upon the subsequent occurrence of anactual Liquidating Sale, the Partners shall re-calculate the Partners’ respective distributions ofExtraordinary Cash Flow resulting from such Capital Transaction or Capital Transactions pursuant toSection 5.02 rather than Section 5.01, and NYSCRF shall pay to the General Partner a sum(the “True-up Sum”) equal to that portion of the distributions made to NYSCRF on account of suchCapital Transaction or Capital Transactions which is to be re-allocated to the General Partnerpursuant to this Section 5.03. Notwithstanding any provision in this Agreement which mightotherwise operate to limit the liability of a Partner for any other purpose, such provision shallnot limit the liability of NYSCRF for its obligation to pay the True-
 - 21 - 

 
up Sum in accordance with theprovisions of this Section 5.03. NYSCRF shall be personally liable for the True-up Sum.     5.04 Distributions in Kind. All distributions shall be made in cash and no Companyassets shall be distributed in kind without the consent of all of the Partners except as providedin Section 10.02(a). Any assets distributed in kind shall be valued for such purpose attheir fair market value as of the date of distribution as determined by an independent appraiserselected by the General Partner with the approval of NYSCRF, and shall be treated for the purposesof this ARTICLE V as if the Company had sold such assets at such value and distributed the proceedsof such sale to the Partner or Partners receiving such assets.     5.05 REIT Distributions. At the option of the General Partner, the Company shalltake, and the General Partner is authorized to take, reasonable action which in the opinion of taxcounsel selected by the General Partner and reasonably acceptable to NYSCRF, is necessary andconsistent with the General Partner’s (or its Affiliate’s) qualification as a REIT, to distributesufficient amounts pursuant to this ARTICLE V to enable the General Partner to pay shareholderdividends that will (i) enable the General Partner to satisfy the requirements for qualifying as aREIT under the Code and Regulations; and (ii) enable the General Partner (or its Affiliate that isa REIT) to avoid any material federal income or excise tax liability of the General Partner (or itsAffiliate that is a REIT) as a result of its status as a REIT, assuming for purposes of thisdetermination that the only items on the federal income tax return of the General Partner (or suchAffiliate that is a REIT) are the items shown on its Schedule K-1 received from the Company and allcash distributions received from the Company (less a reasonable allowance for non-deductibleadministrative costs) have been paid as dividends to the shareholders of the General Partner on theday after such distributions are received from the Company. Any distribution made pursuant to thisSection 5.05 shall be made to all Partners in accordance with ARTICLE V. In no event shallNYSCRF incur any cost or expense as a result of this Section 5.05.     5.06 Offsets.          (a) Provided that the Manager under the Management and Leasing Agreement is an Affiliate ofthe General Partner, then in the event that any amounts due from the Managerto the Company under the Management and Leasing Agreement are unpaid and overdue, NYSCRF maycause the Company, after notice to the Manager, to offset the unpaid portion of such amountsclaimed against the Manager against amounts due to the General Partner under this Agreement, andfurther provided that if there is any dispute between the Manager and the Company or NYSCRF as towhether the claim against the Manager is valid, the amount sought to be withheld shall be escroweduntil the first to occur of the matter being resolved or the Manager, after written notice from theCompany, no longer contesting the validity of the claim, with the interest earned thereon beingpaid to the party who is ultimately determined to be entitled to the amount claimed or, if it isdetermined that each party is entitled to a portion of the amount in dispute, pro rata based on theamount paid to each.          (b) Provided that the Development Manager under the Development Management Agreement is anAffiliate of the General Partner, then in the event that any amounts due from the DevelopmentManager to the Company under the Development Management Agreement are unpaid and overdue, NYSCRFmay cause the Company, after notice to the
 - 22 - 

 
Development Manager, to offset the unpaid portion ofsuch amounts claimed against the Development Manager against amounts due to the General Partnerunder this Agreement, and further provided that if there is any dispute between the DevelopmentManager and the Company or NYSCRF as to whether the claim against the Development Manager is valid,the amount sought to be withheld shall be escrowed until the first to occur of the matter beingresolved or the Development Manager, after written notice from the Company, no longer contestingthe validity of the claim, with the interest earned thereon being paid to the party who isultimately determined to be entitled to the amount claimed or, if it is determined that each partyis entitled to a portion of the amount in dispute, pro rata based on the amount paid to each.          (c) Provided that the General Partner is an Affiliate of LPLP, in the event that NYSCRFobtains a final non-appealable judgment against LPLP under the Contribution Agreement that is notpaid when due, NYSCRF may cause the Company to offset the unpaid portion of such judgment againstamounts due to the General Partner under this Agreement.ARTICLE VIMANAGEMENT     6.01 Management and Control of Company Business.          (a) Subject to the limitations and restrictions set forth in Section 6.04 andelsewhere in this Agreement and subject to and consistent with the Annual Business Plan, theGeneral Partner shall have full, exclusive, and complete discretion to manage and control thebusiness and affairs of the Company and shall have all of the rights, powers, authorities anddiscretions necessary to carry out the purposes of the Company which may be possessed by a GeneralPartner under the Act, exercisable without the consent or approval of any Partner, includingwithout limitation, the right, power, authority and discretion to:               (i) Borrow money and issue evidences of indebtedness, and secure the same by mortgages, deedsof trust, security interests, pledges, or other liens on all or any part of the Company’s assets,provided that such financing shall expressly provide that NYSCRF has nopersonal liability for the obligations of the Company (unless NYSCRF agrees in writing towaive the requirement that such language be set forth in the documents), and further provided thatthe total outstanding principal amount of mortgage debt secured by all the Properties shall not atthe time of issuance of such debt [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]. ThePartners expressly acknowledge and agree that the Assumed Financing and the Liberty Loan have beenauthorized by the Partners.               (ii) Operate, manage, maintain, use, lease and sublease Company assets;               (iii) Employ or retain such persons (any of whom may be Affiliates of a Partner, including theGeneral Partner or an Affiliate of the General Partner, subject to the limitations contained inSection 6.02(e)) as may be necessary or appropriate for the conduct of the Company’sbusiness, including permanent, temporary, or part-time employees and
 - 23 - 

