exv10w7




Exhibit 10.7



LIMITED LIABILITY COMPANY AGREEMENT

OF

HF LOGISTICS-SKX, LLC



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







 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	Article 1 DEFINED TERMS
	 	 	1	 
	Article 2 ORGANIZATIONAL MATTERS
	 	 	8	 
	Article 3 PURPOSE
	 	 	10	 
	Article 4 CAPITAL CONTRIBUTIONS; MEMBER LOANS; CAPITAL ACCOUNTS
	 	 	10	 
	Article 5 DISTRIBUTIONS AND ALLOCATIONS
	 	 	13	 
	Article 6 LOANS
	 	 	14	 
	Article 7 MANAGEMENT AND OPERATION OF BUSINESS
	 	 	18	 
	Article 8 BUY-SELL PROVISIONS
	 	 	25	 
	Article 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS
	 	 	28	 
	Article 10 TAX MATTERS
	 	 	29	 
	Article 11 TRANSFERS AND WITHDRAWALS
	 	 	32	 
	Article 12 ADMISSION OF MEMBERS
	 	 	34	 
	Article 13 DISSOLUTION AND LIQUIDATION
	 	 	34	 
	Article 14 AMENDMENT OF AGREEMENT
	 	 	37	 
	Article 15 DISPUTE RESOLUTION
	 	 	37	 
	Article 16 DEFAULTS / REMEDIES
	 	 	38	 
	Article 17 GENERAL PROVISIONS
	 	 	39	 






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LIMITED LIABILITY COMPANY AGREEMENT

OF

HF LOGISTICS -SKX, LLC




     THIS LIMITED LIABILITY COMPANY AGREEMENT OF HF LOGISTICS-SKX, LLC (the “Company”), is
entered into and effective as of the 30th day of January, 2010 (the “Effective
Date”) by and between HF LOGISTICS I, LLC, a Delaware limited liability company (“HF”),
and SKECHERS RB, LLC, a Delaware limited liability company (“Skechers”, and together with
HF, the “Members”).



RECITALS




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



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



ARTICLE 1

 DEFINED TERMS




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



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




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




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




          1.1.4 “Additional Member” means a Person (other than HF or Skechers) admitted to the
Company as a Member in accordance with the express terms of this Agreement.




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




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




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







 









 








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




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



               (b) less the sum of the following:



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



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



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



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




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




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




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


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




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





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




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




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




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




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




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




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




          1.1.22 “Company Assets” means (a) the Project, and (b) all other assets of the
Company.




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




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




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




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




          1.1.27 “Construction Lender” means the lender under the Construction Loan, or until
the Construction Loan documents are executed, the proposed lender under the Commitment.










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          1.1.28 “Construction Loan” means a construction loan or loans to be taken out by the
Company in the amount of at least Fifty Million Dollars ($50,000,000) to finance the construction
of the Project.




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




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




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




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




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




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




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




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




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




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




          1.1.39 “Development Management Agreement” means that certain Development Management
Agreement dated of even date herewith between the Company and an Affiliate of HF, a copy of which
is attached hereto as Exhibit “B”.




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




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




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




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










4









 








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




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




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




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




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




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




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




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




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


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




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




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




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




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




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










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




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




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




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




          1.1.63 “Master Lease” That certain Master Lease Agreement between HF, as tenant, and
Westcoast Properties Partners, Sinclair Property Partners, HF Educational Partners and Sand
Properties Partners (collectively, “Master Landlord”) as landlord, as amended and restated.




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




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




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




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




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




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




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




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




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










6









 








          1.1.73 “Project” means the real property consisting of approximately 110 acres
situated in Moreno Valley, (Rancho Belago) California which is described more fully in the Lease
(the “Property”), upon which will be constructed approximately 1,820,000 square feet of
buildings and other improvements (with a possible expansion by another approximately 500,000 square
feet) pursuant to the Lease.




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




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

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




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




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




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




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




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




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




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




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




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




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




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




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



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ARTICLE 2

ORGANIZATIONAL MATTERS




     Section 2.1 Formation; Application of Act.



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




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




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




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




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




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



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




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




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










8









 








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




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




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




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




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




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




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




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




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




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










9









 








ARTICLE 3

PURPOSE




     Section 3.1 Purpose. The purpose and nature of the business to be conducted by the
Company is (a) to acquire the Property and to develop the Project thereon, and to own, operate
manage, lease, mortgage, encumber, develop, construct improvements upon, sell and otherwise deal
with the Project and other Company Assets for the production of income and profit, and (b) to
conduct any activities that may be lawfully conducted by a limited liability company organized
pursuant to the Act in furtherance of the foregoing. The purpose of the Company shall not be
changed unless both Members consent (any dispute in this regard shall not be subject to the
expedited arbitration provisions in Article 15).



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



ARTICLE 4

CAPITAL CONTRIBUTIONS; MEMBER LOANS; CAPITAL ACCOUNTS




     Section 4.1 Capital Contributions of the Members.



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




               (a) Skechers shall make an Initial Capital Contribution to the Company in the amount of Thirty
Million Dollars ($30,000,000), which shall be contributed in cash. The obligation to fund such
Initial Capital Contribution shall be guaranteed by Skechers Parent. Such Initial Capital
Contribution shall be made to an escrow account established by and under the control of the
Construction Lender as follows: The funds will be held by the Construction Lender in an interest
bearing account (provided that the Construction Lender agrees to pay interest thereon) and will not
be disbursed until the first to occur of (i) the execution of the Construction Loan Documents,
whereupon Thirty Million Dollars
($30,000,000) from such account shall continue to be held for disbursement by Construction Lender
to the Company in the usual and customary course of distributions under the Construction Loan and
subject to the same conditions, safeguards and procedures that are established by the Construction
Lender with respect to Construction Loan draws (although it is understood that such funds will be
disbursed by the Construction Lender before the Construction Lender disburses any of its own funds
under the Construction Loan), and the accrued interest thereon will be promptly returned to
Skechers, or (ii) June 1, 2010, whereupon unless Skechers gives notice to the Construction Lender
to the contrary, the entire amount in the escrow account (including accrued interest) will be
promptly returned to Skechers. Time is of the essence with respect to the foregoing. HF shall
cause the Construction Loan Documents to so provide. Skechers may, if it so desires, but at its own
expense, engage an independent compliance auditor to monitor the distribution of funds from such
account, and HF shall provide information to Skechers’ compliance auditor (prior to any
disbursement from such account in form and content reasonably requested by such compliance auditor)
which reflects the amount of any draws to be made from such account, the purposes of such draws and
shall provide copies of any draw requests and backup documentation provided by all contractors who
are being paid from such draw. If HF fails to provide such information to Skechers’ compliance
auditor within a reasonable time after demand is made, then Skechers may request such information
directly from the Construction Lender (and Skechers may deliver a copy of this provision to the
Construction Lender to evidence its right to obtain such information). HF shall not improperly
authorize any draws from the account which holds such funds. If Skechers’ compliance auditor
establishes that HF improperly authorized any draws from the account which holds



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such funds, then the reasonable expense of the compliance auditor shall be reimbursed by HF to
Skechers. If there is a dispute regarding draws from such account, the matter shall be submitted to
expedited arbitration in accordance with Article 15.




               (b) On the Closing Date, the HF shall convey, as its Initial Capital Contribution, all of HF’s
interest in the Property (being its interest as tenant under the Master Lease) to the Company, free
and clear of all monetary liens and encumbrances (other than a lien of current property taxes and
current POA assessments, if any), but subject to all other matters then of record, including CC&Rs
and to that end will execute an assignment of its interest under the Master Lease to the Company.
At or prior to the date of funding the Construction Loan, HF will cause the Master Landlord to
execute a grant deed which transfers title to the Property to the Company free and clear of all
monetary liens and encumbrances (other than a lien of current property taxes and current POA
assessments, if any), but subject to all other matters then of record, including CC&Rs. HF will
receive a Capital Account credit in the amount of Thirty Million Dollars ($30,000,000). HF shall,
concurrently with the conveyance of its interest in the Property to the Company be deemed to have
made representations to the Company and Skechers as set forth on attached as Exhibit “G”
attached hereto. Any documentary transfer tax payable with respect to such conveyance of HF’s
interest in the Property to the Company (or any subsequent conveyance of fee simple title to the
Company) shall be paid by HF (but the amount thereof, up to Thirty-Three Thousand Dollars
($33,000), shall become part of the HF Loan) and when the Construction Loan closes, HF will obtain
an owner’s title insurance policy (ALTA 2006 form with customary endorsements) insuring the
Company’s interest in the Property with policy limits of at least Thirty Million Dollars
($30,000,000). After Completion of the Project, the Managing Members may elect to increase the
amount of such insurance up to the then insurable fair market value of the Property and all
improvements thereon. HF will cause the Master Landlord to convey fee title to the Property to the
Company at the time specified above.



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



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






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Capital Contribution (or part thereof) was not reasonable, then the loan (to the extent of any
amount which was not determined to be reasonable) shall not bear interest.




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




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




          4.1.5 Default in Making Required Additional Capital Contributions.




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



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



               (c) If a Member who receives a Default Notice fails to make a required Additional Capital
Contribution within five (5) Business Days after receiving the Default Notice (the failure to make
such Additional Capital Contribution is referred to as a “Default” and the date that is
five (5) Business Days after the receipt of the Default Notice is referred to as the “Default
Date”), then such Member shall be in default (a “Default Member” and the amount that
the Default Member has failed to contribute is referred to as the “Default Amount”). The
Member other than the Default Member is referred to herein as the “Non-Defaulting Member.”
Neither Member shall be deemed to be a Default Member during the pendency of any expedited
arbitration under Article 15 to determine whether a request for an Additional Capital
Contribution is reasonable under Section 4.1.2. If as a result of such arbitration, it is
determined that the request for an Additional Capital Contribution was reasonable, then the Member
who failed to make such Additional Capital Contribution shall, within five (5) Business Days
thereafter,



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make any such Additional Capital Contribution which was not made (and which was determined to be
reasonable), and failing to do so, such Member shall be a Default Member.




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



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



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



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




ARTICLE 5

DISTRIBUTIONS AND ALLOCATIONS




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



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



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




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




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




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



     Section 5.3 Allocations. Profits and losses of the Company (and all related items of
income, gain, loss, deduction and credit) shall be allocated between the Members in the manner
provided in Exhibit “A”.



ARTICLE 6

LOANS




     Section 6.1 Construction Loan. The Company shall take out a Construction Loan or
Construction Loans to finance the development of the Project. The Construction Loan will not close
unless and until fee title to the Property has been conveyed by the Master Landlord to the Company
in accordance with Section 4.1.1(b). The Lender of the Construction Loan(s) shall be
selected by the HF Managing Member. Any guarantees (completion, payment or otherwise) required by
the Lender of the Construction Loan(s) shall be provided by HF (or an Affiliate of HF). HF shall
cause an HF Affiliate acceptable to the Construction Lender to provide such guarantees. If HF is
unable to obtain a Construction Loan (or Construction Loans) sufficient to fund the entire cost of
the Project (considering the Initial Capital Contribution to be made by Skechers), it may, at its
option, loan its own funds (or funds of its Affiliates) to the Company, and in the latter case such
loan will be part of the HF Loan (in such event, if there is no Construction Loan, the interest
rate on the HF Loan shall be the rate which is then being charged by institutional construction
lenders in the marketplace for construction loans of this amount and nature). HF shall take the
lead in procuring the Construction Loan, and Skechers shall cooperate with HF in connection
therewith. Skechers shall have the right to review and comment on the terms and conditions of the
Construction Loan(s), and the Construction Loan documentation, but the decisions of HF in this
regard shall control and will be final and conclusive (provided that HF shall act in good faith and
consistent with its fiduciary duties hereunder). Notwithstanding the foregoing, Skechers Parent
shall not be required to materially amend or modify the Lease in connection with obtaining the
Construction Loan (except for any reasonable and customary modifications which may be required
under a subordination, non-disturbance and attornment agreement). Skechers shall be a required
signatory on the Construction Loan Documents (in its capacity as a Managing Member only and not in
any manner which will create any personal liability on Skechers). Skechers shall be given
reasonable advance notice of any regularly scheduled meetings with the prospective Construction
Lender at which material issues regarding the Construction Loan are expected to be discussed and
shall have the right to attend all such meetings (whether conducted in person or by telephone or
electronic meeting). Skechers shall also have the right to communicate directly with the
Construction Lender to discuss the status of the Construction



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Loan, but will not negotiate any of its terms or conditions without the express prior approval of
the HF Managing Member.




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



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



     Section 6.4 HF Loan. Concurrently with the contribution of the Initial Capital
Contributions as described above, HF will transfer and assign to the Company all of its right,
title and interest in all personal property and all plans, specifications, architectural drawings
and renderings, surveys and other collateral material relating to the ownership and development of
the Property. In consideration of such transfer and assignment, HF will be deemed to have extended
a loan to the Company in the amount of Fourteen Million Dollars ($14,000,000) (the “HF
Loan”). The HF Loan will bear interest at the rate of



15









 




six percent (6%) per annum, with interest and principal payable monthly from the first Available
Cash (prior to any distributions of Available Cash to the Members), with any unpaid balance of
interest and principle payable upon the earlier to occur of the refinancing or sale of the Project,
or the liquidation of the Company (again, before any distributions of Available Cash to the Members
except as provided in Section 5.2(c)). The HF Loan is to be treated as a partial sale of
the Property as provided in Section 3.3(c) of Exhibit “A”.




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



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



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



     Section 6.8 Additional Loans.



               (a) If the HF Managing Member determines in the exercise of its reasonable business judgment
that additional capital is needed as a result of construction cost overruns relative to the initial
construction of the Project (which specifically excludes increased construction costs due to change
orders requested by Skechers and approved by the landlord under the Lease, or resulting from the
acts or omissions of Skechers under the Lease), which cannot be funded from Available Cash or
obtained through financing (or which are impractical to be obtained through financing), such
capital shall be loaned to the Company by HF (or its Affiliate), and such amounts shall be
considered an increase in the HF Loan. Provided, however, that cost overruns resulting from an
Event of Default by HF under this Agreement or a default by the Development Manager under the
Development Management Agreement, or which involves the gross negligence, fraud or willful
misconduct of HF (or its Affiliate) shall not be considered an increase in the HF Loan. If
additional capital is needed to perform the Company’s obligation under the Lease to pay or
reimburse Skechers for the costs of storage of Skechers’ property, such capital shall be funded by
HF (or its Affiliate), at its own expense, and such amount shall not be considered income of the
Company, or a loan or a Capital Contribution to the Company, or an increase in the HF Loan or an
increase in HF’s Capital Account.



               (b) If the HF Managing Member determines in the exercise of its reasonable business judgment
that additional capital is needed as a result of increased construction costs due to change orders
requested by Skechers and approved by the landlord under the Lease, or resulting from the acts or
omissions of Skechers under the Lease, then such capital shall be loaned to the Company by Skechers
(or its Affiliate) and shall be considered an increase in the Skechers Loan, but such increase
shall not exceed One Million Dollars ($1,000,000), and any excess shall be paid by Skechers as its
own expense, and such amount shall not be considered income of the Company, or a loan or a Capital
Contribution to the Company, or part of the Skechers Loan, or an Additional Capital Contribution by
Skechers. Provided, however, that any increased construction costs resulting from acts or omissions
of Skechers (or its Affiliate) which constitute an Event of Default by Skechers under this
Agreement or a



16









 




default by Skechers Parent under the Lease, or which involves gross negligence, fraud or
willful misconduct of Skechers or Skechers Parent (or their Affiliates) shall not be considered an
increase in the Skechers Loan. Provided, further that to the extent that the Skechers Loan is
increased as a result of the foregoing, the Base Rent under the Lease shall be increased
proportionately by the ratio that the increase in the Skechers Loan bears to the total Project
Costs (as such term is defined in the Development Management Agreement). The HF Managing Member
shall not unreasonably withhold its consent to any change order requested by Skechers Parent if
Skechers funds the entire cost of such change order (including any resulting increases in the
Project Costs. If there is a dispute as to whether the refusal of the HF Managing Member to give
its consent to any change order proposed by Skechers is reasonable, the matter shall be submitted
to expedited arbitration in accordance with Article 15.




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



     Section 6.9 Default in Making Required Loans.



               (a) If either Member fails to make any required loan pursuant to Section 6.8 (an
“Additional Funding Obligation”), the other Member may send a notice to such Member who
failed to make the required Additional Funding Obligation, notifying such Member of its failure to
make such Additional Funding Obligation, the amount to be funded and demanding that such Additional
Funding Obligation be made immediately.



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



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


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




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




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EITHER MEMBER UNDER Article 6 RESULTS IN THE INABILITY OF THE COMPANY TO PERFORM ITS
OBLIGATIONS UNDER THE LEASE THEN, IN ADDITION TO ANY RIGHTS AND REMEDIES THAT THE NON-DEFAULTING
MEMBER MAY HAVE AGAINST THE DEFAULTING MEMBER HEREUNDER, THE DEFAULTING MEMBER SHALL BE SOLELY
RESPONSIBLE FOR ALL CLAIMS OF TENANT UNDER THE LEASE AS A RESULT THEREOF.




ARTICLE 7

MANAGEMENT AND OPERATION OF BUSINESS




     Section 7.1 Management.


          7.1.1 Powers of the Managing Members.



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



               (b) Unless and until it is removed as a Managing Member pursuant to Section 7.1.4, the
Skechers Managing Member shall have exclusive management, responsibility and control over the
operations of the Building after completion of construction and Skechers taking possession of the
premises described in the Lease (subject to the obligations of the tenant under the Lease). In
addition to the foregoing, the Skechers Managing Member shall have exclusive management
responsibility and control over the Company’s rights to pursue remedies for any default by the
Development Manager under the Development Management Agreement, for any default by any HF Affiliate
under any agreement between the Company and such HF Affiliate, any default by HF under this
Agreement, and any negotiations with the POA which involve any wrongdoing or alleged wrongdoing by
HF or any HF Affiliate.



