LIMITED PARTNERSHIP AGREEMENT OF FEDERAL/LION VENTURE LP

Exhibit 10.1

 

LIMITED PARTNERSHIP AGREEMENT

 

OF

 

FEDERAL/LION VENTURE LP

 

Dated as of July 1, 2004

TABLE OF CONTENTS

 

 

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LIMITED PARTNERSHIP AGREEMENT

OF

FEDERAL/LION VENTURE LP

 

THIS LIMITED PARTNERSHIP AGREEMENT (as it may be amended, modified, supplemented or restated from time to time, this “ Agreement ”) of FEDERAL/LION VENTURE LP (the “ Partnership ”), is made and entered into as of the 1 ^st day of July, 2004, by and among Federal Realty Investment Trust , a Maryland real estate investment trust (“ Federal ”), as a limited partner of the Partnership, Federal/LPF GP, Inc. , a Delaware corporation (“ Federal GP ”), as a general partner of the Partnership, CLPF-Federal, L.P. , a Delaware limited partnership (the “ Fund ”), as a limited partner of the Partnership, and CLPF-Federal GP, LLC , a Delaware limited liability company (“ Fund GP ”), as a general partner of the Partnership.

 

Federal and the Fund are sometimes individually referred to herein as a “ Limited Partner ” and collectively referred to herein as the “ Limited Partners ”. Federal GP and Fund GP are sometimes individually referred to herein as a “ General Partner ” and collectively referred to herein as the “ General Partners ”. The Limited Partners and the General Partners are sometimes individually referred to herein as a “ Partner ” and collectively referred to herein as the “ Partners ”. Federal, Federal GP and any Approved Federal Party who is or becomes a Partner are sometimes individually referred to herein as a “ Federal Partner ” and collectively referred to herein as the “ Federal Partners ”. The Fund, Fund GP and any Approved Fund Party who is or becomes a Partner are sometimes individually referred to herein as a “ Fund Partner ” and collectively referred to herein as the “ Fund Partners ”.

 

In consideration of the covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partners hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1 Definitions . For the purposes of this Agreement, initially capitalized terms used herein shall have the following meanings:

 

“ Acquisition Activities ” is defined in Section 3.6(f) hereof.

 

“ Acquisition Fee ” is defined in Section 3.6(g) hereof.

 

“ Acquisition Parameters ” shall mean the guidelines and requirements for any Proposed Qualified Property that are set forth on Schedule 1 hereto.

 

“ Act ” is defined in Section 2.1 hereof.

“ Additional Capital Contribution ” is defined in Section 5.1(b) hereof.

 

“ Adjusted Capital Account Deficit ” shall mean the deficit balance, if any, in a Partner’s Capital Account at the end of any fiscal year, with the following adjustments: (i) credit to such Capital Account any amount that such Partner is obligated or deemed obligated to restore under Regulations Section 1.704-1(b)(2)(ii)(c), as well as any additions thereto pursuant to the next to last sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), after taking into account thereunder any changes during such year in Partnership Minimum Gain and in the minimum gain attributable to any Partner Nonrecourse Debt; and (ii) debit to such Capital Account the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent with such intent.

 

“ Advisor ” shall mean Clarion Partners LLC or any successor thereto designated by the Fund Partners as provided in Section 12.1(c ) hereof that serves as the manager of the Lion Fund.

 

“ Affiliate ”, when used with respect to any particular Person, shall mean (a) any Person or group of Persons acting in concert that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with such particular Person, (b) any Person that is an officer, partner, member or trustee of, or serves in a similar capacity with respect to, such particular Person, (c) any Person that, directly or indirectly, is the beneficial owner of 15% or more of any class of voting securities of, or otherwise has an equivalent beneficial interest in, such particular Person or of which such particular Person is directly or indirectly the owner of 15% or more of any class of voting securities or in which such particular Person has an equivalent beneficial interest, or (d) any relative or spouse of such particular Person. Notwithstanding the foregoing, none of the Federal Partners, on the one hand, shall be deemed to be Affiliates of any of the Fund Partners, on the other hand, and vice versa. The definition of “Affiliate” as used in this Agreement shall not be affected by the Regulations under Code Section 752 describing certain “related” parties.

 

“ Agreement ” is defined in the Preamble hereto. This Agreement shall be the “partnership agreement” for the Partnership within the meaning of Section 17-101(12) of the Act.

 

“ Amending General Partner ” is defined in Section 3.5(c) hereof.

 

“ Anchor Lease ” shall mean any lease by a single tenant of more than 15,000 rentable square feet at a Qualified Property.

 

“ Annual Budget ” shall mean the annual budget for the Partnership and each Qualified Property for any fiscal year, including without limitation a reasonable

 

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description of the amount, source and character of each item of gross income, expense and services to be rendered in the form attached to the form of Annual Plan attached hereto as Schedule 4 , adopted pursuant to Sections 3.4 and 3.5 hereof.

 

“ Annual Plan ” is defined in Section 3.5(a ) hereof.

 

“ Approved Federal Party ” shall mean any Person in which Federal owns, directly or indirectly, 100% of the equity interests and that is 100% controlled, directly or indirectly, by Federal.

 

“ Approved Fund Party ” shall mean any Person in which the Fund owns, directly or indirectly, 100% of the equity interests and that is 100% controlled, directly or indirectly, by the Fund.

 

“ Approved Qualified Property ” is defined in Section 3.6(c) hereof.