 
independent attorneys,accountants, architects, engineers, consultants, contractors and other professionals, and delegateto them any of its rights, powers, authorizations, discretions, duties and responsibilities;               (iv) Renegotiate with borrowers or lenders for the purchase or repayment of loans atdiscounted amounts or modifications in the terms of loans;               (v) Acquire, own, hold, construct, reconstruct, develop, redevelop, rehabilitate, sell,exchange, transfer, or otherwise deal in assets and property as may be necessary or convenient forthe purposes and business of the Company;               (vi) Sell, publicly or privately, contract to sell and grant options to purchase any Companyasset, for such prices and upon such terms and conditions, whether for cash or deferred payments,as it determines;               (vii) Incur expenses and enter into, guarantee, perform, and carry out contracts orcommitments of any kind, assume obligations, and execute, deliver, acknowledge, and file documentsin furtherance of the purposes and business of the Company;               (viii) Obtain and maintain insurance against liability or other loss with respect to theactivities and assets of the Company;               (ix) Pay, collect, compromise, arbitrate, litigate, or otherwise adjust, contest, or settleany and all claims or demands of or against the Company;               (x) Invest in interest-bearing accounts and short-term investments, including, withoutlimitation, bankers’ acceptances, obligations of Federal, state, and local governments and theiragencies, money market funds registered under the Investment Company Act of 1940, high-gradecommercial paper, and time deposits and certificates of deposit of commercial banks or savingsbanks;               (xi) Exercise the rights of the Company, and perform the obligations of the Company, under allcovenants, declarations, easements and restrictions encumbering or benefiting the Properties;               (xii) Form direct or indirect wholly-owned Subsidiaries of the Company to the extent necessaryor desirable in connection with obtaining construction or permanent financing permitted herein, andto remove and replace the manager of any such Subsidiary of the Company which is a limitedliability company and amend any organizational document governing such Subsidiary; and               (xiii) Engage in any other kinds of activities and enter into and perform any otherobligations necessary to, in connection with, or incidental to, the accomplishment of the purposesand business of the Company, so long as such activities and obligations may be lawfully engaged inor performed by a Company under the Act.     The acts of the General Partner shall bind the Company when within the scope of the GeneralPartner’s authority.
 - 24 - 

 
          (b) NYSCRF is an investor only and shall have no right to participate in the management orcontrol of the business or affairs of the Company, or to sign for or bind the Company; provided,however, that NYSCRF shall have the approval rights set forth in Section 6.04 and elsewherein this Agreement.     6.02 Delegation; Standards; Indemnification.          (a) Subject to the terms of this Agreement, the General Partner may, at any time, delegate anyof its powers, duties and responsibilities to an Affiliate. Any delegation pursuant to thisSection 6.02(a) shall not, however, relieve the General Partner of any of its obligationshereunder.          (b) The Company shall enter into, or cause its Subsidiary that owns Property to enter into:               (i) a Development Management Agreement with the General Partner or its Affiliate to overseethe construction and development of each New Development and each Redevelopment; and               (ii) a Management and Leasing Agreement with the General Partner or its Affiliate to cover themanagement and leasing of each Property owned, directly or indirectly, by the Partnership. Themanagement fees, leasing commissions and finders’ fees payable for the services shall be as setforth in the Management and Leasing Agreement provided that such fees shall not at any time exceedthe then current market rates for such services in the area in which the affected Property islocated. Notwithstanding the foregoing, in the event that lender approval is not obtained for theassumption of any of the Assumed Financing prior to the contribution or sale of the applicableEntity to the Company, the then-existing management agreement for such Entity (the “ExistingManagement Agreement”) shall remain in place and effective until such approval is obtained or suchAssumed Financing is paid off, defeased or refinanced; provided, however, that as between the“Manager” and the “Owner” under such Existing ManagementAgreement, the fees and obligations set forth in the form of Management and Leasing Agreementattached hereto as Exhibit B shall control. By executing this Agreement on behalf of theGeneral Partner, LPLP hereby consents to and agrees to be bound by the immediately precedingsentence.          (c) It is the intention of the Partners that, to the extent feasible, all other actions takenon behalf of the Company shall be taken by the General Partner or its authorized delegates, subjectto the provisions of this Agreement and the approval rights of NYSCRF pursuant to Section6.04.          (d) The General Partner shall perform its duties hereunder with the care, skill, prudence, anddiligence under the circumstances then prevailing that a prudent man acting in a like capacity andfamiliar with such matters would use in the conduct of an enterprise of a like character and withlike aims, for the exclusive benefit and protection of the Company, except that the General Partnershall not be required to diversify the Company’s assets.          (e) In the performance of its duties and responsibilities and the exercise of its right,power, authority and discretion under this Agreement:
 - 25 - 

 
               (i) the General Partner shall act solely in the interests of the Company; and               (ii) neither the General Partner nor any Affiliate of the General Partner shall (A) deal withthe assets of the Company in its own interests or for its own account; (B) in any capacity act inany transaction involving the Company on behalf of any party whose interests are adverse to theinterests of the Company; or (C) receive any compensation or consideration for its own personalaccount from any party dealing with the Company or proposing to deal with the Company in connectionwith a transaction involving any portion or all of the Property (other than fees for the renderingof maintenance services to the Properties as approved in the Annual Business Plan, provided thatthe cost of such services will be reimbursed to the General Partner at a rate equal to the GeneralPartner’s direct costs for those services, plus a reasonable allocation of overhead related toproviding such services).          (f) The Company (but not any Partner) shall indemnify, defend and hold harmless the GeneralPartner and the trustees, officers, directors and employees of the General Partner and itsAffiliates (collectively the “Indemnified Party”) in the event it was or is a party or isthreatened to be made a party to any threatened, pending or completed action, suit or proceeding,whether civil, criminal, administrative or investigative by reason of any acts or omissions, oralleged acts or omissions, arising out of the activities of the Indemnified Party on behalf of theCompany, or in furtherance of the interests of the Company, against any and all costs, losses,damages or expenses of any nature whatsoever for which such Indemnified Party has not otherwisebeen reimbursed (including attorneys’ fees, judgments, fines and accounts paid in settlement)actually and reasonably incurred by the Indemnified Party in connection with such action, suit orproceeding so long as the Indemnified Party reasonably believed that its actions were within thescope of this Agreement and the Indemnified Party did not act fraudulently or in bad faith or in amanner constituting negligence or willful misconduct or in breach of the standards set forth inSection 6.02(d), or violate securities laws or criminal laws. Thetermination of any action, suit or proceeding by judgment, order, settlement or upon a plea ofnolocontendere or its equivalent shall not of itself (except insofar as suchjudgment, order, settlement or plea shall itself specifically provide) create a presumption thatthe Indemnified Party acted fraudulently or in bad faith or acted in a manner constitutingnegligence or willful misconduct. The indemnification rights of the Indemnified Party set forth inthis Section 6.02(f) shall be cumulative of and in addition to, any and all rights,remedies, and recourse to which it shall be entitled whether pursuant to the provisions of thisAgreement, at law, or in equity.          (g) To the extent permitted by applicable law and except as otherwise provided in thisAgreement, the General Partner shall not be answerable for the default or misconduct of any thirdparty agent, investment advisory service, attorney, appraiser, consultant, contractor, engineer,real estate managing agent, accountant or bookkeeper if such Person is not an Affiliate of theGeneral Partner and if selected by the General Partner with reasonable care, unless the GeneralPartner knowingly participates in such wrongdoing, has actual knowledge thereof and fails to takereasonable remedial action, or through negligence in the performance of its own specificresponsibilities under this Agreement has enabled such wrongdoing to occur.          (h) Neither the Company nor any Partner shall have any claim against the General Partner byreason of any act or omission of the General Partner, nor against NYSCRF by
 - 26 - 