               (c) Unless and until it is removed as Managing Member pursuant to Section 7.1.4 the HF
Managing Member shall have the exclusive management, responsibility and control over, (i) any
consents, approvals or decisions to be made by the landlord under the Lease, including decisions
regarding the development of the Expansion Area (as defined in the Lease) if the Tenant fails to
exercise its option to expand under the Lease (provided that Skechers shall be afforded the first
option to participate with HF in any other development of the Expansion Area, on terms prepared by
the HF Managing Member), (ii) financing of the Project, including procuring and negotiating the
Loans and determining the terms and conditions thereof (to the extent not inconsistent with the
other provisions of this Agreement), (iii) pledges or encumbrances of Company Assets, (iv) all
matters pertaining to the entitlements affecting the Property (including, but not limited to,
zoning issues, CFD formation, mapping and subdivision), including interactions and negotiations
with governmental entities, (v) except as set forth in Section 7.1.1(b), all matters pertaining to
the Property Owners Association (“POA”) for the Corporate Park in which the Project is located
(provided, however, HF Managing Member may not take any action in connection with the POA without
Skechers Managing Member’s approval that will materially reduce or eliminate any of Skechers
Parent’s rights as tenant under the Lease, or that will materially increase Tenant’s costs and
expenses thereunder, other than the obligation to pay reasonable POA assessments), and (vi) subject
to Section 7.1.1(e) below, all matters relating to the development (but not the sale) of the
Project and the development of the Expansion Area if Skechers Parent exercises its expansion rights
under the Lease, including, but not limited to, engagement of attorneys, architects, engineers,
contractors, a development manager (which shall be an Affiliate of HF and which shall enter into a
development management agreement with respect to the Expansion Area on substantially the same terms
and conditions as are set forth in the Development Management Agreement) and other



18









 





professionals, preparation of construction drawings, and all aspects of construction (subject to
the rights of Skechers Parent as tenant under the Lease and the provisions of the Development
Management Agreement). Notwithstanding the exclusive rights granted to HF Managing Member
hereunder, the Skechers Managing Member shall have the right to approve any insurance company
recovery, award or settlement, any condemnation award and any settlement of any lawsuit or
threatened lawsuit with respect to the Property or the Project, which consent will not be
unreasonably withheld. Further, subject to any provisions in the Lease, the Construction Loan
documents and the Permanent Loan Documents, any insurance proceeds received by the Company as a
result of damage or destruction to any improvements within the Project shall be used to reconstruct
such improvements, to the extent legally permissible, and provided that the Lease continues in
force and effect. HF Managing Member shall keep Skechers reasonably informed about negotiations
involving the construction contract (including the selection of the general contractor) and shall
promptly upon request provide Skechers with copies of drafts of the proposed construction contract
during the course of its negotiation. HF Managing Member will consider any comments offered by
Skechers with respect to the foregoing, but ultimately the decisions of HF Managing Member
regarding the selection of the general contractor and the terms and conditions of the construction
contract shall control, subject to any express provisions in this Agreement or the Development
Management Agreement. Notwithstanding item (i) of this Section 7.1.1(c), nothing herein shall be
interpreted as a waiver of, or prohibition on, the right of Skechers Parent, as tenant under the
Lease, to contest the withholding of any requested landlord consent or approval under the Lease.




               (d) To the extent that the management and control of the Company is within the scope of the
exclusive authority of either the HF Managing Member or the Skechers Managing Member, such Managing
Member may act on behalf of the Company (and may bind the Company) alone and without the consent,
approval, ratification or signature of the other Managing Member.



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



               (f) In addition to the powers now or hereafter granted to a manager of a limited liability
company under the Act or under any other provision of this Agreement, the Managing



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Members, to the extent of either their exclusive scope of authority or joint authority as the case
may be, shall have full power and authority to do all things deemed necessary or desirable by them
to conduct the business of the Company, to exercise all powers set forth in Section 3.2 and to
effect the purposes set forth in Section 3.1, including, without limitation:




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



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



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



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



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



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



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



                    (viii) obtaining and maintaining casualty, liability and other insurance on the Company Assets, including the Project and the Members; and (ix) the
execution, acknowledgment and delivery of any and all documents and instruments to effect any or
all of the foregoing.


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




20









 








reasonable respects with the Managing Members to facilitate the exercise of the powers of
management and control by the Managing Members.



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


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



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



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



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



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



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



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



If a Managing Member is so removed, the other Managing Member shall serve as the sole Managing
Member (and shall thereafter have the management authority and attendant management obligations of
replaced Managing Member in addition to the management authority and attendant management
obligations which it previously had). For clarification, if the HF Managing Member is removed, the
Skechers Managing Member shall have the right to enforce the Company’s rights under the Development
Management Agreement, and if the Development Management Agreement is terminated, the Skechers
Managing Member may enter into a new development management agreement on behalf of the Company




21









 








and may engage a new Development Manager, subject to the provisions of Section 7.5. The removed
Managing Member shall retain all of the rights and obligations hereunder as a Member, other than
those which pertain to its management authority as a Managing Member, but such Managing Member
shall remain liable to the Company and the other Member for any damages resulting from the acts (or
omissions) which resulted in its removal.




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



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



     Section 7.3 Compensation of Managing Members.


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


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



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



               (a) Nothing herein contained shall prevent or prohibit the Members or any Affiliates of the
Members from entering into, engaging in or conducting any other activity or performing for a fee
any service, including engaging in any business dealing with real property of any type or location;
owning, managing, leasing or disposing of any real property of any type or location; acting as a



22









 





director, officer or employee of any corporation, as a trustee of any trust, as a general partner
of any partnership, or as an administrative official of any other business entity; or receiving
compensation for services to, or participating in profits derived from, the investments of any such
business, property, corporation, trust, partnership or other entity, regardless of whether such
activities are competitive with the Company (collectively, the “Outside Activities”), and nothing
herein shall require any Member or any Affiliates thereof to offer any interest in such Outside
Activities to the Company or to any other Member.




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



     Section 7.6 Indemnification.


          7.6.1 General. The Company shall indemnify, to the full extent allowed by the Act, each
Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other
amounts (collectively, “Loss Items”) arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative brought by an unaffiliated third
party, that relate to the operations of the Company as set forth in this Agreement in which such
Indemnitee may be involved, or is threatened to be involved, as a party or otherwise (but excluding
indemnification for any Loan guarantees, which are separately addressed in Section 6.3), except to
the extent it is established in a final court proceeding that the Loss Item is proximately caused
by: (a) the act or omission of such Indemnitee that was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and deliberate
dishonesty, fraud, willful misconduct or gross negligence or such Indemnitee’s uncured breach of
this Agreement, the Development Management Agreement, or the Lease; (b) such Indemnitee actually
receiving an improper personal benefit in money, property or services; or (c) in the case of any
criminal proceeding, such Indemnitee having reasonable cause to believe that the act or omission
was unlawful. The termination of any proceeding by judgment, order or settlement does not create a
presumption that such Indemnitee did not meet the requisite standard of conduct set forth in this
Section 7.6.1. The termination of any proceeding by conviction or upon a plea of nolo contendere or
its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified in this Section
7.6.1. Any indemnification pursuant to this Section 7.6 shall be made only out of the Company
Assets. Notwithstanding anything in this Agreement to the contrary, no Indemnitee who is an
individual shall be denied indemnification or shall have any personal liability to the Company or
its Members with respect to any Loss Item, except to the extent such Loss Item is proximately
caused by such Indemnitee’s actual active and deliberate dishonesty, or fraud.



23









 







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


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


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



     Section 7.7 Other Matters Concerning the Managing Members.


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


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


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


          Section 7.8 Reliance by Third Parties. Any Person dealing with the Company shall be entitled
to assume that the Managing Members have full power and authority to encumber, sell or otherwise
use in any manner any and all Company Assets and to enter into any contracts on behalf of the
Company, and such Person shall be entitled to deal with the Managing Members, or either of them, as
if they were the Company’s sole party in interest, both legally and beneficially. In no event
shall any Person dealing with the Managing Members or their representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire into the necessity
or expedience of any act or action of the Managing Members or their representatives. Each and
every certificate, document or





24









 








other instrument executed on behalf of the Company by the Managing Members or their representatives
shall be conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do so for and on
behalf of the Company and (c) such certificate, document or instrument was duly executed and
delivered in accordance with the terms and provisions of this Agreement and is binding upon the
Company. Nothing herein is intended to afford either Managing Member greater power or authority
than is otherwise granted under this Agreement, or to exculpate either Managing Member from any
liability for acting beyond the scope of such Managing Member’s authority as set forth herein.




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



ARTICLE 8 BUY-SELL

PROVISIONS




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



25









 





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



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



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



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



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

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



     Section 8.8 The closing of a sale and purchase pursuant to this Article 8 shall be consummated
through escrow on a date which is six (6) months after the Deposit Date (or sooner at the election
of the Purchasing Member), or such other date and manner as the Members shall agree upon. At



26









 





such closing, the Purchasing Member shall pay the entire purchase price for the Company Interest of
the Selling Member, in cash in immediately available funds, and the Selling Member shall execute
all documents that may be necessary or desirable, in the reasonable opinion of counsel for the
Purchasing Member (including customary representations and warranties regarding the Company
Interest of the Selling Member, but not regarding the Project, the other Company Assets or the
Company), to effect the sale of the Company Interest of the Selling Member to the Purchasing Member
free and clear of all liens and encumbrances. In the event the Selling Member or the Purchasing
Member shall fail or refuse to execute any instruments required to consummate the closing, the
other Member is hereby granted an irrevocable power of attorney, which shall be binding on the
Member refusing to execute such documents as to all third Persons, to execute and deliver on behalf
of the Member refusing to execute such documents all such required documents. The aforesaid power,
being coupled with an interest, is irrevocable by death, dissolution or otherwise.




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



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



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



     Section 8.12 In the event the Purchasing Member defaults in its obligation to purchase the
Company Interest of the Selling Member, then Selling Member as its sole and exclusive remedy shall
be entitled to retain the Buy-Sell Deposit as full liquidated damages for such default of the
Purchasing Member, in which event the buy-sell transaction shall be terminated and the Purchasing
Member shall have no further rights to initiate the buy-sell provisions (as an Invoking Member)
under this Article 8. The Selling Member, at its election and in lieu of the remedy set forth
above, may elect within sixty (60) days of such default to dissolve and liquidate the Company. The
Members hereby acknowledge and agree that it is impossible to more precisely estimate the damages
to be suffered by the Selling Member upon the Purchasing Member’s default, and the Members
expressly acknowledge and agree that the Buy-Sell Deposit which may be retained by the Selling
Member is a reasonable and fair estimate of such damages and is intended not as a penalty, but as
full liquidated damages for such default of the Purchasing Member.



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



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ARTICLE 9



BOOKS, RECORDS, ACCOUNTING AND REPORTS



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



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




	 	 	Section 9.3 Reports.




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


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


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



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



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



28









 





               (b) KMPG will undertake annual audits of the Company, at Company expense;



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



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



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



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



ARTICLE 10 
TAX
MATTERS




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



     Section 10.2  Tax Matters Partner.


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




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



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



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



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



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



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



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



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



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



The taking of any action and the incurring of any expense by the Tax Matters Partner in connection
with any such proceeding, except to the extent required by law, is a matter in the reasonable
discretion of the Tax Matters Partner, and the provisions relating to indemnification of the HF
Managing Member set forth





30









 








in Section 7.6 of this Agreement shall be fully applicable to the Tax Matters Partner in its
capacity as such.



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



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



     Section 10.4 Withholding.  The Members hereby authorize the Company to withhold from or pay on
behalf of or with respect to the Members any amount of federal, state, local, or foreign taxes that
the Tax Matters Partner reasonably determines that the Company is required to withhold or pay with
respect to any amount distributable or allocable to the Members pursuant to this Agreement,
including any taxes required to be withheld or paid by the Company pursuant to Section 1441, 1442,
1445, or 1446 of the Code. The Tax Matters Partner shall give prompt notice to the Members with
respect to which withholding is effected in accordance with this Section 10.4 and shall provide
each such Member with a written explanation of the basis for their determination so to withhold or
pay. Any amount paid on behalf of or with respect to a Member shall constitute a loan by the
Company to such Member which loan shall be repaid by such Member within fifteen (15) days after
notice from the Tax Matters Partner that such payment must be made unless (a) the Company withholds
such payment from a distribution which would otherwise be made to such Member in accordance with
Section 5. 2 or Section 13.2  or (b) the Tax Matters Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the Available Cash of the Company which
would, but for such payment, be distributed to such Member. Any amounts withheld pursuant to the
foregoing clauses (a) or (b) shall be treated as having been distributed to such Member and shall
be promptly paid, solely out of funds of the Company, by the Tax Matters Partner to the appropriate
taxing authority. Each Member hereby unconditionally and irrevocably grants to the Company a
security interest in such Member’s Company Interest to secure the Member’s obligation to pay to the
Company any amounts required to be paid pursuant to this Section 10.4.  In the event that a Member
fails to pay any amounts owed to the Company pursuant to this Section 10.4 when due, the Tax
Matters Partner may, in its sole and absolute discretion, elect to make the payment to the Company
on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount
to such defaulting Member and shall succeed to all rights and remedies of the Company as against
such defaulting Member (including, without limitation, the right to receive distributions which
would otherwise be made to the Member until such loan, with interest, has been paid in full). Any
amounts payable by a Member hereunder shall bear interest at a per annum rate of interest equal to
the Prime Rate, plus five percent (5%) (but not higher than the maximum lawful rate) from the date
such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. The
Members shall take such actions as the Company or the Tax Matters Partner shall request in order to
perfect or enforce the security interest created hereunder.



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



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ARTICLE 11



TRANSFERS AND WITHDRAWALS



     Section 11.1 Transfer.


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


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


          11.1.3 Transfer of Member’s Company Interest. The HF Managing Member may not transfer any
portion of its Company Interest without Skechers’ consent until the Completion of the Project
pursuant to the Plans and Specifications. Neither Member may transfer its Company Interest (other
than any transfer to an Affiliate, which shall require the consent of the other Member, which
consent may not be unreasonably withheld or delayed), in whole or in part, to any Person, without
first offering such Company Interest (or part thereof) to the other Member on the same terms and
conditions. If a Member desires to transfer its Company Interest, or any part thereof (whether or
not it has received an offer to purchase same) , it shall send notice to the other Member stating
the extent of the Company Interest which it intends to transfer, the terms and conditions of the
proposed transfer, including the purchase price therefor, and the identity of the proposed
transferee. Upon request of the receiving Member, additional information regarding the proposed
transfer and financial and other information concerning the transferee will be promptly provided.
Within twenty (20) days after receipt of the notice of intended transfer, the receiving Member may,
by notice to the Member proposing to transfer, elect to purchase the entire Company Interest
proposed to be transferred at the same purchase price and on the same terms and conditions as set
forth in the notice, but the closing shall not occur sooner than six (6) months after the date of
such notice to the Member proposing to transfer. If the Member receiving the notice of proposed
transfer fails to elect to purchase the Company Interest as set forth above within such twenty (20)
day time period, the Member proposing the transfer may proceed to transfer the Company Interest,
but only on the terms and conditions and to the proposed transferee set forth in the notice, and
provided that such proposed transfer is consummated within sixty (60) days thereafter (if there is
any change in the foregoing or the transfer is not consummated within such sixty (60) day period,
then a new notice of intent to transfer is required). If the transfer is consummated, the
transferring Member shall promptly give notice to the other Member. The transferee shall be an
Assignee and shall not become a Member of the Company until the provisions of Article 12 have been
complied with. Any transfer or purported transfer of a Member’s Company Interest not made in
accordance with this Article 11 shall be null and void.



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



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



32









 





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


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



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



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


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


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


          11.2.3 Certain Prohibited Transfers. Notwithstanding anything herein to the contrary, no
transfer by a Member of its Company Interest may be made to any Person if legal counsel for the
Company or the other Member renders written advice to the effect that it believes that there is a
significant risk that (a), such transfer would be effected or would be deemed to be effected
through an “established securities market” or a “secondary market” (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code and the Regulations thereunder, or (b) such
transfer would violate any Securities Laws.


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


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


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




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ARTICLE 12

 ADMISSION OF

MEMBERS




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



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



ARTICLE 13



DISSOLUTION AND LIQUIDATION



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


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


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


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


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


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



     Section 13.2 Winding Up.


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




34









 








liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following order:




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



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



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



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



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


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





35









 








reflect the unrealized portion of any installment obligations owed to the Company; provided, that
such withheld amounts shall be distributed to the Members as soon as practicable.



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


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


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


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


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



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



36









 





ARTICLE 14



AMENDMENT OF AGREEMENT



     Section 14.1 Amendments.


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


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



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



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



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



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



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




     14.1.3 Consent of Adversely Affected Member Required. Notwithstanding Section 14.1.2 hereof, this
Agreement shall not be amended without the consent of any Member adversely affected if such
amendment would (a) modify the limited liability of such Member, (b) alter rights of such Member to
receive distributions pursuant to Article 5 or Article 13, the allocations specified in Exhibit
“A”, or the Capital Contribution obligations set forth in Article 4, (c) cause the termination of
the Company prior to the time set forth in Section 2.4 or Section 13.1, or (d) amend this Section
14.1.3. Further, no amendment may alter the restrictions on the Managing Members’ authority set
forth herein without the consent of both Members.



ARTICLE 15
 DISPUTE
RESOLUTION




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



     Section 15.2 Arbitration. Should a dispute arise between the Members for which
“expedited arbitration” is expressly called for under this Agreement, the parties shall submit such
dispute to final and



37









 





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




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



ARTICLE 16

DEFAULTS /REMEDIES




     Section 16.1 Defaults. Except as otherwise expressly provided in this Agreement, if either
Member defaults in the performance of its obligations under this Agreement, the other Member shall
provide notice of such default and the allegedly defaulting Member shall have a period of fifteen
(15) days to cure the default (but if the nature of the default is such that it cannot reasonably
be cured within such fifteen (15) day period, then the allegedly defaulting Member shall have an
additional reasonable amount of time, not to exceed another sixty (60) days, to cure the default if
it commences the cure within the fifteen (15) day period and diligently pursues same to completion.
Provided, however, that if the default cannot be cured, then no cure period shall be required.
Provided, further, that this provision shall not apply to a default in making required Capital
Contributions or loans under Article 4 or Article 6, as the provisions of Article 4 or Article 6
control under those circumstances. Any material breach by a Member of any of its material
representations or warranties under this Agreement shall be a default (but subject to notice and
cure as provided herein, to the extent applicable). With respect to any representation, warranty
or covenant of HF or any HF Affiliate to convey HF’s interest in the Property (as tenant under the
Master Lease) to the Company free and clear of monetary liens and encumbrances, if such
representation, warranty or covenant is untrue on the Effective Date, HF shall nevertheless have
the right to cure such default up until the date that HF is obligated to convey fee title to the
Property to the Company.



38









 





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



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



ARTICLE 17 
GENERAL
PROVISIONS




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



HF:




HF Logistics I, LLC

c/o Highland Fairview Properties

14225 Corporate Way

Moreno Valley, California 92553

Attention: Iddo Benzeevi




With Copy To:




Baker & Hostetler LLP

12100 Wilshire Boulevard, 15th Floor

Los Angeles, California 90025-7120

Attention: Bruce R. Greene, Esq.




With Additional Copy To:




Danette Fenstermacher

3070 Bristol Street, Ste 320

Costa Mesa, California 92626




- and -




James Lieb, Esq.

Executive Vice President

TG Services, Inc.

4 Stage Coach Run

East Brunswick, New Jersey 08816





39












 




SKECHERS:



Skechers USA, Inc.