 
reason of any act oromission of NYSCRF, except where such claim is based on gross negligence, actual fraud, material,deliberate or willful breach of this Agreement, or intentional tortious misconduct.Notwithstanding anything to the contrary contained herein or in any other agreement executed inconnection herewith, but subject to the last sentence of Section 5.03, the General Partnerexpressly agrees that NYSCRF shall not be liable personally or otherwise for any breach or defaultby NYSCRF under this Agreement or any other agreement executed in connection with this Agreement,except to the extent of, and only to the extent of, the NYSCRF’s Partnership Interest in theCompany. Except only for NYSCRF’s Partnership Interest in the Company, no assets of NYSCRF may beliened, encumbered, attached, levied or executed upon to satisfy any liability of or judgmentagainst NYSCRF arising out of this Agreement or any other agreement executed in connection withthis Agreement.     6.03 Annual Business Plan. The Annual Business Plan shall be the blue print for themanagement of the business of the Company. The Annual Business Plan for calendar year 2007 isattached hereto as Exhibit E. No later than [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.], and each [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] thereafter, the General Partner shall prepare and deliver to NYSCRF for its review and approval aproposed Annual Business Plan for the next Fiscal Year. NYSCRF shall, within [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] daysafter receipt, provide the General Partner with written comments thereto, and if the AnnualBusiness Plan for the succeeding year is not previously agreed to, the parties shall meet no laterthan [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] of the then current year to agree on such Annual Business Plan. If for any reasonat the beginning of any year the Annual Business Plan for such year has not been agreed to, theCompany shall continue to operate in accordance with the Annual Business Plan for the prior year,except that [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]. Each AnnualBusiness Plan shall, among other information, contain the following information, consistent withthe form attached hereto as Exhibit E:          (a) a summary of the conditions of the leasing, sales and development marketplace in the DCMetropolitan Area (and the General Partner shall forward to NYSCRF copies of marketing reportsprepared by third-party real estate firms received by the General Partner summarizing theconditions of leasing and development in the marketplace for commercial office properties in whichthe various portions of the Property are located);          (b) the annual operating budget, which shall include the estimated revenues and expenses(including debt service), any anticipated Call for Capital pursuant to Section 3.02(a) andthe regular capital expenditures, all for the ensuing Fiscal Year, and a leasing plan for each ofthe Properties (which leasing plan shall include any proposed changes to the standard form lease;tenant requirements and rental rates; estimated improvements; costs of re-tenanting; leasingcommissions; and other non-recurring extraordinary capital expenditures, if any, for the affectedProperty);          (c) the amounts of proposed reserves and contingency funds;
 - 27 - 

 
          (d) the recommendation of the General Partner with respect to debt financing to be issued bythe Company in the ensuing Fiscal Year;          (e) the recommendation of the General Partner with respect to the sale of any one or more ofthe Properties in the ensuing Fiscal Year          (f) the recommendation of the General Partner with respect to any New Developments to beinitiated in the ensuing Fiscal Year, together with a summary of all ongoing development activitiesunder any Development Management Agreements then in effect, and a proposed development budget forall such recommended and ongoing projects; and          (g) such additional information as may be necessary or appropriate to fully inform thePartners of all matters relevant to the Company and, if their approval is required, to enable thePartners to make an informed decision with respect to their approval of such Plan, or as anyPartner shall reasonably have requested;          (h) and whenever necessary to reflect a material change in any of the information contained inthe Annual Business Plan as last submitted to NYSCRF, the General Partner shall submit such changesto NYSCRF for its approval, and upon such approval, such amended Plan shall become the AnnualBusiness Plan.     6.04 Matters Requiring Approval of NYSCRF. In addition to any other matter pertainingto the Company set forth herein that requires the approval of NYSCRF and in addition to the rightof NYSCRF pursuant to Section 6.18, the following actions or decisions with respect to oraffecting the Company or Company’s assets shall require the approval of NYSCRF prior to any actionby the General Partner (except to theextent that the matter in question is included in, and budgeted for or permitted by, otherthan in the case of Section 6.04(k), the then applicable Annual Business Plan):[The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.]
 - 28 - 

 
     6.05 Hazardous Materials. The General Partner shall not knowingly conduct orauthorize and shall use its reasonable efforts to prevent a release of Hazardous Materials at anyof the Properties and shall promptly notify NYSCRF in writing of any pending or threatenedinvestigation or inquiry by any governmental authority in connection with any Hazardous Materialsrelating to a Property or of the occurrence of a release of Hazardous Materials at any Property.The General Partner shall promptly notify NYSCRF in writing if the General Partner becomes aware ofany release of Hazardous Materials in violation of law originating on the Property, or of any suchrelease originating in a neighboring property that threatens the Property.     6.06 Emergency Actions. In the event that it is necessary to make expenditures whichare not provided for in the Annual Business Plan, or to take any other action which requires theapproval of NYSCRF under Section 6.04, but which is required under emergency court order,executive order or legislation, or which the General Partner, in good faith, believes appropriatein an emergency to avoid risk to life or health or facilitate the preservation of any portion orall
 - 30 - 

 
of the Company’s assets, and the General Partner reasonably determines that there isinsufficient time to obtain such approval and that any delay in making such expenditures or takingsuch action could result in a violation of law or materially adversely affect the value of theCompany assets or could materially increase the risk to life or health, then the General Partnershall be authorized to bind the Company for any expenditures or in any other action taken on behalfof the Company in such emergency. The General Partner shall notify NYSCRF of any exercise of itspower and authority under this Section as soon as practicable thereafter.     6.07 Regular Meetings.          (a) The Partners shall meet annually at a time and place determined by the General Partner andreasonably approved by NYSCRF, for a report on the current Fiscal Year’s activities, a review ofthe most recent financial statements and, when available, a presentation of the next Fiscal Year’sAnnual Business Plan, as well as to consider and decide such matters as may be specified by theGeneral Partner or by prior written notice from any Partner to the General Partner. Withoutlimiting the foregoing, the annual meetings shall include a discussion and analysis of (i)anticipated acquisitions and development activities for the ensuing year, and (ii) whether theCompany should continue to hold or should sell each Property and any changes in the projectedperiod of continuing to hold any portion or all of the Property. Reasonable notice shall beprovided to the Partners of the time and place of such meeting and the matters to be decided ordiscussed. Any proposal requiring action of the Partners shall be provided to the Partners aminimum of ten (10) business days prior to such meeting. Participation in meetingsmay be by means of conference telephone call or similar telecommunications whereby allindividuals participating in the meeting can hear, and speak to, each other at the same time.          (b) Voting shall take place at meetings, provided, however, that any Partner may, at any timeand without a meeting therefor, notify the General Partner of its vote on any matter requiring suchvote, and the General Partner shall tabulate the vote and notify the Partners of such vote promptlythereafter. Voting under this Agreement shall take place in writing and the General Partner shallthereafter confirm the result of the vote of the Partners on any matter in writing.          (c) Any action which may be taken by the Partners at any meeting may be taken without ameeting pursuant to written consent of all of the Partners.     6.08 Special Meetings. Any Partner may call a special meeting of the Partners at anytime. All of the provisions set forth above with respect to regular meetings shall also apply toany special meetings.     6.09 Third Parties. Notwithstanding anything to the contrary contained herein, theGeneral Partner may execute a certificate that, except in the case of any matter which requires theapproval of NYSCRF pursuant to Section 6.04, may be conclusively relied upon by any thirdparty (without any further inquiry whatsoever) stating that any action or proposed action does notrequire the approval or consent of the Partners under this Agreement or that such approval orconsent has been obtained, and any action taken by the General Partner in connection therewithshall in fact be the act of, and bind, the Company. The foregoing shall not relieve the GeneralPartner from any liability it may have to the Company or the Partners if, in fact, such action or
 - 31 - 

 
proposed action did require the approval or consent of any Partner and such consent or approval wasnot obtained.     6.10 Other Activities of Partners. Any Partner and its Affiliates may have otherbusiness interests and may engage in other business ventures of any nature or descriptionwhatsoever, whether presently existing or hereafter created, and whether or not competitive withthe business of the Company or any Partner, provided, however, that during the term of thisAgreement the General Partner and its Affiliates shall not acquire or own any office property inthe DC Metropolitan Area, except as permitted in ARTICLE XIII below. The rights of NYSCRF underthis Section 6.10 are personal to NYSCRF and shall not be enforceable by any assignee ortransferee, whether voluntarily or involuntarily or by operation of law, of the rights of NYSCRFunder this Agreement, other than a transferee of NYSCRF pursuant to Section 10.02(b).     6.11 Withholding of Tax on Certain Company Distributions.          (a) Unless treated as a Tax Payment Loan, any amount paid by the Company for or with respectto any Partner on account of any withholding tax or other tax payable withrespect to the income, profits or distributions of the Company pursuant to the Code, theRegulations or any state or local statute, regulation or ordinance requiring such payment (a“Withholding Tax Act”) shall be treated as a distribution to such Partner for all purposes of thisAgreement, consistent with the character or source of the income, profits or cash that gave rise tothe payment or withholding obligation. To the extent that the amount required to be remitted bythe Company under the Withholding Tax Act exceeds the amount then otherwise distributable to suchPartner, unless and to the extent that funds shall have been provided by such Partner pursuant tothe last sentence of this Section 6.11(a), the excess shall constitute a loan from theCompany to such Partner (a “Tax Payment Loan”). Any such Tax Payment Loan shall be payable upondemand and shall bear interest, from the date that the Company makes the payment to the relevanttaxing authority, at the lesser of: (i) the Prime Rate plus two percentage points per annum, or(ii) the highest rate permitted by applicable law, compounded monthly (but in no event higher thanthe highest interest rate permitted by applicable law). During such time as any Tax Payment Loanto any Partner (or the interest thereon) remains unpaid, all future distributions otherwise to bemade to such Partner under this Agreement shall be distributed for such Partner’s account byapplying the amount of any such distributions first to the payment of any unpaid interest on suchTax Payment Loan and then to the repayment of the principal thereof, and no such futuredistributions shall be paid to such Partner until all of such principal and interest has been paidin full, but all such amounts shall, for purposes of this Agreement, be treated as a distributionto such Partner. If the amount required to be remitted by the Company under the Withholding TaxAct exceeds the amount then otherwise distributable to a Partner, the Company shall notify suchPartner at least five (5) Business Days in advance of the date upon which the Company would berequired to make a Tax Payment Loan under this Section 6.11(a) (the “Tax Payment LoanDate”) and provide such Partner the opportunity to pay to the Company on or before the Tax PaymentLoan Date, all or a portion of such deficit. If any Tax Payment Loan is not fully repaid beforethe earlier of (a) removal of the Partner receiving the Tax Payment Loan, or (b) liquidation of theCompany, such Partner shall remit any remaining portion of the principal and interests payable onthe Tax Payment Loan to the Company.
 - 32 - 

 
          (b) The General Partner shall have the authority to take all actions necessary to enable theCompany to comply with the provisions of any Withholding Tax Act applicable to the Company and tocarry out the provisions of this Section 6.11. Nothing in this Section 6.11 shallcreate any obligation on the General Partner to advance funds to the Company or to borrow fundsfrom third parties in order to make any payments on account of any liability of the Company under aWithholding Tax Act.     6.12 Unrelated Business Taxable Income. The General Partner shall use commerciallyreasonable efforts to avoid taking any action which it knows or reasonably should know would (a)cause any indebtedness of the Company to not qualify for the exception to “acquisitionindebtedness” under Code Section 514(c)(9)(A), or (b) otherwise cause NYSCRF to have a substantialrisk of recognizing UBTI (assuming, for this purpose, that NYSCRF is an organization subject to thetax imposed by Code Section 511(a)(1)), provided that any transaction which General Partnerdetermines will create UBTI for NYSCRF shall require NYSCRF’s prior approval. By way of exampleand without limiting the generality of the foregoing, the General Partner shall use its bestefforts to ensure that:          (a) With respect to any lease executed on behalf of the Company:               (i) The determination of the amount of rent shall not be expressed in whole or in part as apercentage of the income or profits derived by the lessee from the space leased (other than anamount based on a fixed percentage or percentages of gross receipts or gross sales);               (ii) Not more than ten percent (10%) of the rent shall be expressly attributable to personalproperty, determined at the time the personal property is placed in service by the lessee (and notby reference to any allocation contained in the lease documents);               (iii) If subleasing is permitted, the Company may not share in any net profit derived by thetenant from any sublease, and the tenant thereunder may not sublease all or any portion of itsleasehold interest in violation of paragraph (i);               (iv) No services shall be performed for the tenant other than services usually or customarilyrendered to tenants in connection with office space; and               (v) All tenant payments under the lease shall be designated as “rent” or “additional rent”.          (b) The General Partner shall not engage in, or cause the Company to engage in, any activitythat would cause all or any part of the Property to be considered stock in trade or other propertyof a kind which would properly be includable in inventory if on hand at the close of the taxableyear or property held primarily for sale to customers in the ordinary course of a trade or businessof the Company. NYSCRF acknowledges that a decision to sell or otherwise dispose of any propertyof the Company may cause the Company to engage in commercially reasonable sales activities and theCompany and the General Partner are authorized to engage in such activities with respect to Companyproperty to the extent that such sale is authorized or permitted under this Agreement.
 - 33 - 