228 Manhattan Beach Boulevard

Manhattan Beach, California 90266

Attention: David Weinberg, COO



With Copy To:



Greenberg Traurig, LLP

2450 Colorado Avenue 
Suite 400
East
 Santa Monica, California 90404

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



With Additional Copy to:



Philip Paccione, Esq.

Skechers USA, Inc.

228 Manhattan Beach Boulevard

Manhattan Beach, California 90266



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




     Section 17.2 Titles and Captions. All article or section titles or captions in this
Agreement are for convenience only and shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof. Except as
specifically provided otherwise, references to “Articles” and “Section” are to Articles and
Sections of this Agreement. All schedules and exhibits annexed or attached hereto are expressly
incorporated into and made a part of this Agreement.



     Section 17.3 Interpretation. Whenever the context may require, any pronoun used in
this Agreement shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice versa. The terms
“include” and “including” shall be construed as if followed by the phrase “without limitation”.



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



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



40









 





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



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



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



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



     Section 17.10 Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy
consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant,
duty, agreement or condition.



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



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



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



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



     Section 17.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT
PERSON AND THE MEMBERS WISH



41









 







APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE MEMBERS DESIRE
THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS; THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION (WITHOUT SUBMITTING TO
ARBITRATION), TO THE FULLEST EXTENT ALLOWABLE BY LAW, THE MEMBERS WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.



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



     Section 17.17 Attorneys’ Fees. Should any Member be required to bring legal action or
arbitration to enforce its rights under this Agreement, the prevailing party in such legal action
or arbitration shall be entitled to recover from the losing party its reasonable attorneys’ fees
and costs in addition to any other relief to which it is entitled. Such recovery of attorneys’
fees shall include any attorneys’ fees incurred in connection with any bankruptcy or reorganization
proceeding (including stay litigation) and any attorneys’ fees incurred on appeal. The parties
further agree that any attorneys’ fees incurred in enforcing any judgment are recoverable as a
separate item, and that this provision is intended to be severable from the other provisions of
this Agreement, shall survive the judgment, and is not to be deemed merged into the judgment.



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



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



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



     Section 17.21 Expansion Area. If the tenant under the Lease does not exercise its expansion
rights and does not participate in the development of the Expansion Area with HF, then
HF shall have the right to either purchase the Expansion Area from the Company (if the
Expansion Area has not been



42









 




previously subdivided, all costs required to subdivide the Expansion Space to satisfy the
California Subdivision Map Act or any other conveyance requirements shall be the sole cost of HF,
and Skechers shall have the right to approve all such subdivision documents, such approval not to
be unreasonably withheld or delayed) at its then fair market value, or to enter into a ground lease
of the Expansion area at its then fair market rent (which ground lease shall be for a term of not
less then twenty (20) years and upon commercially reasonable market terms and conditions). If the
parties cannot agree on fair market value or fair market rent, as the case may be, then such
amounts will be determined by an appraisal process as follows: Within fifteen (15) days after one
party notifies the other that there is no mutual agreement with respect to the determination of
fair market value or fair market rent, as the case may be, each party shall appoint an independent
appraiser which has at least ten (10) years experience in appraisals of industrial real estate in
the Riverside County, California area and who is a member of the Master Appraisers Institute. Each
such appraiser shall submit his or her opinion as to the fair market value or fair market rent, as
the case may be, within thirty (30) days after appointment. If only one party appoints an
appraiser, then his or her opinion as to fair market value or fair market rent, as the case may be,
shall be conclusive and binding on both parties. If the opinions of the two appraisers are within
ten percent (10%) of each other, then the average of the two appraisals will be conclusive and
binding on the parties as to fair market value and fair market rent, as the case may be. If the
opinions differ by more than ten percent (10%), then the two appraisers shall appoint a third,
independent appraiser (with the same qualifications as above) who shall submit his or her opinion
as to the fair market value or fair market rent, as the case may be, within thirty (30) days
thereafter, and such opinion shall be conclusive and binding on the parties. If the two (2)
appraisers cannot mutually agree upon a third appraiser, then the third appraiser will be selected
by an arbitrator (from a list of three proposed appraisers to be submitted by each of the two
appraisers) under the expedited arbitration provisions of Article 15. Each party shall pay for the
appraiser appointed by such party, and if a third appraiser is appointed, the cost shall be borne
equally by the parties.




     Section 17.22 Condition to Effectiveness of Agreement. The effectiveness of this
Agreement is conditioned upon the execution of the Amended and Restated Master Lease Agreement in
the form attached hereto as Exhibit “I” no later than five (5) Business Days after the
Effective Date.



(signature page follows)






43









 








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



	 	 	 	 	 	 	 	 	 	 	 

	“HF”	 	 	 	“SKECHERS”	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	HF LOGISTICS I, LLC, a Delaware limited	 	SKECHERS RB, LLC, a Delaware limited	 	 
	liability company	 	liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Iddo Benzeevi 	 	By:	 	Skechers USA, Inc, a Delaware	 	 
	 	 	 
Iddo Benzeevi, President and Chief	 	 	 	corporation, its sole member	 	 
	 	 	Executive Officer	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	/s/ David Weinberg 	 	 
	 

	 	 	 	 	 	 	 	 

David Weinberg, Chief Operating
Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	/s/ Robert Greenberg 	 	 
	 

	 	 	 	 	 	 	 	 

Robert Greenberg, Chief Executive
Officer
	 	 






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



	 	 	 	 	 	 	 

	 	 	“SKECHERS PARENT”	 	 
	 
	 	 	 	 	 	 
	 	 	SKECHERS USA, INC., a Delaware
corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ David Weinberg 	 	 
	 

	 	 	 	 

David Weinberg, Chief Operating Officer
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Robert Greenberg 	 	 
	 

	 	 	 	 

Robert Greenberg, Chief Executive Officer
	 	 






 









 





EXHIBIT “A”




CAPITAL ACCOUNTS,

ALLOCATIONS OF PROFIT AND LOSS,

AND OTHER TAX MATTERS



ARTICLE 1

DEFINITIONS




	 	 	Section 1.1 Definitions.





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



          (a) Agreed Value.




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




          (b) Book Basis.




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




          (c) Book Depreciation.




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




Exhibit “A”






1









 







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




          (d) Book Gain or Loss.




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




          (e) Book/Tax Disparity Property.




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




          (f) Capital Accounts.




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




          (g) Capital Transaction.




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




          (h) Company Minimum Gain.




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




          (i) Deductible Expenses.




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




Exhibit “A”






2









 








          (j) Economic Risk of Loss.




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




          (k) Gross Asset Value.




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




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




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




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




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




          (l) Gross Income.




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




          (m) Liquidation.




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




Exhibit “A”





3









 








          (n) Member Minimum Gain.




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




          (o) Member Nonrecourse Deductions.




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




          (p) Member Nonrecourse Debt.




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




          (q) Nonrecourse Deductions.




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




          (r) Nonrecourse Liability.




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




          (s) Operations.




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




          (t) Profits and Loss.




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




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



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



Exhibit “A”





4









 








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



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




          (v) Regulations.




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




          (w) Related Person.




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




          (x) Revaluation Event.




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




          (y) Tax Depreciation.




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




          (z) Tax Items.




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




          (aa) Unrealized Book Gain or Loss.




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




Exhibit “A”







5









 







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




ARTICLE 2

CAPITAL ACCOUNTS





	 	 	Section 2.1 Capital Accounts.





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



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




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




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




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




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




          Section 2.2 Additional Provisions Regarding Capital Accounts.




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




Exhibit “A”







6









 








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




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




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




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




ARTICLE 3

ALLOCATIONS OF PROFIT AND LOSS




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



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




Exhibit “A”







7









 







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




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




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




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




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




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




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




Exhibit “A”






8









 







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




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




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




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




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




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



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



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



Exhibit “A”







9









 








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



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



     Section 3.3 Allocation of Tax Items.



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




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




          (c) The Members agree that the contribution of the Property to the Company pursuant to Section
4.1.1(b) of the Agreement and the HF Loan made pursuant to Section 6.4 of the Agreement will be
treated by the Company and HF on their respective tax returns as follows under the Regulations
under Code Section 707:





               (i) Pursuant to Section 1.707-4 of the Regulations, the first payments made under the Note
evidencing the HF Loan are to be treated for all purposes as payments of principal made to HF to
reimburse HF for capital expenditures incurred by HF during the two (2) year period preceding the
transfer by HF to the Company with respect to the Property, subject to the limitation contained in
such Regulation that such pre-formation expenditures shall not exceed twenty percent (20%) of the
Forty-Four Million Dollar ($44,000,000) Agreed Value of the Property at the time it is contributed
to the Company (the Fourteen Million Dollars ($14,000,000) in expenditures with respect to the
Property described in Section 6.4 of the Agreement, plus the Thirty Million Dollar ($30,000,000)
Capital Account credit for the Property described in Section 4.1.1(b) of the Agreement;




               (ii) The balance of the principal payments made under the HF Loan shall be treated as payments
made with respect to a partial sale of the Property to the Company on the date of the contribution
of the Property to the Company (with the portion of the Property that is



Exhibit “A”






10









 









     deemed to have been sold by HF to the Company being determined under the Regulations under
Section 707 of the Code); and




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



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



     Section 3.5 Revaluation Events and Capital Adjustments for Book Items.



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



     Section 3.6 Intent of Liquidating Distributions.



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



     Section 3.7 Curative Allocations.



     The Regulatory Allocations are intended to comply with certain requirements of the
Regulations. It is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with special allocations of
other items of Company income, gain, loss or deduction pursuant to this Section 3.7.
Therefore, notwithstanding any other provision of this Agreement (other than the Regulatory
Allocations), the Managers shall make such offsetting allocations of Company income, gain, loss or
deduction in whatever manner it determines appropriate so that, after such offsetting allocations
are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital
Account balance such Member would have had if the Regulatory Allocations were not part of this
Agreement.



Exhibit “A”






11









 








ARTICLE 4

OTHER TAX MATTERS




     Section 4.1 Consistent Treatment.



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



Exhibit “A”






12









 








EXHIBIT “B”




DEVELOPMENT MANAGEMENT AGREEMENT



Exhibit “B”



 









 





DEVELOPMENT MANAGEMENT AGREEMENT




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



RECITALS:




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


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




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


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



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



AGREEMENT:




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



ARTICLE 1




DEFINITIONS



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




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



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



 









 





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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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


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



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



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



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



2









 





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



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



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



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



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



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



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



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



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



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



     “Party” means either Owner or Development Manager.



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



     “Project Architect” means HPA Architects.



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



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



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



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



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



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



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



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



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



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



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



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



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


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



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



ARTICLE 2




SCOPE OF SERVICES



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



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




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



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



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



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



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



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



          (a) Initial Planning. Development Manager shall:






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



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



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



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



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




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




          (d) Working Drawings. Development Manager shall:




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



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



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




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



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



               (iii) Develop competitive bidding procedures and requirements.



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



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



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



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



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




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




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




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




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




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



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




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




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




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




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




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



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



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



8









 




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




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



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



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



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



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



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



9









 





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



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




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




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




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




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




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




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




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




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




          (o) Bank Accounts/Withdrawals.




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



11









 




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




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



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



     Section 2.10 Occupancy; Punchlist.



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




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




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




12









 




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




     Section 2.11 Close-Out.



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




               (i) As built drawings and specifications.



               (ii) Change orders.



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



               (iv) Operation maintenance manuals for all equipment.



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



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



               (vii) Keys for all locks.



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



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



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



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



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



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



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




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




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



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



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



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




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ARTICLE 3




TERM OF AGREEMENT AND PERSONNEL



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



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



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




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




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




ARTICLE 4




DEVELOPMENT BUDGET AND LIABILITY

OF DEVELOPMENT MANAGER



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



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




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






15









 








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




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




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




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



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



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



16









 




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




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



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



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



ARTICLE 5




COMPENSATION



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



17









 





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



ARTICLE 6




INSURANCE



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



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




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




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



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



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




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



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



18









 





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



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




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




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




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




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




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



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




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




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



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






19









 








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



ARTICLE 7




LIMITATION AS TO SERVICES AND AUTHORITY



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



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




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




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



20









 





ARTICLE 8




OWNER AND INDEPENDENT CONSULTANTS



     Section 8.1 Owner’s Inspection Rights.



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




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




ARTICLE 9




TERMINATION



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



21









 




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




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



ARTICLE 10




MISCELLANEOUS



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



22









 





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



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



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



	 	 	 

	If to Owner:

	 	Highland Fairview-SKX, LLC
	 

	 	c/o Highland Fairview Properties
	 

	 	14225 Corporate Way
	 

	 	Moreno Valley, California 92553
	 

	 	Attention:      Iddo Benzeevi
	 
	 	 
	With a copy to:

	 	Skechers RB, LLC
	 

	 	c/o Skechers USA, Inc.
	 

	 	228 Manhattan Beach Boulevard
	 

	 	Manhattan Beach, California 90266
	 

	 	Attention:      David Weinberg
	 

	 	                       Chief Operating Officer
	 
	 	 
	If to Development Manager:

	 	HFC Holdings, LLC
	 

	 	c/o Highland Fairview Properties
	 

	 	14225 Corporate Way
	 

	 	Moreno Valley, California 92553
	 

	 	Attention:      Iddo Benzeevi
	 
	 	 
	With Additional Copy to:

	 	James Lieb, Esq.
	 

	 	Executive Vice President
	 

	 	TG Services, Inc.
	 

	 	4 Stage Coach Run
	 

	 	East Brunswick, New Jersey 08816
	 
	 	 
	 

	 	- and -
	 
	 	 
	 

	 	Danette Fenstermacher
	 

	 	3070 Bristol Street, Ste 320
	 

	 	Costa Mesa, California 92626






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



23









 





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



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



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



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



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



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



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



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



24









 





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



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



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



(signature pages follow)





25











 





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



	 	 	 	 	 	 	 	 	 	 	 	 	 

	“OWNER”	 	 	 	“DEVELOPMENT MANAGER”
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	HF LOGISTICS -SKX, LLC, a Delaware limited

liability company	 	 	 	HFC HOLDINGS, LLC, a Delaware limited liability 

company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	HF Logistics I, LLC, a Delaware limited

liability company, it’s Managing Member	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	By	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 

Iddo Benzeevi, its Chief Executive Officer
	 

	 	By:	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 

Iddo Benzeevi, President and Chief

Executive Officer	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	Skechers RB, LLC, a Delaware limited

liability company, it’s Managing Member	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Skechers USA, Inc., a Delaware

Corporation, It’s sole member	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

David Weinberg, Chief Operating

Officer	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

Robert Greenberg, Chief Executive

Officer	 	 	 	 	 	 






JOINDER



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




	 	 	 	 	 	 	 	 	 	 	 

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

company
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By:	 	Skechers USA, Inc, a Delaware corporation, its

sole member
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	David Weinberg, Chief Operating Officer	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	David Weinberg, Chief Operating Officer
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	Robert Greenberg, Chief Executive Officer	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Robert Greenberg, Chief Executive Officer












26









 








EXHIBIT “A”




DEVELOPMENT BUDGET AND




PROJECT SCHEDULE




EXHIBIT “A”








 









 








Exhibit A




	 	 	 	 	 	 	 	 	 

	Land
	 	 	 	 	 	$	30,000,000	 
	 
	 	 	 	 	 	 	 	 
	Construction Costs
	 	 	 	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 
	Fees, Bonds and Permits
	 	 	 	 	 	 	 	 
	Governmental Fees
	 	 	[*]	 	 	 	 	 
	Construction Bonds
	 	 	[*]	 	 	 	 	 
	Impact Fees
	 	 	 	 	 	 	 	 
	MSHCP
	 	 	[*]	 	 	 	 	 
	Kangaroo Rat
	 	 	[*]	 	 	 	 	 
	Area Drainage Fee
	 	 	[*]	 	 	 	 	 
	DIF
	 	 	[*]	 	 	 	 	 
	TUMF
	 	 	[*]	 	 	 	 	 
	Schools
	 	 	[*]	 	 	 	 	 
	EMWD
	 	 	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	Total Fees, Bonds and Permits
	 	 	 	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 
	Technical Consultants
	 	 	 	 	 	 	 	 
	Entitlements
	 	 	[*]	 	 	 	 	 
	Engineering, Traffic and Other
	 	 	[*]	 	 	 	 	 
	Building Architectural & Structural
	 	 	[*]	 	 	 	 	 
	Landscaping
	 	 	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	Total Technical Consultants
	 	 	 	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 
	Other Costs
	 	 	 	 	 	 	 	 
	Leasing Commissions
	 	 	[*]	 	 	 	 	 
	Skechers Alternative Site Rental Cost
	 	 	[*]	 	 	 	 	 
	Development Management Fee [1]
	 	 	[*]	 	 	 	 	 
	Project and Construction Management
	 	 	[*]	 	 	 	 	 
	Insurance and Taxes
	 	 	[*]	 	 	 	 	 
	Solar Facility
	 	 	[*]	 	 	 	 	 
	Financing
	 	 	[*]	 	 	 	 	 
	Contingency
	 	 	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	Total Other Costs
	 	 	 	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 
	Total Project Cost
	 	 	 	 	 	$	[*]	 
	 
	 	 	 	 	 	 	 
	Potential Reimbursements
	 	 	 	 	 	 	 	 
	Area Drainage Fee Credit
	 	 	[*]	 	 	 	 	 
	DIF Credit
	 	 	[*]	 	 	 	 	 
	Solar Grants and Incentives
	 	 	[*]	 	 	 	 	 
	State Grants
	 	 	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	Total Potential Reimbursements
	 	 	 	 	 	 	[*]	 
	 
	Net Project Cost
	 	 	 	 	 	$	[*]	 
	 
	 	 	 	 	 	 	 






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



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






		 	
	*	 	Confidential Portions Omitted and Filed Separately with  the
Commission.




 









 








Exhibit A-1




Skechers T.I. Requests





			
	
	 	Date: 1/29/2010







	 	 	 	 	 	 	 	 	 
	CSI	 	 	Tenant Improvements - Current Plans & Requests thru 2009	 	 	Total	 
	 	 	 	 	 General Conditions
	 	 	 	 
	 	00-7213	 	 	General Conditions
	 	$	[*]	 
	 	01-3100	 	 	Project Management
	 	$	[*]	 
	 	01-5126	 	 	Temporary Lighting
	 	$	[*]	 
	 	01-7423	 	 	Final cleaning
	 	$	[*]	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	General Conditions — Subtotal:
	 	$	[*]	 
	 	 	 	 	Site
	 	 	 	 
	 	32-1313	 	 	Concrete Curb & gutter — Retail
	 	$	[*]	 
	 	32-1313	 	 	Concrete Paving Drive Aisle — Retail
	 	$	[*]	 
	 	32-1313	 	 	Paved Parking Area — Retail
	 	$	[*]	 
	 	32-1313	 	 	4” Side Walk — Retail
	 	$	[*]	 
	 	32-1723	 	 	Striping — Retail
	 	$	[*]	 
	 	32-1723	 	 	ADA Signage — Retail
	 	$	[*]	 
	 	32-1313	 	 	Guard Shack Foundation
	 	$	[*]	 
	 	32-1313	 	 	7” PCC in lieu of AC Paving
	 	$	[*]	 
	 	32-3213	 	 	Concrete Screen wall — Retail
	 	$	[*]	 
	 	32-3113	 	 	8” Tube Steel Fence
	 	$	[*]	 
	 	 	 	 	Sliding Gates & Motor Control
	 	$	[*]	 
	 	 	 	 	Pedestrian Tube Steel gate
	 	$	[*]	 
	 	33-1116	 	 	1” Copper Water Service Guard Shack
	 	$	[*]	 
	 	33-3113	 	 	6” Sanitary Sewer Service Guard Shack
	 	$	[*]	 
	 	 	 	 	6” Sewer Clean-Out
	 	$	[*]	 
	 	33-7139	 	 	Electrical Service Guard Shack
	 	$	[*]	 
	 	 	 	 	Site Underground Electrical — North
	 	$	[*]	 
	 	 	 	 	Transformer Electrical Service — North
	 	$	[*]	 
	 	33-8113	 	 	Low Voltage to Guard Shack
	 	$	[*]	 
	 	 	 	 	Gate Conduit to Building
	 	$	[*]	 
	 	09-9113	 	 	Paint
	 	$	[*]	 
	 	26-3213	 	 	Site Electrical Generator
	 	$	[*]	 
	 	12-9213	 	 	Bike Racks, Benches, Pots, Urns, Trash
	 	$	[*]	 
	 	10-7516	 	 	Flag Poles
	 	$	[*]	 
	 	32-3119	 	 	Structural Steel (Trash Gates & Lids)
	 	$	[*]	 
	 	 	 	 	Additional Land Cost — Retail
	 	$	[*]	 
	 	 	 	 	Site — Subtotal:
	 	$	[*]	 






See Additional Sheet for Continuation






* Confidential Portions
Omitted and Filed Separately with the Commission.





1









 








EXHIBIT “C-1”




HF NOTE




Exhibit “C-1”







 









 








UNSECURED PROMISSORY NOTE




			
	$14,000,000
	 	January 30, 2010






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



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




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




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




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




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








1









 









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




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




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




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



     2. Payment of Principal and Interest.




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




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




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




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




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








2









 

















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




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




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



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



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



     5. Events of Default.




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



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



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



3









 





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



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




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



     6. Intentionally Omitted.



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



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








4









 







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




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



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



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



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



     EXECUTED by Maker as of the date set forth above.



	 	 	 	 	 	 	 	 	 

	“OWNER”	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	HF LOGISTICS -SKX, LLC, a Delaware limited
liability company	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:	 	HF Logistics I, LLC, a Delaware limited

liability company, It’s Managing Member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

Iddo Benzeevi, President and Chief
Executive Officer
	 
	 	 	 	 	 	 	 	 
	By:	 	Skechers RB, LLC, a Delaware limited

liability company, it’s Managing Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Skechers USA, Inc., a Delaware

Corporation, It’s sole member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

David Weinberg, Chief Operating

Officer	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

Robert Greenberg, Chief Executive

Officer	 	 






	 	 	 	 	 



5









 






	 	 	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 



EXHIBIT “C-2”




SKECHERS NOTE



EXHIBIT “C-2”




 











 





UNSECURED PROMISSORY NOTE 




			
	$1,000,000
	 	January 30, 2010






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



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




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




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




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




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




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



1









 






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




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




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




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




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



     2. Payment of Principal and Interest.




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




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




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




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




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



2









 






     hereunder, the interest shortfall will accrue, but the accrued amount will not bear
additional interest.




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




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



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



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



     5. Events of Default.




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



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



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



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



3









 





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




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




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



     6. Intentionally Omitted.



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



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



4









 





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




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



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



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



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



     EXECUTED by Maker as of the date set forth above.



“OWNER”




HF LOGISTICS -SKX, LLC, a Delaware limited

liability company




	 	 	 	 	 

	By:

	 	HF Logistics I, LLC, a Delaware limited
	 	 
	 

	 	liability company, it’s Managing Member	 	 
	 
	 	 	 	 





	 	 	 	 	 	 	 
	 	 	 	 
	 	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Iddo Benzeevi, President and Chief	 	 
	 

	 	 	 	Executive Officer	 	 
	 
	 	 	 	 	 	 






	 	 	 	 	 

	By:

	 	Skechers RB, LLC, a Delaware limited liability	 	 
	 

	 	company, it’s Managing Member	 	 
	 
	 	 	 	 











	 	 	 	 	 	 	 
	 	 	 	 
	 	 	By:

	 	Skechers USA, Inc., a Delaware	 	 
	 

	 	 	 	Corporation, It’s sole member	 	 	 
	 
	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	      
	 	 	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	David Weinberg, Chief Operating	 	 
	 

	 	 	 	 	 	Officer	 	 
	 
	 	 	 	 	 	 	 	 
	      
	 	 	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Robert Greenberg, Chief Executive	 	 
	 

	 	 	 	 	 	Officer	 	 






5









 






EXHIBIT “D”




INITIAL APPROVED OPERATING BUDGET



Exhibit “D”




 









 








Exhibit D




1 of 5




HF Logistics-SKX LLC Operating Budget

Building and Expansion Sites



			
	
	 	Date: 1/29/2010






Operating Budget Estimate




	 	 	 	 	 	 	 	 	 
	Year
	 	 	2011	 	 	 	2012	 
	Duration in Months
	 	 	6	 	 	 	12	 
	 	 	 
	Physical Occupancy
	 	 	50	%	 	 	100	%
	 
	 	 	 	 	 	 	 	 
	Rent Building
	 	$	0.513	 	 	$	0.513	 
	 
	 	 	 	 	 	 	 	 
	Sq Ft Building
	 	 	1,820,457	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	REVENUES (D-1)
	 	 	6,739,057	 	 	 	9,275,589	 
	 
	 
	 	 	 	 	 	 	 	 
	EXPENSES
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Building (D-1)
	 	 	[*]	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 
	Parcel 2:
	 	 	 	 	 	 	 	 
	Maintenance (D-3)
	 	 	[*]	 	 	 	[*]	 
	POA (D-4)
	 	 	[*]	 	 	 	[*]	 
	Property Taxes (1)
	 	 	(10,000	)	 	 	(20,000	)
	 
	 	 	 	 	 	 	 	 
	 
	TOTAL OPERATING EXPENSES
	 	 	[*]	 	 	 	[*]	 
	 
	 
	 	 	 	 	 	 	 	 
	 
	NET OPERATING INCOME
	 	 	[*]	 	 	 	[*]	 
	 
	 
	 	 	 	 	 	 	 	 
	DEBT SERVICE (D-1)
	 	 	(3,090,616	)	 	 	(6,181,233	)
	 
	 	 	 	 	 	 	 	 
	CAPITAL RESERVES (D-1)
	 	 	(45,511	)	 	 	(91,023	)
	 
	 	 	 	 	 	 	 	 
	 
	NET
	 	$	[*]	 	 	$	[*]	 
	 







 




			
	(1)	 	Based upon actual for 2009/2010



* Confidential Portions
Omitted and Filed Separately with the Commission.



 









 










Exhibit D-1




2 of 5




HF Logistics-SKX LLC Building Site — Operating Budget

Skechers Building Site Only



			
	
	 	Date: 1/29/2010






Operating Budget Estimate



	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year
	 	 	 	 	 	 	2011	 	 	 	2012	 
	Duration in Months
	 	 	 	 	 	 	6	 	 	 	12	 
	 	 	 	 	 	 	 
	Physical Occupancy
	 	 	 	 	 	 	50	%	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Rent Building Site
	 	 	 	 	 	$	0.513	 	 	$	0.513	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Sq Ft Building
	 	 	 	 	 	 	1,820,457	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 	 	 
	REVENUES
	 	2011 $/SF/MO	 	 	 	 	 	 	 	 
	Scheduled Base Rent
	 	$	0.513	 	 	$	5,603,367	 	 	$	11,206,733	 
	Base Rent Abatement
	 	 	 	 	 	 	 	 	 	 	(4,202,525	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Total Scheduled Base Rent
	 	 	 	 	 	 	5,603,367	 	 	 	7,004,208	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Expense Reimbursements
	 	 	0.098	 	 	 	1,071,416	 	 	 	2,142,832	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Solar Revenue (1)
	 	 	 	 	 	 	64,274	 	 	 	128,549	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	EFFECTIVE GROSS REVENUE
	 	 	0.425	 	 	 	6,739,057	 	 	 	9,275,589	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	OPERATING EXPENSES
	 	 	 	 	 	 	 	 	 	 	 	 
	Repairs
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	Maintenance (D-2)
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	POA (D-4)
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	Real Estate Taxes
	 	 	(0.056	)	 	 	(609,811	)	 	 	(1,219,622	)
	CFD Assessment
	 	 	(0.015	)	 	 	(163,841	)	 	 	(327,682	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	TOTAL OPERATING EXPENSES
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	NET OPERATING INCOME
	 	 	[*]	 	 	 	[*]	 	 	 	[*]	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	DEBT SERVICE ON LOANS (2)
	 	 	(0.283	)	 	 	(3,090,616	)	 	 	(6,181,233	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CAPITAL RESERVES
	 	 	(0.004	)	 	 	(45,511	)	 	 	(91,023	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	NET CASH FLOW
	 	 	[*]	 	 	$	[*]	 	 	$	[*]	 
	 






	 	 	 
	(1)	 	602kW(AC) system running 1,810 hours per year at an 11.8-cent average charge per
kilowatt-hour
	 
	(2)	 	Debt service on $55 million bank loan and $15 million of partner loans



* Confidential Portions
Omitted and Filed Separately with the Commission.



 









 










Exhibit D-2




3 of 5




			
	
	 	Date: 1/29/2010






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Building Site - Maintenance	 
	No.	 	Description	 	Unit	 	Quantity	 	 	Unit Price	 	 	Total	 
	 
	1
	 	Detention / Water Quality Basins	 	SF	 	 	200,375	 	 	$	[*]	 	 	$	[*]	 
	2
	 	Landscape - Slope	 	SF	 	 	248,300	 	 	$	[*]	 	 	$	[*]	 
	3
	 	Landscape - Flat	 	SF	 	 	104,500	 	 	$	[*]	 	 	$	[*]	 
	4
	 	Utilities - Common Sewer/Cleanouts	 	LS	 	 	1	 	 	$	[*]	 	 	$	[*]	 
	5
	 	Sign Maintenance	 	LS	 	 	1	 	 	$	[*]	 	 	$	[*]	 
	6
	 	Annual Water Cost	 	AF	 	 	37.5	 	 	$	[*]	 	 	$	[*]	 
	7
	 	Palm Tree Maintenance	 	LS	 	 	1	 	 	$	[*]	 	 	$	[*]	 
	8
	 	Screen Wall Maintenance - Eucalyptus S	 	LS	 	 	1	 	 	$	[*]	 	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	
Subtotal:	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	
Contingency ([*]%):	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	
Total:	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	
Building SF:	 	 	1,820,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	
Cost/SF:	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





Maintenance Costs Include-






 




			
	Yearly Inspection, Flushing, Camera of Sewer/Cleanouts	 	 
	 
	Graffiti Repair, Bulbs/Fixtures	 	 
	 
	Based upon Recycled Water Use Exhibit and EMWD water rates	 	 
	 
	Assume 54 palm trees trim 2 times per year at $[*]/tree/trimming	 	 
	 
	Graffiti Repair, Periodic Painting	 	 



* Confidential Portions
Omitted and Filed Separately with the Commission.



 









 










Exhibit D-3




4 of 5




			
	
	 	Date: 1/29/2010






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expansion Site - Maintenance
	No.	 	Description	 	Unit	 	Quantity	 	 	Unit Price	 	 	Total	 
	 
	1
	 	Detention / Water Quality B	 	SF	 	 	89,275	 	 	$	[*]	 	 	$	[*]	 
	2
	 	Landscape - Slope	 	SF	 	 	46,500	 	 	$	[*]	 	 	$	[*]	 
	3
	 	Landscape - Flat	 	SF	 	 	834,750	 	 	$	[*]	 	 	$	[*]	 
	4
	 	Landscape - Parkway	 	SF	 	 	 	 	 	$	[*]	 	 	$	[*]	 
	5
	 	Annual Water Cost	 	AF	 	 	 	 	 	$	[*]	 	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	
Subtotal:	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	
Contingency ([*]%):	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	
Total:	 	$	[*]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





Maintenance Costs Include-






 




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



* Confidential Portions
Omitted and Filed Separately with the Commission.



 









 










Exhibit D-4




5 of 5




			
	
	 	Date: 1/29/2010






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Property Owners Association (POA) - Maintenance	 
	No.	 	Description	 	Unit	 	Quantity	 	 	Unit Price	 	 	Total	 	 	 	 	 
	 
	1
	 	Landscape - Parkway	 	SF	 	 	87,000	 	 	$	[*]	 	 	$	[*]	 	 	 	 	 
	2
	 	Drainage - Spreading Facility	 	SF	 	 	400,750	 	 	$	[*]	 	 	$	[*]	 	 	 	 	 
	3
	 	Common Driveway - Maintenance	 	LS	 	 	1	 	 	$	[*]	 	 	$	[*]	 	 	 	 	 
	4
	 	Insurance	 	annual	 	 	 	 	 	$	[*]	 	 	$	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	
Subtotal:	 	$	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	
Contingency ([*]%):	 	$	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	
Total:	 	$	[*]	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Acres
	 	 	 	 	
Allocated to Building Site	 	 	[*]	 	 	 	82.6	 
	 	 	 	 	
Allocated to Expansion Site	 	 	[*]	 	 	 	27.4	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[*]	 	 	 	110	 
	 	 	 	 	
Other Parcels	 	 	[*]	 	 	 	20	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Total	 	 	[*]	 	 	 	130	 






Maintenance Costs Include






 




			
	Hydroseed Slopes, Trash, Graffiti, Growth Control	 	 
	 
	Yearly Re-Stripe, Monthly Sweeping, Red Curb Paint	 	 
	 
	General Liability, Personal Property & Professional Liability Insurance	 	 



* Confidential Portions
Omitted and Filed Separately with the Commission.



 









 










     EXHIBIT “E”



INTENTIONALLY OMITTED



Exhibit “E”




 









 








EXHIBIT “F”




CONSTRUCTION LOAN COMMITMENT



Exhibit “F”





 












 





	 	 	 

	 

	 	
	 
	 	 
	 

	 	Commercial Real Estate Banking
	 

	 	FL7-950-14-04
	 

	 	100 SE 2nd Street
	 

	 	Miami, FL 33131






January 7, 2009


HF Logistics I, LLC,
 a Delaware limited

liability company
 4000 Island Boulevard,
Penthouse 2 Williams 
Island, FL 33160




	 	 	 	 	 

	 

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





Gentlemen:




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




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




          2.  Interest Rate:




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




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



 









 





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



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



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



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



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



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



          7. Maturity Date Extensions: Borrower shall have one (1) option to extend the Maturity Date of
the Loan, for an additional six (6) month period, upon satisfaction of all of the following
conditions: (i) no event of default shall have occurred and is continuing during the term of the
Loan, and no act or event shall be then occurring which would be an event of default but for the
giving of notice or the passage of time, or both; (ii) the Borrower shall have paid to Lender, a
fee in the amount of $25,000 the (“Extension Fee”) for such extension; (iii) the Borrower shall
have received an unconditional certificate of occupancy for the use of the Building; (iv) Skechers
shall have taken occupancy and commenced to pay rent pursuant to the Lease; (v) revenue from the
building shall equal or exceed a 1.40 times to debt coverage ratio using stress tests of the
greater of an 8% rate or the 10-year Treasury plus 250 basis points and a 30-year amortization and
(vi) the loan to value ratio does not exceed 58% based upon an updated appraisal which may be
required by the Lender.



          8. Prepayment: Borrower may prepay all or any portion of the Loan at any time without fee,
premium or penalty.



          9. Borrower’s Entity: Borrower shall be single purpose entity whose sole business shall be the
development and operation of the Project.



          10. Guarantor: The full repayment of the Loan and the payment and performance of all of the
obligations of the Borrower under the Loan Documents shall be unconditionally and irrevocably
guaranteed by TG Development Corp., a Delaware corporation. Upon Skechers taking occupancy of the
Building and commencing rent payments, the principal repayment portion of Guarantors obligations
hereunder shall be reduced to fifty percent (50%) of the Loan Amount. Until



2









 




the Loan has been repaid, Guarantor must (i) maintain a minimum book net worth of $150,000,000.00
during the term of the Loan (The covenant will be tested quarterly based on unaudited financial
statements); (ii) not incur contingent liability in an aggregate amount exceeding $25,000,000.00
other than the Loan without the prior written consent of Lender which consent Lender may withhold
in its sole and absolute discretion; provided further that there shall be no restriction on
contingent liability incurred by Guarantor in connection with any loan made for the acquisition or
development of income producing commercial real estate; and (iii) not transfer any assets except:
(x) in the ordinary course of business for fair value (w) to an entity that is wholly owned by the
Guarantor, (y) to any unrelated third party for fair and reasonably equivalent value or (z) with
the Lender’s prior written approval of other assets. The Borrower shall promptly notify the Lender
of any transfer of material assets whether or not the Lender’s approval is required.




          11. Borrower’s Equity: Prior to the Closing Date, the Borrower shall have provided evidence
to the Agent’s sole satisfaction of its having contributed total equity in the Project of
$60,120,000.



          12. Collateral: To secure the repayment of the Loan the Borrower shall grant the
Lender a first Construction Deed of Trust lien and security interest in and to the following
property (the “Mortgaged Property”):


               (a) Land. An approximately 83-acre parcel of real property
located in Moreno Valley, Riverside County, California being more particularly described in Exhibit
“A” attached hereto.



               (b) Improvements. A build to suit industrial warehouse containing approximately 1,820,000
square feet to be leased to Skechers. General Contractor must be acceptable to Agent and provide a
bonded Guaranteed Maximum Price Contract also acceptable to Agent. Funding of hard cost contingency
not to exceed pace of construction and amount must be acceptable to Bank and Bank’s consultant.



               (c) Personal Property. All tangible and intangible personal property now or hereafter located
on or used in the construction of or in connection with or arising from the operation of the
Project.