 
          (c) With respect to any indebtedness incurred by the Company:               (i) The price for any acquired or improved real property will be fixed at the time of theacquisition of the property or the time of the completion of any such improvement;               (ii) The amount of any indebtedness or any other amount payable with respect to suchindebtedness, or the time for making any payment of any such amount, shall not be dependent, inwhole or in part, upon any revenue, income, or profits derived from such real property;               (iii) Any property acquired by the Company will not be subsequently leased to the seller or toany person who bears a relationship to such seller that is described in Code Section 267(b) or707(b);               (iv) Any property of the Company will neither be acquired from nor leased to a person thatbears a relationship to the Limited Partner or the Company which isdescribed in subparagraph (C), (E) or (G) of Code Section 4975(e)(2) or a person that bears arelationship, which is described in subparagraph (F) or (H) of Code Section 4975(e)(2), to anyperson described in subparagraph (C), (E), or (G) of Code Section 4975(e)(2);               (v) The Company will not incur indebtedness from any person described in Sections6.12(c)(iii) or 6.12(c)(iv) in connection with any acquisition or any improvement toproperty; and               (vi) The provisions of this Section 6.12(c) are intended to comply with therequirements of Code Section 514(c)(9)(B) and should be construed thusly.     With respect to the foregoing: (A) NYSCRF acknowledges that the requirements of Section6.12(a) above are satisfied with respect to all existing leases of space in the Properties ineffect as of the date of this Agreement and with respect to the standard forms of “Multi-TenantOffice Lease” and “Single-Tenant Office Lease” generally utilized by Affiliates of the GeneralPartner, copies of which the General Partner has previously provided to NYSCRF; and (B) the GeneralPartner shall notify NYSCRF of any proposed changes in the structure or operation of the Companynot set forth in the Annual Business Plan that might cause the Company or NYSCRF to incur UBTI, andsuch change shall not be made without the prior approval of NYSCRF.     6.13 Prohibited Transactions.          (a) The General Partner shall use best efforts to avoid taking action which it knows orreasonably should know would constitute a prohibited transaction (within the meaning of CodeSection 4975(c)) and would cause NYSCRF (assuming, for this purpose, that NYSCRF is a “plan” withinthe meaning of Code Section 4975(e)(1)) or any Person who is a disqualified person (within themeaning of Code Section 4975(e)(2)) with respect to NYSCRF to incur a tax under Code Section 4975,without NYSCRF’s prior approval.
 - 34 - 

 
          (b) Notwithstanding any other provisions of this Agreement, other than Section6.13(a), or any non-mandatory provision of the Act, any action of the General Partner on behalfof the Company or any decision by the General Partner to refrain from acting on behalf of theCompany, based on an opinion of tax counsel selected by the General Partner and reasonablyacceptable to NYSCRF that such action or omission is necessary or advisable in order to: (i)protect the ability of Liberty Property Trust, a Maryland real estate investment trust which is thegeneral partner of the sole member of Liberty Washington Venture, LLC, to continue to qualify as aREIT under the Code, or (ii) avoid Liberty Property Trust incurring any material taxes underSection 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemedapproved by all of the Partners.          (c) At any time when a direct or indirect beneficial interest in the Company is owned by anentity that has elected to be taxed as a REIT under the Code, neither the Company nor anySubsidiary shall without the prior written consent of Liberty: (i) acquire any asset that is notdescribed in Section 856(c)(4)(a) of the Code or any successor provision; (ii) enter into a loansecured by an interest in real property in which the Company would receive income from a “sharedappreciation provision” as defined in Section 856(j)(5) of the Code; (iii) enter into a loanin which the interest income depends, directly or indirectly, in whole or in part, on theincome or profits of any person for purposes of Section 856(f) of the Code; (iv) enter into anylease involving real property where any portion of the rents would be excluded from the definitionof “rents from real property” under Section 856(d)(2) of the Code; or (v) sell any property which,when sold, would constitute property described in Section 1221(1) of the Code, except when the netselling price is less than $10,000. Notwithstanding the foregoing, if any of the provisions ofSections 856 or 857 of the Code are amended so that one of the requirements in clauses (i) through(v) above becomes irrelevant to the qualification of a REIT as a REIT under the Code and will notcause adverse tax consequences to a REIT if the requirement is not complied with, such provisionshall no longer apply to the Company.          (d) In making any determinations under this Agreement in which the classification of anyentity as a “real estate investment trust” for federal income tax purposes is relevant, suchdetermination or calculation shall be made by assuming that only the items reported on suchentity’s federal income tax return are the items reported on the Partner’s Schedule K-1 receivedfrom the Company (or the entity’s distributive share of such items).     6.14 Deemed Approval. NYSCRF shall be deemed to have approved and the General Partnershall not have any liability or responsibility under either Section 6.12 or Section6.13, to the extent that the action which caused the Company or NYSCRF to incur UBTI or whichconstituted a prohibited transaction (a) received the approval of NYSCRF where such approval isrequired under this Agreement, or (b) resulted from the Company’s failure to take any actionproposed by the General Partner and submitted to NYSCRF, if such failure was because such proposedaction did not receive the approval of NYSCRF.     6.15 Reporting Requirements. In addition to any other reporting obligations of theGeneral Partner contained in this Agreement, the General Partner shall:          (a) (1) notify NYSCRF of any material fire or other material damage to the Property, and insuch event, arrange for an insurance adjuster reasonably acceptable to NYSCRF
 - 35 - 

 
to view the Propertybefore repairs are started, but in no event shall Manager settle any losses, complete loss reports,adjust losses or endorse loss drafts in excess of $250,000 without NYSCRF’s prior consent; and (2)promptly notify NYSCRF after the General Partner becomes aware of any significant personal injuryor property damage occurring to or claimed by any tenant or third party on or with respect to theProperty;          (b) notify NYSCRF of the commencement of any action, suit or proceeding against NYSCRF, oragainst Manager with respect to the operations of the Property, or otherwise affecting theProperty, other than routine tort claims covered by insurance;          (c) on or before the 15th day of each month, prepare and submit to NYSCRF aprogress report on leasing activities at the Property for the preceding period, such report to bein the format customarily used by the General Partner and its Affiliates for its own portfolio; and          (d) notify NYSCRF when the General Partner receives written notice of any material violationof law at any portion of the Property, as well as provide NYSCRF with evidence that thenon-compliance has been remedied.     6.16 Action by Partners. Except as otherwise provided in this Agreement, any actionrequired or permitted to be taken by the Partners shall require the unanimous consent or approvalof the Partners, unless otherwise required by the Act.     6.17 Right to Disclose Information. The General Partner shall not be in breach of itsobligations under this Agreement or any other obligations or duties to NYSCRF at law or in equity(whether under a theory of fiduciary duty or otherwise) if the General Partner or its Affiliatesfiles this Agreement (and some or all of the exhibits hereto) as an exhibit to a filing it may makewith the Securities Exchange Commission or makes disclosures regarding the transactions governed bythis Agreement to the extent the General Partner or its Affiliates reasonably believe necessary toenable the General Partner or its Affiliates to comply with federal and state securities laws andthe regulations of the Securities Exchange Commission, the rules of any stock exchange, or inconnection with any filing or registration made by Liberty Property Trust, an Affiliate of theGeneral Partner, as the issuer of publicly traded securities, or as part of information provided toits investors and/or financial analysts.     6.18 Contracts with Affiliates. NYSCRF, acting alone, shall have the right on behalfof the Company to send any notice of default or termination, to institute or settle legalproceedings and/or to take such other action as may be necessary or appropriate to enforce therights and protect the interests of the Company pursuant to any agreement with the General Partneror an Affiliate of the General Partner or with respect to any other rights or remedies of theCompany running against or in connection with the General Partner or Affiliate of the GeneralPartner.     6.19 Loan Provisions.          (a) Each Partner shall, in its reasonable discretion, cooperate to amend this Agreement andthe Certificate of Limited Partnership if required to comply with the requirements of any lenderproviding mortgage financing to the Company in accordance with this Agreement.
 - 36 - 