               (d) Certificate of Deposit. A $5,500,000 Certificate of Deposit issued by Agent in the name of
Borrower, which shall be assigned unto Agent until such time as the Loan has been fully repaid. At
Borrower’s option, Borrower may satisfy the aforementioned condition by having Guarantor maintain
minimum liquidity of $7,000,000.00 during the term of the Loan (The covenant will be tested
quarterly based on unaudited financial statements).



          13. Purpose of the Loan Advance: The purpose of the Loan is to finance the construction of the
Building expected to be LEED certified and necessary on and off site improvement as required by the
Lease (collectively, the “Improvement”).



          14. Commencement and Completion of Improvements: The Borrower shall commence construction of
the Improvements within thirty (30) days following the closing of the Loan (the “Commencement
Date”), and shall diligently and continuously proceed with the completion of all of the site work
and the construction of all Improvements, all of which shall be



3









 




completed no later than the sooner of the date that the Improvements must be delivered to Skechers
pursuant to the lease or twenty (20) months from the Closing Date.




          15. Budget and Advance of the Loan.




               (a) The cost of the development of the Project shall not exceed a budget which has been
approved by the Agent; the line item for the Land in such budget shall not exceed the As-Is Land
Value per the Agent-approved appraisal.



               (b) Advances of the Loan shall be made pursuant to the Agent’s customary terms and conditions.



          16. Fees:
Borrower shall pay fees pursuant to a fee letter of even date
herewith.

          17. Payment
and Performance Bond: A dual obligee payment and performance bond issued by a surety acceptable to
Agent naming Agent as co-insured with Borrower is required with respect to the construction of the
Project.



          18. Prelease Requirements. At or before closing of the Loan, the Borrower shall have entered
into a Lease with Skechers for the lease of 100% of the Improvements which Lease shall be
acceptable to the Agent in sole and absolute discretion and shall provide for a term of not less
than twenty (20) years. In addition, the Borrower, Tenant and Agent shall have entered into a
Subordination and Non-Disturbance Agreement satisfactory to Agent in its sole and absolute
discretion.



          19. Agent’s Counsel: Our attorney (“Agent’s Counsel”) in this matter is Chava Genet, of
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 2200 Museum Tower, 150 West Flagler
Street, Miami, Florida 33130 (305) 789-3200.



          20. Agent’s Costs: Whether or not the Loan is closed (for any reason whatsoever), the
Borrower shall be responsible for the payment of, and shall promptly pay, all fees, expenses, taxes
(except income taxes payable by Agent), other charges and any out-of-pocket expenses that may be
charged to the Agent or incurred by the Agent in connection with this Commitment or any events,
transactions, or documents required or contemplated by this Commitment, including, without
limitation legal fees and disbursements charged by counsel for the Agent plus all costs and
expenses incurred in connection therewith; premiums for title insurance; recording fees;
abstracting charges; brokerage fees or commissions (whether earned or claimed); documentary stamp
taxes; intangible taxes; appraisal fees; construction advisors’ fees; and survey costs.



          21. Indemnification. The Borrower shall indemnify and hold the Agent harmless from any loss or
damage, including reasonable attorneys fees and costs, incurred or arising by reason of this
Commitment or the making of the Loan (except for liability, loss, expense or damage arising from
the gross negligence or willful misconduct of the Agent or its directors, officers, agents,
employees, and attorney).



          22. Inspections: Borrower shall pay all costs and expenses incidental to engineering and
architectural review and construction inspections performed by an inspector appointed by Agent, and
for an environmental assessment of property which shall be reviewed and



4









 




accepted by Agent prior to closing of Loan. Borrower shall advance all sums required for such
review and inspection. A third party construction consultant engaged by Bank shall review the
plans, specifications, permits, budget, construction schedule, and other construction related
matters, as well as each progress payment. A Plan & Cost Review will be required prior to closing.




          23. Syndication: The Facility is required to be pre-syndicated before closing. Syndication
will not commence until the Borrower has delivered executed Fee and Mandate Letters and paid the
required fees.



          24. Assignment and Participations: Usual and customary for facilities of this type, including
customary provisions allowing the Lenders to assign or grant participations with the consent of the
Agent and Borrower, which consent shall not be unreasonably withheld or delayed.



          25. Waivers/Amendments & Required Lenders: Usual and customary for facilities of this type,
including amendments and waivers of the provisions of the loan agreement and other definitive
credit documentation will require the approval of Lenders holding loans and commitments
representing more than 66 2/3% of the aggregate amount of loans and commitments under the loan
documents (“Required Lenders”), except that the consent of all of the Lenders affected thereby
shall be required with respect to (a) increases in commitment amounts, (b) reductions of principal,
interest, or fees, (c) extensions of scheduled maturities or times for payment, (d) modification to
the guaranty from the Guarantors, (e) release of a material obligor, and (f) such other items as
may be negotiated in the final loan documents.



          26. Voting Rights: Amendments, consents, or waivers to the Facility will require consent of
the Required Lenders, except for any amendment, consent, or waiver that would: (i) extend the
maturity of the Facility; (ii) reduce the amount of any interest, fees, principal, or other amount
payable to the Lenders; (iii) reduce or increase the commitment of any Lender; and (iv) change the
percentage specified for Required Lenders; all of which will require unanimous consent of the
Lenders.



          27. Termination: The Loan shall be closed and the first advance of the Loan shall be made on
or before March 1, 2010 (the “Closing Date”), in accordance with all provisions hereof. If such
closing and advance have not been consummated by the Closing Date, Agent’s obligation to make the
Loan shall terminate and the Agent shall have no further obligation hereunder.



     28. Material Adverse Effect: Bank of America’s obligations hereunder shall terminate if, prior
to closing, Bank of America determines, in its sole judgment, that there shall exist any conditions
regarding the Project, or the operations, business, assets, liabilities or condition (financial or
otherwise, including credit rating) of Borrower, Guarantor, or Skechers or there shall have
occurred a material adverse change in, or there shall exist any material adverse conditions in, the
market for syndicated bank credit facilities or the financial, banking, credit or debt capital
markets generally, that could be expected to cause the Facility to become delinquent or prevent any
Guarantor from performing its obligations under any guaranty or to materially and adversely affect
the value or marketability of the Facility or the Project or Bank of America’s ability to syndicate
the Facility.



     29. Clear Market: From the date of acceptance of the these terms and conditions and continuing
until Closing, there shall be no competing offering, placement or arrangement of any debt



5









 




securities or bank financing by or on behalf of the Borrower or Sponsor. The Borrower or Guarantor
would immediately notify the Arranger if any such transaction were contemplated.




     30. USA Patriot Act Notice: The Agent hereby notifies the Borrower, Guarantor and Sponsor that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 10756 (signed into law
October 26, 2001)) (the “Act”), the Agent are required to obtain, verify and record information
that identifies Borrower, Guarantor and Sponsor, which information includes that name and address
of Borrower, Guarantor and Sponsor and other information that will allow the Agent to identify
Borrower, Guarantor and Sponsor in accordance with the Act.



     31. Confidentiality: All provisions of this Commitment Letter are to be kept strictly
confidential and the Borrower agrees not to disclose the contents or existence of this Commitment
Letter to any third party(s) without prior written consent of the Agent.



     32. Dispute Resolution. Any dispute between the parties shall be resolved pursuant to
procedures described in Exhibit B hereto.



     If within five (5) days after the date hereof this offer has not been accepted by the
execution of a copy hereof and the delivery of the same to the Agent’s office, together with
payment of the required portion of the Upfront Fee, it shall be withdrawn and cancelled unless such
acceptance date is extended in writing by the Agent.



	 	 	 	 	 
	 	Very truly yours,





BANK OF AMERICA, N.A.

 	 
	 	By:  	 	 
	 	 	Kim Abreu,Senior Vice President 	 
	 	 	 	 



6









 






	 	 	 	 	 




     WE HEREBY ACCEPT THE FOREGOING OFFER OF A COMMITMENT and agree to be bound by each and every
of the terms, conditions and covenants, including the terms and provisions of the General
Conditions of Commitment, this            day of           , 2009.



	 	 	 	 	 
	 	HF LOGISTICS I, LLC, a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Donald Elbert, Senior Vice President 	 
	 	 	 	 
	 



Reviewed and agreed:




GUARANTOR:




TG DEVELOPMENT CORP,

a Delaware corporation




	 	 	 	 	 
	 	 	 
	By:  	 	 
	 	Donald Elbert, Senior Vice President 	 
	 	 	 



 









 






	 	 	 	 	 



EXHIBIT A




LEGAL DESCRIPTION OF PROPERTY








 









 








 EXHIBIT B 

DISPUTE RESOLUTION





     Dispute Resolution.



     (a) Arbitration. Except to the extent expressly provided below, any Dispute shall, upon the
request of any party, be determined by binding arbitration in accordance with the Federal
Arbitration Act, Title 9, United States Code (or if not applicable, the applicable state law), the
then-current rules for arbitration of financial services disputes of AAA and the “Special Rules”
set forth below. In the event of any inconsistency, the Special Rules shall control. The filing of
a court action is not intended to constitute a waiver of the right of Borrower, Administrative
Agent or any Lender, including the suing party, thereafter to require submittal of the Dispute to
arbitration. Any party to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any Dispute in any court having jurisdiction over such action.
For the purposes of this Dispute Resolution Section only, the terms “party” and “parties” shall
include any parent corporation, subsidiary or affiliate of Administrative Agent involved in the
servicing, management or administration of any obligation described in or evidenced by this
Agreement, together with the officers, employees, successors and assigns of each of the foregoing.



     (b) Special Rules.




          (i) The arbitration shall be conducted in any U.S. state where real or tangible
personal property collateral is located, or if there is no such collateral, in the city and
county where Administrative Agent is located pursuant to its address for notice purposes in
this Agreement.




          (ii) The arbitration shall be administered by AAA, who will appoint an arbitrator. If
AAA is unwilling or unable to administer or legally precluded from administering the
arbitration, or if AAA is unwilling or unable to enforce or legally precluded from
enforcing any and all provisions of this Dispute Resolution Section, then any party to this
Agreement may substitute, without the necessity of the agreement or consent of the other
party or parties, another arbitration organization that has similar procedures to AAA but
that will observe and enforce any and all provisions of this Dispute Resolution Section.
All Disputes shall be determined by one arbitrator; however, if the amount in controversy
in a Dispute exceeds Five Million Dollars ($5,000,000), upon the request of any party, the
Dispute shall be decided by three arbitrators (for purposes of this Agreement, referred to
collectively as the “arbitrator”).




          (iii) All arbitration hearings will be commenced within ninety (90) days of the demand
for arbitration and completed within ninety (90) days from the date of commencement;
provided, however, that upon a showing of good cause, the arbitrator shall be permitted to
extend the commencement of such hearing for up to an additional sixty (60) days.



 









 






          (iv) The judgment and the award, if any, of the arbitrator shall be issued within
thirty (30) days of the close of the hearing. The arbitrator shall provide a concise
written statement setting forth the reasons for the judgment and for the award, if any. The
arbitration award, if any, may be submitted to any court having jurisdiction to be
confirmed and enforced, and such confirmation and enforcement shall not be subject to
arbitration.




          (v) The arbitrator will give effect to statutes of limitations and any waivers thereof
in determining the disposition of any Dispute and may dismiss one or more claims in the
arbitration on the basis that such claim or claims is or are barred. For purposes of the
application of the statute of limitations, the service on AAA under applicable AAA rules of
a notice of Dispute is the equivalent of the filing of a lawsuit.




          (vi) Any dispute concerning this Dispute Resolution Section, including any such
dispute as to the validity or enforceability hereof or whether a Dispute is arbitrable,
shall be determined by the arbitrator; provided, however, that the arbitrator shall not be
permitted to vary the express provisions of these Special Rules or the Reservations of
Rights in subsection (c) below.




          (vii) The arbitrator shall have the power to award legal fees and costs pursuant to
the terms of this Agreement.




          (viii) The arbitration will take place on an individual basis without reference to,
resort to, or consideration of any form of class or class action.



     (c) Reservations of Rights. Nothing in this Agreement shall be deemed to (i) limit the
applicability of any otherwise applicable statutes of limitation and any waivers contained in this
Agreement, or (ii) apply to or limit the right of Administrative Agent or any Lender (A) to
exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose judicially or
nonjudicially against any real or personal property collateral, or to exercise judicial or
nonjudicial power of sale rights, (C) to obtain from a court provisional or ancillary remedies such
as (but not limited to) injunctive relief, writ of possession, prejudgment attachment, or the
appointment of a receiver, or (D) to pursue rights against a party to this Agreement in a
third-party proceeding in any action brought against Administrative Agent or any Lender in a state,
federal or international court, tribunal or hearing body (including actions in specialty courts,
such as bankruptcy and patent courts). Subject to the terms of this Agreement, Administrative Agent
and any Lender may exercise the rights set forth in clauses (A) through (D), inclusive, before,
during or after the pendency of any arbitration proceeding brought pursuant to this Agreement.
Neither the exercise of self help remedies nor the institution or maintenance of an action for
foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the Dispute
occasioning resort to such remedies. No provision in the Loan Documents regarding submission to
jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the
provisions in any Loan Document for arbitration of any Dispute.



     (d) Conflicting Provisions for Dispute Resolution. If there is any conflict between the terms,
conditions and provisions of this Section and those of any other provision or agreement for



 









 




arbitration or dispute resolution, the terms, conditions and provisions of this Section shall
prevail as to any Dispute arising out of or relating to (i) this Agreement, (ii) any other Loan
Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein
or therein (including any claim based on or arising from an alleged personal injury or business
tort). In any other situation, if the resolution of a given Dispute is specifically governed by
another provision or agreement for arbitration or dispute resolution, the other provision or
agreement shall prevail with respect to said Dispute.




     (e) Waiver of Trial By Jury: BORROWER, GUARANTORS AND AGENT HEREBY KNOWINGLY, IRREVOCABLY
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS COMMITMENT AND ANY
DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF BORROWER, THE GUARANTORS OR AGENT.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT ENTERING INTO THIS COMMITMENT.


THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.





 











 





EXHIBIT “G”




HF REPRESENTATIONS AND WARRANTIES



     The following constitute representations and warranties of HF to Skechers and the Company,
which are made as of the Effective Date, and which may be enforced by either Skechers or the
Company:




               a. HF has all legal power, right and authority to convey, or cause to be conveyed,
HF’s interest in the Property to the Company pursuant to this Agreement and to execute and deliver,
or cause the execution and delivery, of all documents required to consummate the transactions
contemplated hereby.




               b. All requisite action has been taken in connection with the conveyance of
HF’s interest in the Property to the Company pursuant to this Agreement and the execution
of all documents required to consummate the transactions contemplated hereby.




               c. The execution and delivery of the conveyance documents contemplated hereby do
not require the consent or approval of any third party nor shall such execution and
delivery result in a breach or violation of any applicable law or conflict with, breach,
result in a default under or violate any contract or agreement to which HF is a party, or
by which HF or the Property is bound.




               d. Neither HF nor any HF Affiliate has received written notice or has actual
knowledge of any pending or threatened actions, suits, arbitrations, claims or proceedings,
at law or in equity, affecting the Property, or in which HF or the Master Landlord, or will
be, a party by reason of Master Landlord’s ownership or HF’s interest in the Property
(except for the Sierra Club Litigation (as defined herein)).




               e. Neither HF nor any HF Affiliate has received written notice of or has actual
knowledge of any attachments, execution proceedings, assignments for the benefit of
creditors, insolvency, bankruptcy, reorganization or other proceedings pending against HF.




               f. Neither HF nor any HF Affiliate has entered into any contracts for the sale,
exchange or other disposition of the Property, or any portion thereof, which are still in
force and effect, nor do there exist any rights of first refusal, options or other rights
of any other Person to purchase all or any portion of the Property.




               g. HF’s sole interest in the Property is a leasehold interest in the Property
pursuant to the Master Lease, and Master Landlord holds fee simple title to the Property.
Pursuant to the Master Lease, HF will acquire fee title to the Property prior to the time
that it is obligated to convey the Property to the Company, or the Master Landlord will
convey fee title to the Property directly to the Company.




               h. Neither HF nor any HF Affiliate has received written notice of or has actual
knowledge of the commencement or intended commencement of any proceeding in eminent domain,
or similar proceeding by any governmental authority which would affect the Property.




               i. In accordance with California Health and Safety Code §25359.7, HF hereby gives
Skechers and the Company notice and informs them that HF has no knowledge of



Exhibit “G”






 









 







the release of any hazardous materials located on or beneath the Property, except to the
extent (if any) reflected in environmental reports delivered to Skechers.





               j. The Lease is in full force and effect. Neither HF nor to HF’s knowledge,
Skechers Parent, are in default thereunder, nor to HF’s knowledge do any facts or
circumstances exist that, with the passage of time or the giving of notice, or both, will
or could constitute a default by Skechers Parent thereunder.




               k. Neither HF nor any of its Affiliates has received any written notice or
has other actual knowledge of any change contemplated in any laws, ordinances or
restrictions affecting the Property, or any judicial or administrative action, or any
action by adjacent landowners with respect to the Property, and neither HF nor any of its
Affiliates has received any written notice or has other actual knowledge or any other fact,
circumstance or condition, financial or otherwise, which would materially present, limit,
impede or render materially more costly the construction of the Project or the use or
operation of the Property as contemplated by this Agreement.




               l. To HF’s and its Affiliates’ actual knowledge, except as disclosed in the
environmental reports delivered by HF to Skechers, there are no acts, omissions, events,
circumstances or conditions on, at, under or in connection with the Property that
constitute a material violation of, or require remediation under, any applicable
environmental law, including any pollution, contamination, degradation, damage or injury
caused by, related to, arising from or in connection with the generation, use, handling,
treatment, storage, disposal, discharge, emission or release of a hazardous material at the
Property (an “Environmental Condition”). HF or its Affiliate has satisfied all material
applicable governmental reporting requirements in connection with any known Environmental
Condition existing on the Property. To HF’s actual knowledge, there is no basis for a claim
by any third party against HF in connection with an Environmental Condition at the
Property.




               m. Neither HF nor its Affiliates has entered into or is subject to any
leases, occupancy agreements, licenses or similar agreements affecting the occupancy or
possession of the Property, other than the Lease (and the Master Lease).




               n. Except for required construction permits, HF or its Affiliates have
obtained (or will obtain prior to the closing of the Construction Loan) all material
necessary entitlements to construct the Project as contemplated by this Agreement and the
Project will not constitute a violation of the Property’s zoning classification or other
similar governmental requirements (including, without limitation, parking requirements).




               o. The Master Lease is in full force and effect and neither party is in default
thereunder, nor do any facts or circumstances exist which would, with the passage of time
and/or the giving of notice, constitute a default by either party thereunder.




               p. The Property is not subject to any monetary liens or encumbrances (other than
the lien of current real property taxes), or to any nonmonetary encumbrances which would
have a material adverse effect on the ability of the Company to perform its obligations
under this Agreement or Skechers Parent’s ability to perform its obligations under the
Lease, or which could result in the termination or extinguishment of the Lease.



Exhibit “G”





2









 









               q. Neither HF nor any HF Affiliate has caused any changes in the zoning or other
entitlements affecting the Property since the date of execution of the Lease which would have a
material adverse effect on Skechers Parent’s rights under the Lease or to operate its intended
business (as described in the Lease) on the Property.



Exhibit “G”






3









 








EXHIBIT “H”




SIERRA CLUB LITIGATION SETTLEMENT AGREEMENT



Exhibit “H”





 











 





SETTLEMENT AGREEMENT




     This settlement agreement (this “Agreement”) is made at Moreno Valley, California as of January
7, 2010, between the SIERRA CLUB, a California not-for-profit corporation, on the one
hand, and THE CITY OF MORENO VALLEY (the “City”), HIGHLAND FAIRVIEW PARTNERS, I, a California
general partnership, HIGHLAND FAIRVIEW PARTNERS, II, a California general partnership, HIGHLAND
FAIRVIEW PARTNERS, III, a Delaware general partnership, and HIGHLAND FAIRVIEW PARTNERS,
IV, a Delaware partnership, and HF LOGISTICS I, LLC, a California limited liability company,
(collectively, “Highland Fairview”), on the other hand, with the respect to the following
facts:



     A. Highland Fairview is the owner of a site located in the City. The site, which contains
approximately 158 acres, is bounded on the north by State Route 60, on the east by Theodore Street,
on the south by future Eucalyptus Avenue and on the west by Redlands Boulevard (the “Project
Site”).



     B. Highland Fairview intends to develop the Project Site in three phases with a total of 2,620,000
square feet of logistic uses, associated office space, and commercial uses (the “Project”). The
Project is known as the Highland Fairview Corporate Park.



     C. The first phase of the Project will include a building containing 1,820,000 square feet which
has been leased to Skechers USA, Inc. (“Skechers”). The building will be used primarily for
logistic uses and some associated office and commercial facilities (the “Skechers Building”).



     D. Highland Fairview also owns approximately 1,800 acres of land located south and east of the
Project Site which is subject to the Moreno Highlands Specific Plan (the “Specific Plan Area”)
which has vested development rights under a development agreement. Highland Fairview is considering
developing the Specific Plan Area in the near future and may, as part of that development, seek to
include industrial uses in areas not currently so designated in the Moreno Highlands Specific Plan.



     E. On February 10, 2009, the City Council certified that environmental impact report P07-157 (the
“EIR”) analyzing the environmental impacts of the Project had been prepared in compliance with the
California Environmental Quality Act (“CEQA”) and then granted a number of approvals including
general plan amendment PA07-0089, change of zone PA07-0088, tentative parcel map 35629, PA07-0090
and plot plan PA07-0091 for the Project (the “Project Approvals”).



     F. The development of the Specific Plan Area is unrelated to the that of the Project and no
development of the Specific Plan Area has been authorized by the Project Approvals.



     G. On February 20. 2009, the Sierra Club filed a lawsuit entitled Sierra Club v. City
of Moreno Valley, Riverside Superior Court Case No. RIC 519566, which sought to set aside
the Project Approvals, primarily on the basis that the EIR failed to comply with CEQA (the
“Lawsuit”).



1









 





     H. The Sierra Club, the City and Highland Fairview wish to resolve the dispute between them
concerning the Lawsuit, the Project and the development of the Project Site on the terms set forth
in this Agreement. Further, they seek to work together to pursue areas of common interest.



     I. The Sierra Club wants the City to adopt a climate action plan and a solar energy incentive
program and to require additional Code enforcement for commercial properties in order to decrease
the emission of greenhouse gases, conserve energy and protect the health of the City’s inhabitants.
Highland Fairview concurs that the plans, programs and actions sought by the Sierra Club could be
beneficial, endorses them and will use its best efforts to encourage the City to consider them. The
City believes that the actions desired by the Sierra Club are worthy of consideration, but cannot
and does not commit to their adoption. The City Council, in response to the Sierra Club’s concerns,
has directed staff to prepare both a climate action plan, projected to be available for
consideration by the Council within 18 months, and to review possible participation in the Western
Riverside County Council of Governments’ proposed program to facilitate the production of solar
energy, including the use of the financing mechanism available under
AB 811. However, because all
of the plans, programs and actions are solely within the City Council’s legislative authority which
cannot be contracted away neither the City nor Highland Fairview can guarantee that either of them
will be adopted.



     J. The Sierra Club is concerned that truck traffic serving the Project could unduly
impact Redlands Boulevard and wants that truck traffic to use. Theodore Street to the greatest
extent practical. Neither the City nor Highland Fairview has any objection to reducing the amount
of truck traffic using Redlands Boulevard.



     K. The Sierra Club has been concerned about truck traffic on a portion of Ironwood Avenue. The City
Council, in response to the Sierra Club’s concerns, has eliminated the truck route designation for
Ironwood Avenue between Moreno Beach Drive and Theodore Street.



     L. The Sierra Club further wants Skechers to take several steps to minimize the emission of
greenhouse gases. These steps are solely within the control of Skechers and require Skechers’
agreement in order to allow Highland Fairview to take the actions specified in this Agreement.
Highland Fairview concurs that the actions sought by the Sierra Club could be beneficial and wants
to assist the Sierra Club in seeing that they are seriously considered. However, because Highland
Fairview does not control Skechers’ actions, it cannot guarantee
that any of them will occur.



     M. This Agreement is acknowledged by the parties to be a compromise settlement and does not
constitute an admission of the validity of any claims which have been, or might have been, made in
the Lawsuit. However, Highland Fairview desires that the settlement be comprehensive with respect
to the Project and that there shall be no further opposition to the Project on the terms set out in
this Agreement.




2









 








     N. Civil Code § 1542 states:




“A general release does not extend to claims which the creditor does not know or suspect to exist
in his or her favor at the time of executing the release which if known by him or her must have
materially affected his or her settlement with the debtor.”



     IN LIGHT OF THE FOREGOING FACTS, II IS MUTUALLY AGREED THAT:



     1. Immediately upon the execution of this Agreement, the Sierra Club shall dismiss the Lawsuit in
its entirety and as to all parties, with prejudice, and shall then provide conformed copies of the
dismissal to Robert L. Hansen, the City’s Interim City Attorney, and to Kenneth B. Bley, Highland
Fairview’s counsel.



     2. Highland Fairview shall include a requirement in the contract with the general contractor for
the Project that all off-road equipment with a horsepower rating of 25 hp or greater used on the
Project Site during the construction of the Project will meet a minimum Tier II rating and at least
80% of such equipment will meet a minimum Tier III rating and that the general contractor certify
that this requirement has been satisfied. Highland Fairview shall provide a copy of the
certification to the Sierra Club upon receipt of the certification from the general contractor



     3. Highland Fairview shall include a requirement in the contract with the general contractor for
the Project that diesel-powered portable generators not be used during the construction of the
Project.



     4. Highland Fairview shall:




     a. Provide the amount of electrical power generated through solar cells mounted on the roof of the
Skechers Building to the extent needed to provide for the estimated energy demand of the 50,000 sq
ft office portion of the Skechers Building. The construction of the solar cells will be initiated
within six months of Skechers’ occupancy of the Building and completed within 18 months of
Skechers’ occupancy of the Building. Highland Fairview
anticipates that AB 811 sources of funds
will be used to finance the construction of the solar cells as well as incentive programs from the
City electrical utility which axe comparable to the programs offered by Southern California Edison,
i.e., which will yield the same economic result, but such programs are not yet adopted by
the City and may not be; and




     b. Provide the City and the Sierra Club with the appropriate design documents demonstrating that
the electrical energy demand of the 50,000 sq ft office portion of the Skechers Building will be
met by the solar cells to be mounted on the roof of the Skechers Building; and




     c. Design and construct the roof of the Skechers Building to accommodate the maximum number of
solar cells; and




     d. Increase the amount of electrical power generated through solar cells mounted on the roof of the
Skechers Building within ten years to provide 100% of the



3









 






energy needed for the Project to the extent that it is reasonably and economically feasible for
Highland Fairview to do so. This will largely depend upon the policies adopted by the City’s
electrical utility with respect to the subsidization of solar-generated electrical energy, which
requires a rate of not less than $0.22 per kilowatt-hour, the rate currently paid by Southern
California Edison under its performance-based incentive program, and provisions on a par with
Southern California Edison’s solar subsidy programs. Further, Highland Fairview will expand the
solar energy generating capacity of the Skechers Building based upon the benefits afforded through
AB 811 financing and grants, incentives provided by the City’s electrical utility, federal and
state tax programs and commercially reasonable financing such that the maximum investment does not
exceed $7,500,000 and the projected after-tax return generated is at least 5.5% over the rate for
20 year United States Treasury bonds but not less than 10% in any event. Should Highland Fairview
develop solar capacity beyond the energy usage required by the Project, the excess energy will be
sold to a utility provider at a mutually agreeable negotiated rate. Highland
Fairview can not guarantee that any increase in the amount of electrical power generated through
solar cells will occur because neither the necessary policies nor the rate to be paid have been
adopted by the City and may not be.



     5. Highland Fairview shall provide solar water heaters, which may include supplemental
conventional heating sources, throughout the Project for all personal uses, such as bathrooms and
showers, but not for industrial uses.



     6. Highland
Fairview shall provide the signs required by Mitigation Measure AQ-11 at locations,
and of a size, to be easily readable from future Eucalyptus Avenue.



     7. Highland Fairview shall physically configure the access areas to future Eucalyptus
Avenue so that large trucks (over 10,000 pounds) will be required to make a left turn, towards
Theodore Street, when exiting the Project Site unless prohibited by the City from doing so.



     8. Highland Fairview shall provide on-site signs directing large trucks (over 10,000 pounds)
leaving the Project Site to use Theodore Avenue unless prohibited by the City from doing so.



     9. Highland Fairview shall provide the landscaped median in Eucalyptus Avenue between Redlands
Boulevard and Theodore Street in substantially the form currently planned, as shown on Exhibit A,
subject to final approval by the City.



     10. Highland Fairview shall provide a disclosure document in substantially the following form to
each buyer/lessee of any residential unit developed on property owned by Highland Fairview which is
located southerly of State Route 60 and within 300 feet of the Project Site. The document shall be
signed by the buyer/lessee and recorded against the unit:




     “Buyer/Lessee acknowledges that the property which Buyer/Lessee is purchasing/leasing is
located in the vicinity of the Highland Fairview Corporate Park project. Buyer/Lessee acknowledges
that, in addition to commercial and office uses, there are, or may be, distribution warehouses for
national and regional




4












 






Companies
located within the Corporate Park project. As a result of these uses, there will be
automobile and truck traffic, which may operate on a 24/7 basis for pick up and delivery of
products from various buildings from within the Corporate Park project. There may also be increased
diesel fumes, which contain toxic air contaminants which are known to cause cancer, noise and light
as a result of the operations of these facilities. A copy of the Highland Fairview Corporate Park
Environmental Impact Report, which includes a detailed evaluation of the potential impacts of the
Corporate Park project, has been made available for the Buyer’s/Lessee’s review.”



     11. Highland
Fairview shall within 30 days of the receipt of a written request from the Sierra Club,
contribute $100,000 to the Riverside Land Conservancy. The
contribution may only be used for the
preservation of agriculture through the purchase of agricultural land or of agricultural
conservation casements on agricultural land located in Riverside County.



     12. If Highland Fairview includes industrial uses in areas not currently designated for industrial
uses in the Moreno Highlands Specific Plan, it shall provide buffers of commercial uses within the
Specific Plan Area between industrial uses and residential uses. The extent of the buffers shall be
determined by appropriate technical studies conducted by a qualified third party air quality
expert, selected and paid for by Highland Fairview, subject to the City’s approval.



     13. The Skechers building has been designed with the goal of achieving LEED silver certification.
Highland Fairview shall seek to obtain the highest commercially reasonable level of LEED
certification of the Skechers Building and shall, in any event, take all of the actions set forth
on Exhibit B. As used in this Agreement, “commercially reasonable” shall mean that the actions
involved are capable of being accomplished in a successful manner within a reasonable period of
time taking into account economic and other circumstances that would be considered by a prudent
commercial entity.



     14. Highland Fairview shall submit a formal request to the California Department of Transportation
(“CalTrans”) for the installation of signs to be installed, at Highland Fairview’s expense, along
State Route 60, east bound and west bound, directing Project traffic to the Theodore Street exit.



     15. To the extent consistent with the Project Approvals and adopted City regulations and policies:




     a. The design and installation of improvements and signs shall direct all large trucks (over 10,000
pounds) to use Theodore Street, rather than Redlands Boulevard, when entering or leaving the
Project Site unless the site-specific traffic analysis required prior to the approval of a plot
plan for Phase III (condition TE3 of the Project Approvals. City Council Resolution 2009-10) provides compelling evidence that: ands




     (i) Keeping large trucks (over 10,000 pounds) off of Redlands Boulevard will cause Eucalyptus
Avenue. Theodore Street or its on – or off-ramps to State Route 60 to fall below the City’s Level
of Service standard; and

















 






     (ii) Mitigation within the limits of the currently planned right of way
of Theodore Street is unavailable to improve the Level of Service to acceptable
levels; and




     (iii) Allowing large trucks (over 10,000 pounds) to use Redlands Boulevard
will not cause Redlands Boulevard to fall below the applicable City’s Level
of Service Standards after mitigation.




     b. To the extent that any part of subparagraph a above is found not to be consistent
with existing Project Approvals or City regulations or policies, Highland Fairview shall
apply for and the City will consider, under its existing procedures and preserving the
Council’s legislative and discretionary policy authority, modifications of conditions,
and/or amendments to existing Project Approvals, regulations and policies.



     16. The City Council has, in Study Session of October 20, 2009 or previously, directed City
staff to analyze, as quickly as feasible, and then to report back to the Council, for its
consideration without commitment to adoption, each of the following:




     a. The adoption/enforcement of a City-wide commercial truck idling ordinance; and




     b. The acquisition, generation and distribution of “green” energy by the City’s
electric utility; and




     c. An amendment of the City’s Municipal Code current lighting standards to incorporate
the guidelines of the International Dark Sky Association and the exterior lighting
standards set forth in the Palm Desert Municipal Code; and




     d. The submission of a request to CalTrans and/or the Riverside County Transportation
Commission that a regional traffic mitigation fee be adopted for the Improvement of State
Route 60; and




     e. The use of LED lamps in City-owned streetlights.



     17. Highland Fairview shall require any user of the Skechers facility, other than Skechers,
and will use reasonable efforts to seek to have Skechers:




     a. Have its trucking fleet (all trucks owned and operated by Skechers) and all trucking
carriers that distribute Skechers’ products to its retail stores be classified as SmartWay 1.0 or
higher at the time that it takes possession of the Skechers building, increase the SmartWay
classification to 1.25 for Skechers’ trucking fleet and such other trucking carriers within five
years and provide an annual report to Highland Fairview, which Highland Fairview shall then provide
to the Sierra Club; and




     b. Continue to provide incentives to its employees to encourage carpooling; and



6









 






     c. Conduct an annual review for five years following the occupancy of the Skechers Building to
determine the level of use of alternatively fueled vehicles and the demand for designated spaces
for such vehicles, beyond the 37 spaces already designated. Spaces located closest to
building entries will be converted by Highland Fairview from general parking to alternatively fueled
vehicle parking to meet the demand; and




     d. Conduct an annual review for five years following the occupancy of the Skechers Building to
determine the level of use of plug-in electrical vehicles and the demand for plug-in-stations.
Additional plug-in-stations will be provided by Highland Fairview to meet the demand; and




     e.
Not use diesel-powered “yard goats” in its operations.



     18. Highland Fairview shall provide the Sierra Club with notice of the submission of any
application for a discretionary permit for the development of the Project within five business days
of the submission.



     19. The Sierra Club shall not sue to invalidate the development, use or modification of the
Project, including, but not limited to, any approvals needed for the development of any phase of
the Project, as long as the development or use is consistent with the terms of this Agreement and
the Project, as analyzed in the EIR, and any modification will not result in a significant adverse
impact on the environment, as defined in CEQA Guidelines § 15382, as determined by the
City. For the purpose of this Agreement, changes in the manner in which the Project is financed, in
whole or in part, and removal of vegetation within State Route 60 right-of- way shall not be
considered to be significant adverse impacts on the environment by the Sierra Club. Nothing in this
paragraph 19 shall apply to a modification of the terms of this Agreement.



     20. Highland Fairview shall pay Johnson & Sedlack, the Sierra Club’s attorneys, $183,000
within 10 days of the dismissal of the Lawsuit. Except for this payment, each party shall bear its
own attorneys’ fees and costs incurred in connection with the Lawsuit and the preparation of this
Agreement.



     21. Any party alleging a breach of this Agreement shall provide written notice of the alleged
breach to the party alleged to be in breach. That party shall then have 30 days from receipt of the
notice in which to cure the breach or to begin curing the breach if it is one which cannot be cured
within 30 days. If the breach has not been cured within the 30 day period or, if no effort has been
begun within the 30 day period for a breach which cannot be cured within the 30 day period, then
the party alleging the breach shall be entitled to avail itself of its legal remedies.



     22. All notices and communications shall be provided in writing, which may be delivered by
e-mail, to the following addresses:



	 	 	 

	Sierra Club Environmental Law Program:

	 	85 Second Street
	 

	 	San Francisco, CA 94105
	 

	 	Aaron.Isherwood@sierraclub.org






7









 






	 	 	 

	Sierra Club, San Gorgonio Chapter:

	 	Chapter Chair/Conservation Chair
	 

	 	4079 Mission Inn Avenue
	 

	 	Riverside, CA 92501-3204
	 

	 	san.gorgonio.chapter@sierraclub.org
	 
	 	 
	Sierra Club, Moreno Valley Group:

	 	Ann Turner-McKibben and George
	 

	 	Hague
	 

	 	P.O. Box 1325
	 

	 	Moreno Valley, CA 92556-1325
	 

	 	morenovalleygroup@yahoo.com
	 
	 	 
	with a copy to Raymond W. Johnson, Esq.:

	 	Johnson & Sedlack
	 

	 	26785 Camino Seco
	 

	 	Temecula, CA 92590
	 

	 	esqaicp@wildblue.net
	 
	 	 
	The City attention of the City Manager,
	 	 
	w/ copy attention of the City Attorney:

	 	14177 Frederick Street
	 

	 	P.O. Box 88005
	 

	 	Moreno Valley, CA 92552
	 

	 	CMOffice@moval.org
	 

	 	CityAttorney@moval.org
	 
	 	 
	Highland Fairview:

	 	14225 Corporate Way
	 

	 	Moreno Valley, CA 92553
	 

	 	ibenzeevi@highlandfairview.com
	 
	 	 
	with a copy to Kenneth B. Bley, Esq.:

	 	Cox, Castle & Nicholson LLP
	 

	 	2049 Century Park East, 28th Floor,
	 

	 	Los Angeles CA 90067
	 

	 	kbley@coxcastle.com






Any address may be changed by providing written notice to all of the other parties.