 
          (b) The Partners acknowledge that the Liberty Loan was provided to the Company, and that (withthe consent of NYSCRF, as set forth in Section 6.04(l)) future financing may be provided tothe Company or any Entity, and/or serviced by an Affiliate of the General Partner (the “AffiliateLender”). As a result, the interests of the Affiliate Lender, in its capacity as a lender, may bedifferent from, or in conflict with, the interests of the Partners or the interests of the Companyor any of their respective Affiliates. In recognition of the foregoing and in consideration of theAffiliate Lender providing or facilitating any such loan, the Partners acknowledge and agree thatthe Affiliate Lender is and will be entitled to enforce its rights underany existing or future loan (and ancillary security) documents with the Company and/or anyEntity and will be entitled to pursue any and all remedies to which it is entitled (includingcalling a default under, accelerating or foreclosing on any collateral securing, such loan) even ifdoing so would be detrimental to or create a conflict with the Company and/or such Entity or any ofits Partners, and each of the Partners waives, to the fullest extent permitted by law, (i) anyright to object to such enforcement, (ii) any right to assert a claim against the General Partneror its Affiliates as a result of such conflict of interest, and (iii) any claim for a breach offiduciary duty, duty of loyalty, lender liability, equitable subordination or other claims relatingto or arising from the fact that the Affiliate Lender and its Affiliates would have an interest,directly or indirectly, as both a creditor and a Partner of the Company. In addition, theclassification and treatment for income tax purposes of the Liberty Loan and any other financingprovided by an Affiliate of the General Partner as non-recourse debt or non-recourse liabilityshall be made and governed by the Code.     6.20 Project Financing.          (a) The Partners expect that the Company will obtain, or cause certain of the Entities toobtain, debt financing in such amounts, from such lenders, with such security and on such terms andconditions as shall be determined in accordance with this Agreement (collectively with the AssumedFinancing, the “Project Financing”).          (b) All Project Financing will be non-recourse to the Company and to all Partners, exceptthat the General Partner may elect, in its sole discretion, to provide one or more guarantors (the“Guarantors”) acceptable to the lender to be personally liable for: (i) fraud, environmentalliability, misapplication of tenant security deposits and other types of liabilities (collectivelythe “Non-Recourse Carve Outs”) to be set forth in the documents and instruments evidencing theProject Financing, pursuant to provisions acceptable to the Guarantors; and/or (ii) for such otherliabilities, if any, under the loan as the Guarantors may elect in their sole discretion, pursuantto documents acceptable to the Guarantors. The personal obligations of the Guarantors as set forthin such loan documents are referred to herein as the “Recourse Obligations.” The Partners confirmthat LPLP serves as the Guarantor of the Recourse Obligations with respect to the Assumed Financingand, with respect to the Assumed Financing for WillowWood I-II, Liberty Property Trust also servesas a Guarantor of the Recourse Obligations.          (c) With respect to all sums that at any time may be paid by a Guarantor on account of theRecourse Obligations, the Partners agree that: (i) the Company shall indemnify, defend and hold theGuarantor harmless from and against all such liabilities and all costs and expenses arisingtherefrom, (ii) NYSCRF shall indemnify, defend and hold the Guarantor
 - 37 - 

 
harmless from and against allsuch liabilities and all costs and expenses arising from the gross negligence, actual fraud,material, deliberate and willful breach of this Agreement, or intentional tortious misconduct ofNYSCRF that triggers liability under the Recourse Obligations, and (iii) the Guarantor shall besubrogated to the rights of the holder of the Project Financing with respect thereto; provided,however, that the foregoing provisions of (i) and (ii) above shall not apply to any liabilities,costs or expenses of the Guarantor resulting from its or its Affiliate’s gross negligence, actualfraud, material, deliberate or willful breach of this Agreement, its guaranty of the RecourseObligations or any other documents evidencing the Project Financing, orintentional tortious misconduct; and provided further that subrogation rights of the Guarantorshall be totally subordinated in all respect to the rights of the holder of the Project Financingand shall not be enforceable until satisfaction of all obligations of the Company and the borrowerEntity under the Project Financing.          (d) At any time while the Recourse Obligations are outstanding in whole or in part, theCompany shall not be authorized to take, and the General Partner shall not permit the Company orany Entity to take, any action that would result in the triggering of liability under theNon-Recourse Carve Outs, without the prior written consent of the Guarantors, which may be withheldfor any reason or no reason. Without limiting the generality of the foregoing, without the consentof the Guarantors, the Company and the Entity shall not be authorized to commence and the GeneralPartner shall not commence, any voluntary proceeding for bankruptcy, reorganization or similarrelief, and shall not consent to any involuntary petition for such relief if such action wouldtrigger any liability under the Recourse Obligations. The Partners expressly waive any rights thatthey may have at any time, whether under a theory of fiduciary duty or under any other legal orequitable principle, to compel the Partnership or the Entity to commence a voluntary bankruptcyproceeding or themselves to initiate an involuntary bankruptcy proceeding, or to assert any claimsagainst the General Partner or its Affiliates for the failure to file a voluntary proceeding.     6.21 Title Holding Subsidiaries. Title to each Property may be held by a separate,single purpose, limited liability company or partnership that is wholly owned by, and whose onlymembers, partners and/or managers are, the Company and other limited liability companies whollyowned (directly or indirectly) by the Company (each a “Title Holding Subsidiary”). It shall be theGeneral Partner’s duty and responsibility to duly form and maintain each Title Holding Subsidiaryand cause each Title Holding Subsidiary to be and remain in good standing in its state oforganization and qualified to do business in each jurisdiction in which it owns property orotherwise conducts business, to obtain appropriate employer and/or tax identification numbers (tothe extent required) for the Title Holding Subsidiary, and the like. The rights, duties,responsibilities and authority of the Partners with respect to Title Holding Subsidiaries andProperties owned through a Title Holding Subsidiary shall be identical to their respective rights,duties, responsibilities and authority with respect to the Company and Properties owned directly bythe Company. Any provision of this Agreement giving the Partners the right or authority to takeany action or refrain from taking any action, or cause the Company to take any action or refrainfrom taking any action, shall be interpreted to give them the identical right or authority withrespect to the appropriate Title Holding Subsidiary. Any provision of this Agreement imposing anyduty or responsibility on the Partners, or limiting their respective rights or authority, withrespect to Properties owneddirectly by the Company shall be interpreted to impose the identicalduty, responsibility or limitation on them with respect to Properties owned
 - 38 - 

 
through a Title Holding Subsidiary. The operating agreement for each Title Holding Subsidiaryshall be in a form approved by the Partners.     6.22 Ratification of Recitals. The Recitals set forth on Exhibit H to thisAgreement are incorporated herein by reference. The Partners hereby ratify and consent to thetransactions described in the Recitals to this Agreement.ARTICLE VIICOMPENSATION OF PARTNERS; PAYMENT OF COMPANY EXPENSES     7.01 Compensation from Company. The Company shall pay to the General Partner (or itsAffiliate) the sum of [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] annually as an administrative fee incompensation for the General Partner’s services required hereunder. Except as aforesaid and asprovided in Section 7.02, no Partner shall receive any compensation from the Company forany services rendered in its capacity as a Partner. Nothing contained herein shall prevent (i) aPartner from receiving reasonable compensation for any services rendered to the Company in anon-Partner capacity or from receiving distributions under ARTICLE V, (ii) the General Partner orits Affiliate from receiving fees pursuant to the Development Management Agreement, or (iii) theGeneral Partner or its Affiliate from receiving fees for managing or leasing all or a portion ofthe Property pursuant to the Management and Leasing Agreement.     7.02 Company Expenses.          (a) The Management and Leasing Agreement shall require the General Partner or its Affiliate,at its expense and without reimbursement from the Company, to provide the Company with adequatepersonnel and office space and all necessary office furnishings and equipment and shall pay thesalaries and other compensation of such personnel and the cost of telephone service, heat and otherutilities and other items of an overhead and administrative nature.          (b) The Company shall bear all other costs and expenses incurred in connection with themanagement and operation of the business and affairs of the Company, or in carrying out thebusiness, purposes, and objectives of the Company, including without limitation, costs associatedwith a proposed transaction that is not consummated for any reason whatsoever. Without limitingthe foregoing, the Company shall bear the costs of all third-party vendors who provide services tothe Company (including without limitation auditors, tax consultants and attorneys). Subject toSections 6.04(a) and 6.04(b) to the extent the General Partner or its Affiliatesare able to provide such services to the Company, the General Partner may (subject to the priorapproval of NYSCRF) provide such service to the Company, and the Company will compensate theGeneral Partner or its Affiliates at a level that will reimburse the direct costs of thoseservices, plus a reasonable allocation of overhead related to providing such services.
- 39 -

 
ARTICLE VIIICOMPANY BOOKS, RECORDS AND STATEMENTS     8.01 Books and Records. The General Partner shall establish and maintain accurate,full and complete Company records and books of account showing assets, liabilities and the CapitalAccounts of the Partners, revenues and expenditures, and all other aspects of the operations,transactions and cash flows of the Company in accordance with generally accepted accountingpractices and principles consistently applied. The Company shall use the standard accountingsoftware utilized by the General Partner and its Affiliates for properties in their own portfolioto keep the accounting books and records of the Company. The General Partner shall also maintainbooks sufficient to show the computation of any fees payable pursuant to the Management and LeasingAgreement and the Development Management Agreement. The Company’s books and accounts shall bemaintained at the principal office of the Company, with copies thereof at such other place orplaces, if any, as may be required by law, and any Partner shall have access to the Company booksduring ordinary business hours.     8.02 Method of Accounting. The Company shall use generally accepted accountingprinciples, consistently applied, unless otherwise required by applicable law. Any other orsupplemental accounting practices or policies shall be subject to the reasonable approval ofNYSCRF.     8.03 Fidelity and Other Bonds. If requested by either Partner, the General Partnershall obtain or cause to be obtained, at the Company’s expense, fidelity and other bonds withreputable surety companies covering all persons who are signatories on bank accounts of theCompany, which bonds shall indemnify and defend the Partners against any loss resulting from fraud,theft, dishonesty or other wrongful acts of such persons and shall be in form and substancesatisfactory to the Partners.     8.04 Financial Statements; Appraisals and Other Information. The General Partnershall cause the Company to deliver, timely, to NYSCRF, the following:          (a) On an annual basis within sixty (60) days after the close of each Fiscal Year, annualaudited statements of the operation of the Company, including the following:               (i) Balance Sheet prepared on an accrual basis;               (ii) Income Statement prepared on an accrual basis;               (iii) Statement of Cash Flows;               (iv) Statement of Changes in Partners’ Equity; and               (v) Notes to the financial statements as appropriate;all certified to be correct by the General Partner, together with the opinion of the Auditor withrespect thereto, containing a detailed explanation of all qualifications, if any, contained in suchopinion. If the General Partner is aware that the Auditor’s opinion will be issued with
- 40 -

 
qualifications, the General Partner shall cause drafts of the opinion and the financial statementsto be forwarded to NYSCRF promptly after receipt of such drafts by the General Partner.               (vi) Such additional financial statements, reports and other information as NYSCRF mayreasonably request; and               (vii) Report of Independent Public Accountants in substantially the form shown in theExhibit J.          (b) On a monthly basis, by the [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] business day of each calendar month forthe preceding calendar month, the following, unaudited, but all in reasonable detail and certifiedto be correct by the General Partner, and in an electronic format on a Property-by-Property basis:               (i) A current rent roll in form satisfactory to NYSCRF;               (ii) Balance Sheet, prepared on an accrual basis;               (iii) Income Statement, prepared on an accrual basis;               (iv) Budgetary operating statement on a consolidated basis for all Properties, showingvariances from the operating budget together with explanations of any variances in excess of thegreater of $5,000 in any line item or 5% of the annual amount budgeted for such line item;               (v) A Leasing Update in substantially the format attached hereto as Exhibit G; and               (vi) Such interim financial statements, reports and other information as NYSCRF may reasonablyrequest.          (c) No later than thirty-five (35) days after the end of each quarter of each Fiscal Year, theGeneral Partner shall prepare and submit to the Partners an unaudited income statement and balancesheet as of the end of such quarter and a statement of the Capital Accounts for each Partner, and areport on all lawsuits filed by and served or threatened in writing against the Company, theGeneral Partner or the Property during such prior quarter.          (d) To the extent any of the financial statements or reports provided pursuant to paragraphs(b) or (c) above (other than the statement of Capital Accounts) is presented on a consolidatedbasis as among all the Properties, the General Partner shall also cause such statements and reportsto be broken down on a Property-by-Property basis.          (e) On an annual basis, promptly after the filing thereof, copies of all tax returns orinformation returns of the Company to the extent necessary to show any income, distributions,payments, deductions, or expenses related to or arising out of the ownership or operation of aProject. At least thirty (30) days prior to filing, the General Partner shall provide drafts ofall tax returns to NYSCRF.
- 41 -

 
          (f) Within fifteen (15) days after the end of a policy year or policy term for each policy ofinsurance required to be maintained with respect to the Property, a written report or certificateshowing the following:               (i) The name of the insurer;               (ii) The risks insured;               (iii) The amount of coverage provided by the policy;               (iv) The expiration date of the policy; and               (v) For insurance covering property damage, the property insured, the then-current replacementcost of such property, and the basis upon which such cost was calculated provided that no appraisalshall be required for such report or certificate.          (g) The General Partner shall cause the Properties to be appraised by an independent qualifiedappraiser designated by the General Partner (i) at the expense of the Company at such times as anysecured lender requires, and (ii) at any other time whenever requested to do so by any Partner, atthe expense of such Partner.          (h) The General Partner shall cooperate with, and assist NYSCRF in obtaining, at the expenseof NYSCRF, any information that it requests in order to properly value the Company’s assets and itsPartnership Interest. Such information may include, by way of illustration, information obtainablefrom an environmental investigation or other physical inspection of the Properties.          (i) NYSCRF shall have the right, at its sole expense, to cause an audit of the records of theCompany to be conducted by accountants selected by NYSCRF. In the event that such audit disclosesthat any payments or reimbursements in favor of NYSCRF or the Company should be adjusted by fivepercent (5%) or more, the General Partner shall reimburse NYSCRF for its reasonable out of pocketcosts incurred in conducting the audit.     8.05 Bank Accounts. All funds received by the Company shall be deposited in the nameof the Company in such checking and savings accounts, time deposits or certificates of deposit, orother accounts or instruments at such financially sound commercial banks, savings banks and savingsand loan institutions not then controlled, directly or indirectly, by the General Partner and itsAffiliates, as may be designated by the General Partner. The signatories for such accounts andinstruments shall be representatives of the General Partner.     8.06 Tax Matters.          (a) The General Partner shall cause to be prepared and filed timely all informational andother tax returns required to be filed by the Company, and shall deliver copies thereof to thePartners promptly thereafter. All such returns shall be prepared by or reviewed by the Auditor.
- 42 -