     23. Except as set forth in this Agreement, the Sierra Club releases the City and Highland
Fairview and their owners, affiliates, members, officers, employees, agents and attorneys from any
and all claims, demands, liabilities, obligations, costs, expenses, fees, actions, and/or causes of
action arising out of, or connected to, the Lawsuit or the Project, whether known,
unknown or suspected and the Sierra Club hereby waives the provisions of Civil Code § 1542 set
forth in Recital N. The release in this paragraph 23 is a separate consideration for the release
contained in paragraph 24 and the Sierra Club would not have executed this Agreement nor agreed to
this paragraph 23 but for the release contained in paragraph 24.



     24. Except as set forth in this Agreement, the City and Highland Fairview release the Sierra
Club and its members, officers, employees, agents and attorneys from any and all claims, demands,
liabilities, obligations, costs, expenses, fees, actions, and/or causes of action arising out of,
or connected to, the Lawsuit or the Project, whether known, unknown or suspected and the



8









 





City and Highland Fairview hereby waive the provisions of Civil Code § 1542 set forth in Recital N.
The release in this paragraph 24 is a separate consideration for the release contained in paragraph
23 and neither the City nor Highland Fairview would have executed this Agreement nor agreed to this
paragraph 24 but for the release contained in paragraph 23.




     25. The rights and obligations of the Sierra Club under this Agreement are personal
to it and may not be transferred or assigned to any other person or entity. This Agreement is
entered into solely for the benefit of the parties hereto and, with the exception of the Sierra
Club, their successors, transferees and assigns. Other than the parties hereto and, with the
exception of the Sierra Club, their successors, transferees and assigns, no third party shall be
entitled, directly or indirectly, to base any claim, or to have any right arising from, or related
to, this Agreement.



     26. The parties to this Agreement shall act in good faith and shall take all further actions
reasonably necessary to effectuate the letter and the spirit of this Agreement.



     27. This Agreement and all rights and obligations arising out of it shall be construed in
accordance with the laws of the State of California.



     28. Any litigation arising out of this Agreement shall be conducted only in the Riverside
Superior Court. Only equitable remedies shall be available to the prevailing party in any such
litigation, damages for breach of this Agreement being expressly
waived. Each party to any such
litigation shall bear its own attorneys’ fees and costs, the right to recover them under any
statute, including, but not limited to Code of Civil Procedure § 1021.5, any Rule of Court or any
rule of law being expressly waived.



     29. This Agreement contains the entire agreement and understanding concerning the Lawsuit and
the Project and supersedes and replaces all prior negotiations or proposed agreements, written or
oral. Each of the parties hereto acknowledges that no other party, nor the agents nor the attorneys
for any party, has made any promise, representation or warranty whatsoever, express or implied, not
contained herein, to induce the execution of this Agreement and acknowledges that this Agreement
has not been executed in reliance upon any promise, representation or warranty not contained
herein.



     30. This Agreement may not be amended except in a writing signed by all the parties hereto.



     31. The parties to this Agreement hereby acknowledge that they have undertaken an independent
investigation of the facts concerning the Lawsuit and the Project. The parties expressly assume the
risk that the true facts concerning the foregoing may differ from those currently understood by
them.



     32. Each individual signing this Agreement represents and warrants that he or she has been
authorized to do so by proper action of the party on whose behalf he or she has signed.



     33. This Agreement may be signed in one or more counterparts and, when all parties have signed
the original or a counterpart, such counterparts, whether originals, facsimiles or email
attachments, together shall constitute one original document.



9









 





	 	 	 	 	 
	January 7, 2010 	SIERRA CLUB

 	 
	 	By: 	
[ILLEGIBLE]	 
	 	 	Its: CHAPTER CHAIR, SAN GORGONIO CHAPTER 	 
	 	 	 
	 
	January 11, 2010 	          THE CITY OF MORENO VALLEY

 	 
	 	By: 	
[ILLEGIBLE] 	 
	 	 	Its: MAYOR 	 
	 	 	 
	 
	January 7, 2010 	HIGHLAND FAIRVIEW PARTNERS I



By: HFP Realty Investment, LP, its Managing Partner

By: HFP Realty Holdings, LLC, its General Partner

 	 
	 	By: 	
/s/ Iddo Benzeevi 	 
	 	 	Its: President 	 
	 	 	 
	 
	January 7, 2010 	HIGHLAND FAIRVIEW PARTNERS II 



By: New Sands Holdings, LP, its Managing Partner

By: Sand Holdings, LLC, its General Partner

 	 
	 	By: 	
/s/ Iddo Benzeevi 	 
	 	 	Its: President 	 
	 	 	 
	 
	January 7, 2010 	HIGHLAND FAIRVIEW PARTNERS III 



By: HFP Realty Investment, LP, its Managing Partner

By: HFP Realty Holdings, LLC, its General Partner

 	 
	 	By: 	
/s/ Iddo Benzeevi 	 
	 	 	Its: President 	 
	 	 	 	 



10









 








	 	 	 	 	 
	January 7, 2010 	HIGHLAND FAIRVIEW PARTNERS IV 



By: Sinclair Holdings, LP, its Managing Partner

By: Sinclair Realty Holdings, LLC, its General 

       Partner

 	 
	 	By: 	
Iddo Benzeevi 	 
	 	 	Its: President 	 
	 	 	 
	 
	January 7, 2010 	HF LOGISTICS I, LLC

 	 
	 	By: 	
Iddo Benzeevi 	 
	 	 	Its: President 	 
	 	 	 
	 
	APPROVED AS TO FORM:



January 11, 2010 	



JOHNSON & SEDLACK

 	 
	 	By: 	
/s/ Raymond W. Johnson 	 
	 	 	Raymond W. Johnson 	 
	 	 	Attorneys for the SIERRA CLUB 	 
	 
	January 11, 2010 	CITY ATTORNEY

OF THE CITY OF MORENO VALLEY

 	 
	 	By: 	
[ILLEGIBLE] 	 
	 	 	Its: INTERIM CITY ATTORNEY 	 
	 	 	 
	 
	January 7, 2010 	COX CASTLE & NICHOLSON LLP

 	 
	 	By: 	
/s/ Kenneth B. Bley 
	 	Kenneth B. Bley 	 
	 	 	Attorneys for HIGHLAND FAIRVIEW PARTNERS I;
HIGHLAND FAIRVIEW PARTNERS, II, HIGHLAND
FAIRVIEW PARTNERS, III, HIGHLAND FAIRVIEW
PARTNERS, IV and HF LOGISTICS I, LLC 	 



11









 






	 	 	 	 	 



EXHIBIT A










 









 








Exhibit B




Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)




	 	•	 	Alternative Transportation:






	 	 	 	Bicycle Storage & Changing
Rooms


The project will provide secure bicycle racks within 200 yards of the building entrances
for 5% or more of all building users and will provide shower and
changing facilities in the building for 0.5% of full-time equivalent
occupants. 


Low Emission and Fuel Efficient Vehicles


The project will provide preferred parking for low-emission and fuel efficient vehicles for
5% of the total vehicle parking capacity of the site.


Parking Capacity


The project will meet, but not exceed the number of parking stalls required by the local
zoning requirements and will provide preferred parking for carpools and vanpools for 5% of
the total parking spaces.






	 	 	 	Site Development:






	 	 	 	Maximum Open Space


As approved by the City of Moreno Valley, the project will provide vegetated open space
within the project boundary in accordance with the local zoning’s open space requirement.






	 	•	 	Storm Water Design:






	 	 	 	Quality Control


Highland Fairview will implement the City approved Storm Water
Pollution Prevention Program (SWPPP).






	 	•	 	Heat Island Effect:






	 	 	 	Roof


The project will use roofing materials having a Solar Reflectance Index
(SRI) equal to or greater than 78 for a minimum of 75% of the roof
surface.






	 	•	 	Water Efficient Landscaping:






	 	 	 	The project will reduce potable water consumption for irrigation by 50% from a calculated
mid-summer baseline case.





The above are based upon existing design criteria and availability of material and labor.
Should some of these conditions adversely change, the above items may need to be modified.







1 of 5









 








Exhibit B




Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)




	 	•	 	Water Use Reduction:






	 	 	 	Reduce Water Usage by 30%


	 
	 	 	 	The project will employ strategies that in aggregate use 30% less water than the water use
baseline calculated for the building (not including irrigation).






	 	•	 	Optimize Energy Performance:






	 	 	 	The project will demonstrate a percentage improvement in the proposed building performance
rating compared to the baseline building performance rating.






	 	•	 	On-Site Renewable Energy:






	 	 	 	The project will use on-site renewable energy systems (solar) to offset a portion of
building energy cost.






	 	•	 	Enhanced Commissioning:






	 	 	 	The project began the commissioning process during the design process and will execute
additional activities after systems performance verification is completed.






	 	•	 	Construction Waste Management:






	 	 	 	The project will recycle and/or salvage a minimum of 50% (by weight) of non-hazardous
construction and demolition debris.






	 	•	 	Recycled Content:






	 	 	 	The project will use materials with recycled content such that the sum of post-consumer
recycled content plus one-half of the pre-consumer content constitutes at least 10%
(cost-based) on the total value of the materials in the project.






	 	•	 	Regional Materials:






	 	 	 	The project will use building materials or products that have been extracted, harvested or
recovered, as well as manufactured, within 500 miles of the project site for a minimum of
10% (cost-based) of the total materials value.












The above are based upon existing design criteria and availability of material and labor.
Should some of these conditions adversely change, the above items may need to be
modified.







2 of 5









 








Exhibit B




Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)




	 	•	 	Increased Ventilation:






	 	 	 	The project will increase breathing zone outdoor air ventilation rates to all occupied spaces
by at least 30% above the minimum rates required by
ASHRAE Std. 62.1-2004.






	 	•	 	Construction IAQ Management Plan:






	 	 	 	The project will develop and implement an Indoor Air Quality (IAQ) Management Plan for the
construction and pre-occupancy phases of the building.






	 	•	 	Low Emitting Materials:






	 	 	 	The project will utilize only those paints and coatings that comply with Credit 4.2, 4.3 and 4.4 of
the LEED standards.






	 	•	 	Indoor Chemical & Pollutant Source Control:






	 	 	 	The project will provide entryway systems to reduce the infiltration of dirt and particulates into
the indoor environment. Separate ventilation systems will be provided for storage areas for
hazardous chemicals in order to minimize and control pollutants in the building.






	 	•	 	Daylight and Views:






	 	 	 	The project, will achieve day-lighting via skylights for building occupants in 75% of all regularly
occupied areas.






	 	•	 	Innovation In Design:






	 	 	 	The project will utilize locally-sourced concrete and interior fixtures providing a 40% water use
savings.






	 	•	 	LEED Accredited Professional:






	 	 	 	At least one principal participant of the project team is a LEED Accredited Professional (AP).





The
above are based upon existing design criteria and availability of material and labor. Should
some of these conditions adversely change, the above items may need to be modified.




3 of 5









 








Exhibit B




Highland
Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)



The
Following are Energy-Saving and Other Design Features:





	 	•	 	Use of More Shade Trees vs. Palm Trees to Reduce Temperature






	 	 	 	As shown in the City-approved Plot Plan package, palm trees used on the site will be located at the
building’s primary entry as part of the decorative entry treatment, and along the freeway, near
gates and building corners as accent elements. All other trees on the site, in the parking areas,
adjacent to the building, in the landscape areas, and along the freeway will be varieties of shade
trees.






	 	•	 	Waterless Urinals






	 	 	 	Use of these products was investigated but ultimately rejected based upon marginal performance and
excessive maintenance costs. Very low flow urinals will be used in the facility which will provide
a 30% reduction in water use over typical low-flow urinals.






	 	•	 	Automatic turn on and off for lavatory faucets—only
allow 
1/2 gal per minute






	 	 	 	These products will be installed throughout the building.






	 	•	 	Monitoring system that keeps track of all systems so that
response can be quick if one of the
systems does not function properly






	 	 	 	The Skechers building will include a building systems monitoring program which will immediately
notify maintenance personnel of any system malfunction.






	 	•	 	Photo Sensors for Lighting






	 	 	 	Motion sensors will be installed in the office areas of the building to turn off all lighting
(except security lighting) when theses areas of the building are not occupied. A network of
thousands of roof-mounted skylights will provide substantial natural light in the warehouse areas.
Sensors will be installed in the warehouse areas to automatically turn off artificial area lighting
when ambient light is adequate.






	 	•	 	Reduce carpet and flooring glue toxics by environmentally friendly carpet and non toxic glue.






	 	 	 	Low VOC carpeting, paint and adhesives will be used throughout the building. Polished concrete
flooring will replace vinyl flooring originally





The above are based upon existing design criteria and availability of material and labor.
Should some of these conditions adversely change, the above items may need to be modified.






4 of 5









 








Exhibit B




Highland Fairview Corporate Park — TPM 35629 Parcel 1 (Skechers)

LEED Projected Certification Items

(Based upon LEED current standards)




	 	 	 	planned for the warehouse restrooms, break rooms and shipping/receiving areas.






	 	•	 	Recycle of All Used Materials






	 	 	 	Recycling bins will be provided at the site for recycling during the operation of the building.
Recycling of construction waste will be required to the greatest degree practicable. Skechers
currently bundles and recycles all cardboard waste and will provide recycling bins for employee use
throughout the facility. Skechers is exploring opportunities for recycling (mulching) of damaged
wood pallets.






	 	•	 	75% of Construction Waste Salvaged or Recycled






	 	 	 	The project will salvage or recycle as much construction waste as is feasible, but in no case less
that 50% by weight of such waste. The project will utilize recycled (crushed) concrete during
construction for temporary access roads and for paving base where acceptable. The project is
directing green waste from clearing operations during construction, to a location for mulching and
will be re-used.






	 	•	 	Independent Venting for Toxic Places






	 	 	 	The storage of toxic materials, as identified by the State of California, will be in accordance
with all applicable building code requirements including the independent venting of such storage
areas.






	 	•	 	Thermal Controls in Various Work Spaces






	 	 	 	The warehouse area is not heated or cooled, utilizing a controlled air exchange system to moderate
interior temperatures. The office and commercial areas will be served by a number of HVAC zones
each with its own controls. The units are equipped with an automatic time switch with an accessible
manual override that allows operation of the system during off-hours.






	 	•	 	The building occupant/owner must share whole-project energy and water usage data for at least
five years with the US Green Building Council or Green Building Certification Institute.






	 	 	 	Highland Fairview will provide all documentation used to secure LEED certification, including any
tenant operational
documentation. Such documentation requirements will be addressed in the lease documents.





The above are based upon existing design criteria and availability of material and labor.
Should some of these conditions adversely change, the above items may need to be modified.





5 of 5











 





EXHIBIT “I”




AMENDED AND RESTATED MASTER LEASE AGREEMENT



Exhibit “I”







 









 








AMENDED AND RESTATED

MASTER LEASE AGREEMENT




     THIS AMENDED AND RESTATED MASTER LEASE AGREEMENT (the “Lease”) is made effective as of
the 25th day of September, 2007 (the “Effective Date”), between HF LOGISTICS I, LLC, a
Delaware limited liability company (“Tenant”), and HIGHLAND FAIRVIEW PARTNERS I (formerly known as
Westcoast Properties Partners, a California general partnership), HIGHLAND FAIRVIEW PARTNERS IV,
(formerly known as Sinclair Property Partners, a Delaware general partnership), HIGHLAND FAIRVIEW
PARTNERS III (formerly known as HF Educational Partners, a Delaware general partnership), and
HIGHLAND FAIRVIEW PARTNERS II (formerly known as Sand Properties Partners, a California general
partnership), (collectively, “Landlord”). This Lease amends and supersedes the Master Lease
Agreement dated September 25, 2007 between Landlord and Tenant.



	 	 	 

	Premises:

	 	Has the meaning set forth in the Skechers Lease.
	 
	 	 
	Building:

	 	The Building to be constructed on the Premises pursuant to that certain
Lease Agreement dated September 25, 2007, between Tenant, as landlord,
and Skechers, USA, Inc., a Delaware corporation (“Skechers”), as tenant (as
amended, the “Skechers Lease”).
	 
	 	 
	Project:

	 	Rancho Belago Corporate Center
	 
	 	 
	Premises:

	 	Approximately 110 acres of unimproved land situated in the City of Moreno
Valley, CA, as shown on the Site Plan attached hereto as Exhibit “A.”
	 
	 	 
	Lease Term:

	 	Beginning on the Effective Date and ending the last day of the Term of the
Skechers Lease.
	 
	 	 
	Commencement Date:

	 	The Commencement Date of the Skechers Lease.
	 
	 	 
	Monthly Base Rent:

	 	The “fair market rental value” of the Premises as of the Commencement
Date, to be determined by an appraiser selected by Landlord.
	 
	 	 
	Security Deposit:

	 	None
	 
	 	 
	Exhibits:

	 	A (Site Plan)






1









 






     1. Granting Clause. In consideration of the obligation of Tenant to pay rent as herein
provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases
to Tenant, and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term,
subject to the terms, covenants and conditions of this Lease. The rights, obligations, warranties
and covenants of each of the entities which comprise Landlord hereunder shall apply only to those
respective portions of the Premises which are owned by such entity.



     2. Acceptance of Premises. Tenant shall accept the Premises in its condition as of the
Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and
restrictions. Landlord has made no representation or warranty as to the suitability of the Premises
for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are
suitable for Tenant’s intended purposes. In no event shall Landlord have any obligation for any
defects in the Premises or any limitation on its use. The taking of possession of the Premises
shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good
condition at the time possession was taken. Landlord represents and warrants that as of the
Effective Date Landlord has fee simple title to the Premises and Landlord has full power, right and
authority to execute and perform this Lease and all partnership action necessary to do so has been
duly taken.



     3. Use. The Premises may be used only for any lawful purpose, including but not limited to the
uses set forth in the Skechers Lease.



     4. Base Rent. Tenant shall pay Base Rent in the amount set forth above. The
first month’s Base Rent shall be due and payable on the date that rent commences under the Skechers Lease (the
“Rent Commencement Date”). Tenant promises to pay to Landlord in advance, without demand, deduction
or set-off, monthly installments of Base Rent on or before the first day of each calendar month
following the Rent Commencement Date. Payments of Base Rent for any fractional calendar month shall
be prorated. All payments required to be made by Tenant to Landlord hereunder shall be payable at
such address as Landlord may specify from time to time by written notice delivered in accordance
herewith. Base Rent shall be apportioned among the entities which comprise Landlord on a pro rata
basis, according to the acreage of their respective parcels (or portions thereof) of land which
comprise the Premises.