 
          (b) The General Partner is hereby designated as the “Tax Matters Partner” under Code Section6231(a)(7). The Tax Matters Partner shall manage audits of the Company conducted by the InternalRevenue Service or other governmental agency pursuant to the audit procedures under the Code andthe regulations issued thereunder, provided that the Tax Matters Partner shall not settle anymatter with the Internal Revenue Service or other governmental agency without the consent ofNYSCRF, which consent shall not be unreasonably withheld. The Company, through the Tax MattersPartner, is authorized to cooperate with and to monitor the Internal Revenue Service in any auditthat the Internal Revenue Service may conduct of the Company’s books and records and information orother returns filed by the Company. The Tax Matters Partner shall take all actions necessary topreserve the rights of the Partners with respect to audits and shall provide the Partners with anynotices of such proceedings and other information as required by law. The Tax Matters Partnershall keep the Partners timely informed of its activities under this Section. The Company, throughthe Tax Matters Partner, may similarly cooperate with and monitor any audit by any othergovernmental authority and prepare and file protests or other appropriate responses to such audits.All costs incurred in connection with the foregoing activities, including legal and accountingcosts, shall be borne by the Company. Any additional expenses with respect to judicial review ofadverse determinations in connection with any such tax audits or the defense of any Partner againstany claim asserted by the Internal Revenue Service or other tax authority of additional taxliability arising out of its ownership of its interest in the Company shall be borne by the Partnerwho wishes to proceed with such judicial review or defense. Unless otherwise expressly prohibitedor restricted pursuant to this Agreement, the Tax Matters Partner may make, refrain from making, orrevoke any and all tax elections which it may deem appropriate, in its sole discretion, on behalfof the Company.          (c) Neither the Company nor any Partner shall take any action that would result in the Companybeing taxed as other than a “partnership” for federal income tax purposes, including (but notlimited to) electing to be taxed as other than a “partnership” by making such an election on Form8832, “Entity Classification Election.”     8.07 Certain Elections.          (a) In the event that a distribution of any of the Company’s assets is made in the mannerprovided in Code Section 734, where a transfer of an interest in the Company permitted by thisAgreement is made in the manner provided in Code Section 743, or in any other circumstancepermitting an election to be made under Section 754 of the Code, then, upon the request and at theexpense of any Partner, the Company shall file an election under Code Section 754, in accordancewith procedures set forth in the applicable Regulations. The Partners’ Capital Accounts shall beadjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(m). Each Partner shall providethe Company with all information necessary to give effect to any election under Code Section 754.          (b) In the event of any change in the Code or Regulations which could affect any Partner andwith respect to which the Company may elect to either have such change apply, or not apply, thenthe Company will make such election or not make such election in a manner that the tax provisionscontained in this Agreement shall remain in effect unless all of the Partners agree that theCompany should make such election or not make such election in another
- 43 -

 
manner; provided, however, that if NYSCRF (at its expense) obtains an opinion, from recognizedtax counsel selected by NYSCRF and reasonably satisfactory to the General Partners, that solely onaccount of the Company’s making the election or the Company’s failing to make the election will(based upon the assumptions set forth in Section 6.12) cause (i) the allocations to NYSCRFunder ARTICLE IV to be UBTI, (ii) NYSCRF no longer to be a “qualified organization” (within themeaning of Code Section 514(c)(9)(C)), or (iii) any indebtedness of the Company to not qualify forthe exceptions to “acquisition indebtedness” under Code Section 514(c)(9)(A), then the Companyshall make such election or refrain from making such election in the manner specified by NYSCRF,and the Partners shall promptly modify this Agreement in a manner to maintain as nearly as possiblythe same economic effect on the Partners as would have existed had such election been made or notbeen made, as the case may be, to the maximum extent permitted by applicable law, but in no eventshall such change have a negative economic impact on the General Partner.          (c) ERISA Representations. NYSCRF, in connection with representations made or thatmay be made to one or more Lenders regarding the status of the Company as not being an employeebenefit plan as defined in ERISA, and regarding the Company’s assets not being considered to be“plan assets” pursuant to certain Department of Labor Regulations, represents and warrants to theCompany and the General Partner that NYSCRF is a governmental plan as defined in section 3(32) ofERISA.ARTICLE IXDEFAULT PROVISIONS     9.01 Events of Default. The occurrence of any one or more of the following events(each a “Default”) caused or suffered by any Partner shall constitute a default (subject to thegrace periods provided for herein) under this Agreement:          (a) The failure of such Partner to pay any portion of any Capital Contribution required to bemade by it within ten (10) days of the date when due;          (b) The failure of such Partner to perform or comply with any of the material covenants,conditions and agreements of this Agreement or the Contribution Agreement to be performed orcomplied with by such Partner other than as set forth in (a) above and to cure such failurewithin the time specified in Section 9.02;          (c) The Bankruptcy of such Partner;          (d) In the case of the General Partner, the attachment, execution or other judicial seizure ofmore than $50,000 of such General Partner’s assets related to the Company, which attachment,execution or seizure remains undischarged after fifteen (15) days, unless (i) such Partner posts asufficient bond within such fifteen (15) day period or (ii) such attachment, execution or seizuredoes not have a material effect on such Partner’s ability to satisfy its obligations hereunder.     9.02 Grace Period. With respect to any Default under Section 9.01(b), thePartner causing or suffering such Default shall have a grace period of [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] days afterreceipt of
- 44 -

 
written notice of such Default to cure such Default, provided, however, that (a) if suchDefault is curable but cannot with due diligence and in good faith be cured within such [The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] day period and (b) if such Partner forthwith upon notice of such Default commences and proceedswith due diligence and in good faith to cure such Default and thereafter completes the full cure ofsuch Default, the grace period with respect to such Default shall be extended for such period asmay be necessary for the curing of such Default with due diligence and in good faith, not to exceed[The confidential material contained herein hasbeen omitted and has been separately filedwith the Commission.] days.     9.03 Remedies Reserved. Upon any Default by any Partner, such Partner shall no longerhave the right to vote on, consent to, approve or otherwise take part in any decision of thePartners, and, in addition, the other Partners shall each have the rights and remedies specifiedherein as well as those available to non-defaulting Partners as a matter of law or equity;provided, however, that if the defaulting Partner is the General Partner, then it shall continue tohave all of the management rights of the General Partner under this Agreement, and provided furtherthan if the default by the General Partner constitutes fraud, the General Partner’s management ofthe affairs of the Company shall be subject to the reasonable oversight of the Advisor.ARTICLE XTRANSFER OF PARTNERSHIP INTERESTS;