     5. Utilities. Tenant shall pay for all water, gas, electricity, heat, light, power, telephone,
sewer, sprinkler services, refuse and trash collection, and other utilities and services used on
the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar
charges for utilities imposed by any governmental entity or utility provider, together with any
taxes, penalties, surcharges or the like pertaining to Tenant’s use of the Premises.



     6. Taxes. Landlord shall pay all taxes, assessments and governmental charges (collectively
referred to as “Taxes”) that accrue against the Premises during the Lease Term, including any
increased Taxes resulting from the sale or other disposition of the Premises by Landlord, or any
other change of ownership which results in the reassessment of Taxes.



     7. Insurance. From and after the Commencement Date, Tenant shall cause Skechers to obtain and
maintain all insurance coverage set forth in the Skechers Lease. Landlord shall be named as an
additional insured or loss payee, as applicable, on all such policies (other than those covering
the personal property of Skechers) which shall provide that the policies will not be cancelled or
materially modified without at least 30 days prior notice to Landlord. Landlord shall be provided
with certificates of insurance upon commencement of the Lease Term and upon each renewal of the
insurance policies.



     8. Landlord’s Repairs. Landlord has no responsibility for maintenance or repair
of any part of



2









 




the Premises or the Building.




     9. Tenant’s Repairs. Tenant shall cause Skechers to maintain and repair the
Premises and the
Building in accordance with the Skechers Lease. Tenant shall be responsible to maintain and repair
any part of the Premises or the Building which is not the responsibility of Skechers under the
Skechers Lease.



     10. Alterations. Tenant may make any alterations, additions, or improvements to the Premises,
structural or nonstructural, which Tenant may desire including the construction of the Building,
without Landlord’s consent. Tenant may allow Skechers to make any alterations, additions or
improvements to the Premises or the Building which Tenant deems advisable. Upon surrender of the
Premises, all alterations, additions and improvements which are not required to be removed by
Skechers under the Skechers Lease shall remain at the Premises as Landlord’s Property.



     11. Signs. Tenant may permit Skechers to erect or install any signs on the Premises or the
Building that Tenant deems advisable.



     12. Damage and Destruction. If at any time during the Lease Term the Skechers Lease is
terminated due to damage or destruction, then Tenant may, upon notice to Landlord, immediately
terminate this Lease.



     13. Condemnation. If at any time during the Lease Term, the Skechers Lease is terminated as a
result of condemnation, then Tenant may, upon notice to Landlord, immediately terminate this Lease.



     14. Assignment and Subletting. Tenant may not assign this Lease without the prior written
consent of Landlord. Tenant may sublease the Premises to Skechers pursuant to the Skechers Lease,
provided that the provisions of the Skechers Lease shall be subordinate and subject to the
provisions of this Lease. Tenant may approve of any assignment of the Skechers Lease or future
subleasing of the Premises or any part thereof, by Skechers, without Landlord’s consent.
Notwithstanding the foregoing, Landlord hereby consents to the assignment of this Lease by Tenant
to HF Logistics-SKX, LLC, a Delaware limited liability company (the “LLC”). Landlord agrees that it
will abide by any provisions in the LLC Agreement of the LLC which require HF to cause or compel
Landlord to take any actions (or refrain from taking any actions) under this Lease.



     15. Indemnification. Except for the gross negligence or willful misconduct of Landlord, its
agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify,
defend and hold harmless Landlord, and Landlord’s partners and their respective agents, employees
and contractors, from and against any and all losses, liabilities, damages, costs and expenses
(including attorneys’ fees) resulting from claims by third parties for injuries to any person and
damage to or theft or misappropriation or loss of property occurring in or about the Premises and
arising from the use and occupancy of the Premises by Tenant or by Skechers, or from any activity,
work, or thing done, permitted or suffered by Tenant or by Skechers in or about the Premises.



     16. Inspection and Access. Landlord and its agents, representatives, and contractors may enter
the Premises and/or the Building at any reasonable time to inspect the Premises and/or the Building
and for any other business purpose. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises, provided that no such
easement, dedication, designation or restriction materially interferes with Tenant’s (or Skechers’)
use or occupancy of the Premises. At Landlord’s request, Tenant shall execute (and/or shall require
Skechers to execute) such instruments as may be necessary for such easements, dedications or
restrictions.



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     17. Quiet Enjoyment. If Tenant shall perform all of the covenants and agreements herein
required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times
during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person
claiming by, through or under Landlord.



     18. Surrender. Upon termination of the Lease Term or earlier termination of Tenant’s right of
possession, Tenant shall surrender the Premises to Landlord in the same or better condition as
received, ordinary wear and tear and casualty loss and condemnation excepted. All of Tenant’s trade
fixtures and personal property shall be removed by Tenant, any such trade fixtures or personal
property not removed shall be deemed abandoned and may be stored, removed, and disposed of by
Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages
resulting from Landlord’s retention and disposition of such property. All obligations of Tenant
hereunder not fully performed as of the termination of the Lease Term shall survive the termination
of the Lease Term, including without limitation, indemnity obligations and obligations concerning
the condition and repair of the Premises.



     19. Events of Default. Each of the following events shall be an event of default (“Event of
Default”) by Tenant under this Lease:




     (i) Tenant shall fail to pay any installment of Base Rent or any other payment
required herein when due, and such failure shall continue for a period of 10 days from the
date such payment was due.




     (ii) Tenant shall (A) make a general assignment for the benefit of creditors; (B)
commence any case, proceeding or other action seeking to have an order for relief entered
on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or
its debts or seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or of any substantial part of its property (collectively a
“proceeding for relief”); (C) become the subject of any proceeding for relief which is not
dismissed within 60 days of its filing or entry; or (D) be dissolved or otherwise fail to
maintain its legal existence.




     (iii) Tenant shall fail to comply with any provision of this Lease other than those
specifically referred to in this Paragraph, and except as otherwise expressly provided
herein, such default shall continue for more than 30 days after Landlord shall have given
Tenant written notice of such default, or if performance is not possible within such
period, any failure of Tenant to commence performance within such period and to diligently
prosecute such performance to completion.



     20. Landlord’s Remedies. Upon each occurrence of an Event of Default and so long as such Event
of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this
Lease or Tenant’s right of possession, (but Tenant shall remain liable as hereinafter provided)
and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or
termination of Tenant’s right of possession, it shall be lawful for Landlord, without formal demand
or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other
action or proceeding authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or
remove and store, all of the furniture, fixtures and equipment at the Premises.



          Except as otherwise provided in the next paragraph, if Tenant breaches this Lease and abandons
the Premises prior to the end of the term hereof, or if Tenant’s right to possession is terminated
by Landlord because of an Event of Default by Tenant under this Lease, this Lease shall terminate.
Upon such







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termination, Landlord may recover from Tenant the following, as provided in Section 1951.2 of the
Civil Code of California: (i) the worth at the time of award of the unpaid Base Rent and other
charges under this Lease that had been earned at the time of termination; (ii) the worth at the
time of award of the amount by which the reasonable value of the unpaid Base Rent and other charges
under this Lease which would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth
at the time of the award by which the reasonable value of the unpaid Base Rent and other charges
under this Lease for the balance of the term of this Lease after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any
other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s
failure to perform its obligations under this Lease or that in the ordinary course of things would
be likely to result therefrom. As used herein, the following terms are defined: (a) the “worth at
the time of award” of the amounts referred to in Sections (i) and (ii) is computed by allowing
interest at the lesser of 18 percent per annum or the maximum lawful rate. The “worth at the time
of award” of the amount referred to in Section (iii) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent;
(b) the “time of award” as used in clauses (i), (ii), and (iii) above is the date on which judgment
is entered by a court of competent jurisdiction; (c) The “reasonable value” of the amount referred
to in clause (ii) above is computed by determining the mathematical product of (1) the “reasonable
annual rental value” (as defined herein) and (2) the number of years, including fractional parts
thereof, between the date of termination and the time of award. The “reasonable value” of the
amount referred to in clause (iii) is computed by determining the mathematical product of (1) the
annual Base Rent and other charges under this Lease and (2) the number of years including
fractional parts thereof remaining in the balance of the term of this Lease after the time of
award.




          Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant’s right to possession, and
Landlord may enforce all its rights and remedies under this Lease, including the right to recover
rent as it becomes due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4 and the following provision from such Civil Code Section is hereby repeated: “The
Lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease
in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has
right to sublet or assign, subject only to reasonable limitations).” Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit
to recover any sums falling due from time to time. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such
previous breach.




          Exercise by Landlord of any one or more remedies hereunder granted or otherwise available
shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this
Lease by Landlord, whether by agreement or by operation of law, it being understood that such
surrender and/or termination can be effected only by the written agreement of Landlord and Tenant.
Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all
times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the
failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with
same shall not be construed as having created a custom in any way or manner contrary to the
specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and
Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to
this Lease or at law or in equity, shall not be a waiver of Landlord’s right to enforce one or more
of its rights in connection with any subsequent default. A receipt by Landlord of rent or other
payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such
breach, and no waiver by Landlord of any provision of this Lease
shall be deemed to have been made unless expressed in writing and signed by Landlord. To the
greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to
re-enter as provided for in any statute, or to institute legal proceedings to that end,







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and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms “enter,” “re-enter,” “entry” or “re-entry,” as used in
this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises
shall be on such terms and conditions as Landlord in its sole discretion may determine (including
without limitation a term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or
all other portions of the Project before reletting the Premises). Landlord shall not be liable,
nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the
Premises or collect rent due in respect of such reletting.




     21. Tenant’s Remedies/Limitation of Liability. Landlord shall not be in default hereunder
unless Landlord fails to perform any of its obligations hereunder within 30 days after written
notice from Tenant specifying such failure (unless such performance will, due to the nature of the
obligation, require a period of time in excess of 30 days, then after such period of time as is
reasonably necessary so long as Landlord commences performing within said period and diligently
prosecutes such performance to completion). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise expressly provided in this
Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder. All
obligations of Landlord under this Lease will be binding upon Landlord only during the period of
its ownership of the Premises and not thereafter. The term “Landlord” in this Lease shall mean only
the owner, for the time being of the Premises, and in the event of the transfer by such owner of
its interest in the Premises, such owner shall thereupon be released and discharged from all
obligations of Landlord thereafter accruing, it being understood that Landlord shall not be
released from any obligations accruing prior to such transfer unless such obligations have been
assumed in writing by Landlord’s successor, but such obligations shall be binding during the Lease
Term upon each new owner for the duration of such owner’s ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Premises, and in no event shall any
personal liability be asserted against Landlord or any of Landlord’s partners in connection with
this Lease nor shall any recourse be had to any other property or assets of Landlord or any of
Landlord’s partners.



     22. Subordination. This Lease and Tenant’s interest and rights hereunder are and shall be
subject and subordinate at all times to the lien of any mortgage, now existing or hereafter created
on or against the Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the necessity of any
further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of
any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge
and deliver such instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder and to cause Skechers to do the same. Tenant hereby appoints
Landlord attorney in fact for Tenant irrevocably (such power of attorney being coupled with an
interest) to execute, acknowledge and deliver any such instrument and instruments for and in the
name of the Tenant and to cause any such instrument to be recorded. Notwithstanding the foregoing,
any such holder may at any time subordinate its mortgage to this Lease, without Tenant’s consent,
by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage
without regard to their respective dates of execution, delivery or recording and in that event such
holder shall have the same rights with respect to this Lease as though this Lease had been executed
prior to the execution, delivery and recording of such mortgage and had been assigned to such
holder. The term “mortgage” whenever used in this Lease shall be deemed to include deeds of trust,
security assignments and any other encumbrances, and any reference to the “holder” of a mortgage
shall be deemed to include the beneficiary under a deed of trust.



          Notwithstanding the foregoing paragraph, Tenant shall not be obligated to subordinate the
Lease or its interest therein to any mortgage, deed of trust or ground lease on the Premises unless
concurrently with such subordination the holder of such mortgage or deed of
trust or the ground lessor under such ground lease





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agrees not to disturb Tenant’s possession of the Premises under the terms of the Lease in the
event such holder or ground lessor acquires title to the Premises through foreclosure, deed in lieu
of foreclosure or otherwise.




     23. Mechanic’s Liens. Tenant has no express or implied authority to create or place any lien
or encumbrance of any kind upon, or in any manner to bind the interest of Landlord in the Premises
or to charge the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any construction or repairs.
Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable
by it on account of any labor performed or materials furnished in connection with any work
performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the leasehold estate or against
the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate
written notice of the placing of any lien or encumbrance against the Premises and cause such lien
or encumbrance to be discharged within 30 days of the filing or recording thereof; provided,
however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure
of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over
in a manner satisfactory to Landlord within such 30 day period.



     24. Environmental Requirements. Tenant shall enforce all provisions of the Skechers Lease
which involve environmental requirements and shall indemnify, defend and hold Landlord harmless
from and against any and all losses which result from the violation by Skechers of such
environmental requirements.



     25. Force Majeure. Except for monetary obligations, neither Landlord nor Tenant shall be held
responsible for delays in the performance of its obligations hereunder when caused by strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable
substitutes therefor, governmental restrictions, governmental regulations, governmental controls,
delay in issuance of permits, enemy or hostile governmental action, acts of terrorism, civil
commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or
Tenant (“Force Majeure”).



     26. Entire Agreement. This Lease (including the applicable provisions of the Skechers Lease)
constitutes the complete agreement of Landlord and Tenant with respect to the subject matter
hereof. No representations, inducements, promises or agreements, oral or written, have been made by
Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained
herein, and any prior agreements, promises, negotiations, or representations are superseded by this
Lease. This Lease may not be amended except by an instrument in writing signed by both parties
hereto.



     27. Severability. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws, then and in that event, it is the intention of the
parties hereto that the remainder of this Lease shall not be affected thereby. It is also the
intention of the parties to this Lease that in lieu of each clause or provision of this Lease that
is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may
be possible and be legal, valid and enforceable.



     28. Miscellaneous.



          (a) Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for
all purposes of this Lease.




          (b) All notices required or permitted to be given under this Lease shall be in writing and
shall be sent by registered or certified mail, return receipt requested, or by a reputable national
overnight courier service, postage prepaid, or by hand delivery addressed to the parties at their
addresses below. Either





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party may by notice given aforesaid change its address for all subsequent notices. Except where
otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.




          (c) Except as otherwise expressly provided in this Lease or as otherwise required by law,
Landlord’s right to withhold any consent or approval shall not be unreasonably withheld or delayed.




          (d) Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in
any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute,
a memorandum of lease.




          (e) The normal rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this Lease or any
exhibits or amendments hereto.




          (f) Words of any gender used in this Lease shall be held and construed to include any other
gender, and words in the singular number shall be held to include the plural, unless the context
otherwise requires. The captions inserted in this Lease are for convenience only and in no way
define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or
in any way affect the interpretation of this Lease.




          (g) Construction and interpretation of this Lease shall be governed by the laws of the State
of California, excluding any principles of conflicts of laws.




          (h) Time is of the essence as to the performance of Tenant’s obligations under this
Lease.




          (i) All exhibits and addenda attached hereto are hereby incorporated into this Lease and made
a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this
Lease, such exhibits or addenda shall control.




     29. Subdivision. Landlord shall promptly and diligently proceed with the subdivision of the
Premises (which may be by means of a subdivision map, a parcel map, or lot line adjustment or any
combination thereof) so that the land underlying the Premises is established as a separate legal
parcel. When such subdivision has been completed, this Lease shall terminate and concurrently with
such termination, the Premises shall be conveyed by Landlord to Tenant (directly or through HF, as
HF shall direct) without further consideration.



     30. Non-Disturbance. Landlord acknowledges that the Premises have been leased by the LLC to
Skechers pursuant to the Skechers Lease. Landlord approves of the Skechers Lease as a sublease,
subordinate to the Landlord’s rights under this Lease. However, Landlord agrees that as long as
Skechers is not in default under the Skechers Lease, if Landlord declares a default and enforces
any termination right as against the Tenant’s rights hereunder, Landlord shall not disturb the
rights or interests of Skechers under the Skechers Lease, Skechers shall attorn to Landlord
hereunder and the Skechers Lease shall become a direct lease as between Landlord, as landlord, and
Skechers, as Tenant.



     31. Representations and Warranties. Landlord represents and warrants:



          (a) Neither Landlord or Tenant is in default under the Lease and that no event or
circumstances exist which, upon the giving of notice and/or the passing of time, would constitute a
default under the Lease.






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          (b) Other than the Skechers Lease, there are no other leases or other agreements which affect
the possession or occupancy of the Premises.




          (c) The Premises are not subject to any monetary liens or encumbrances (other than the lien of
current real property taxes), or any nonmonetary liens which would have a material adverse affect
or the ability of Tenant (or Skechers under the Skechers Lease) to use and occupy the Premises
pursuant to this Lease (or the Skechers Lease) or to conduct their businesses thereon for the
intended purposes set forth therein. If this representation is inaccurate regarding monetary liens
or encumbrances, Landlord shall have until the time that it is obligated to convey fee title to the
Tenant pursuant to Paragraph 29 to cure such default.




(signature page follows)





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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the Effective Date.



	 	 	 	 	 	 	 	 	 	 	 

	LANDLORD:	 	 	 	TENANT:	 	 
	 
	HIGHLAND FAIRVIEW PARTNERS I	 	 	 	HF LOGISTICS I, LLC, a Delaware limited	 	 
	(formerly known as Westcoast Properties	 	 	 	liability company	 	 
	Partners, a California general partnership)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	By

	 	 	 	 	 	 	Iddo Benzeevi, Chief Executive Officer	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	Iddo Benzeevi, Chief Executive Officer	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	HIGHLAND FAIRVIEW PARTNERS IV,	 	 	 	 	 	 	 	 
	(formerly known as Sinclair Property Partners,	 	 	 	 	 	 	 	 
	a Delaware general partnership)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	Iddo Benzeevi, Chief Executive Officer	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	HIGHLAND FAIRVIEW PARTNERS III	 	 	 	 	 	 	 	 
	(formerly known as HF Educational Partners, a	 	 	 	 	 	 	 	 
	Delaware general partnership)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	Iddo Benzeevi, Chief Executive Officer	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	HIGHLAND FAIRVIEW PARTNERS II	 	 	 	 	 	 	 	 
	(formerly known as Sand Properties Partners, a	 	 	 	 	 	 	 	 
	California general partnership)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	Iddo Benzeevi, Chief Executive Officer
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Address:	 	 	 	 	 	 	 	 
	 
	14225 Corporate Way	 	 	 	 	 	 	 	 
	Moreno Valley, California 92553	 	 	 	 	 	 	 	 






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EXHIBIT “A”

(REVISED)

SITE PLAN










11