 

“ Bankruptcy ” of the Partnership or a Partner shall be deemed to have occurred upon the happening of any of the following: (i) the filing of an application by the Partnership or such Partner for, or a consent to, the appointment of a trustee, receiver or liquidator of its assets; (ii) the filing by the Partnership or such Partner of a voluntary petition or answer in bankruptcy or the filing of a pleading in any court of record admitting in writing its inability to pay its debts as such debts come due or seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (iii) the making by the Partnership or such Partner of a general assignment for the benefit of creditors; (iv) the filing by the Partnership or such Partner of an answer admitting the material allegations of, or its consenting to or defaulting in answering, a bankruptcy or insolvency petition filed against it in any bankruptcy or similar proceeding; or (v) the expiration of sixty (60) days following the entry by any court of competent jurisdiction of an order for relief in any bankruptcy or insolvency proceeding involving the Partnership or such Partner or of an order, judgment or decree adjudicating the Partnership or such Partner a bankrupt or insolvent or appointing a trustee, receiver or liquidator of its assets.

 

“ Book Depreciation ” shall mean all deductions attributable to the depreciation, amortization or other cost recovery, including additions, of any Qualified Property or other asset (whether tangible or intangible) acquired by the Partnership that has a useful life in excess of one year, as such deductions are computed for federal income tax purposes; provided , that with respect to any Partnership asset the tax basis of which differs from the Book Value of such asset, Book Depreciation for any period shall equal (x) the sum total of all deductions taken during such period attributable to depreciation, amortization or other cost recovery deduction for federal income tax purposes with respect to such asset, multiplied by (y) the Book Value of such asset divided by the tax basis thereof; provided further , that if the depreciation, amortization or other cost recovery deduction for federal income tax purposes with respect to any Partnership asset for any period is zero ($0.00), Book Depreciation shall be determined by the Tax Matters Partner using any reasonable method selected by the Tax Matters Partner that is based on the Book Value of such asset.

 

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“ Book Value ” shall mean, with respect to any Partnership asset at any time, the adjusted basis of such asset for federal income tax purposes, except that (i) the initial Book Value of any asset contributed by a Partner to the Partnership shall be the Fair Market Value of such asset, and (ii) the Book Value of all Partnership assets shall be adjusted to equal their Fair Market Values, as determined in good faith by the Managing General Partner, upon the occurrence of certain events as described below. In either case, the Book Value of Partnership assets shall thereafter be adjusted for Book Depreciation taken into account with respect to such asset. Provided the Tax Matters Partner makes an election to do so as provided under Section 1.704-1(b)(2)(iv)(f) of the Regulations, the Book Value of Partnership assets shall be adjusted to equal their Fair Market Value, as determined in good faith by the Managing General Partner, as of the following times to which the election relates: (1) the admission of a new Partner to the Partnership or acquisition by an existing Partner of an additional interest in the Partnership, provided that the consideration contributed to the Partnership upon such admission or acquisition is more than a de minimis amount of money or property; (2) the distribution by the Partnership to a retiring or contributing Partner of more than a de minimis amount of money or other property as consideration for an interest in the Partnership; (3) the liquidation of the Partnership; and (4) the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner or a new Partner.

 

The Book Value of all Partnership assets shall also be increased (or decreased) to the extent that adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b) have been taken into account for purposes of determining Capital Accounts in accordance with Regulation Section 1.704-1(b)(2)(iv)(m), unless such adjustments have already been accounted for pursuant to the preceding paragraph. If the Book Value of an asset has been determined or adjusted pursuant hereto, such value shall thereafter be the basis for, and be adjusted by, the depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. Moreover, notwithstanding the foregoing, the Book Value of any Partnership asset distributed to any Partner shall be the gross Fair Market Value of such asset on the date of distribution.

 

“ Business Day ” shall mean any day other than a Saturday, Sunday or any day on which national banks in New York, New York are not open for business.

 

“ Buy/Sell Property ” is defined in Section 11.1(a) hereof.

 

“ Capital Account ” shall mean, with respect to any Partner, the separate “book” account which the Partnership shall establish and maintain for such Partner as provided in Section 6.1 hereof and in accordance with Section 704(b) of the Code and Regulations Section 1.704-1(b)(2)(iv) and such other provisions of Section 1.704-1(b) of

 

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the Regulations as must be complied with in order for the Capital Accounts to be determined in accordance with the provisions of said Regulations. In furtherance of the foregoing, the Capital Accounts shall be maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations, and the provisions hereof shall be interpreted and applied in a manner consistent therewith.

 

“ Capital Call ” is defined in Section 5.1(b ) hereof.

 

“ Capital Commitment ” shall mean, with respect to each Partner, the amount set forth opposite its name on Schedule 2 hereto (as such Schedule may be amended or modified from time to time upon the mutual written consent of the General Partners) plus the following amounts (to the extent that such amounts, when added to all prior Initial Capital Contributions, Additional Capital Contributions and Extraordinary Capital Contributions made by such Partner, exceed the amount set forth opposite such Partner’s name on Schedule 2 hereto): (i) all amounts that the General Partners have agreed to fund under an Annual Plan, including, without limitation, amounts relating to an increase in the amount of any line item contained in the Annual Budget portion of such Annual Plan that constitutes a Permitted Expense, (ii) all amounts necessary to acquire an Approved Qualified Property for which the Other General Partner has provided final approval pursuant to Section 3.6(c) , and (iii) all amounts required to be contributed as Partnership Overhead Contributions pursuant to Section 5.1(d) of this Agreement.

 

“ Capital Contribution ” shall mean, at any particular time and with respect to any Partner, an amount equal to the sum of (x) the total amount of cash and (y) the Fair Market Value of any property (determined as of the date such property is contributed by such Partner and net of any liabilities secured by such property that the Partnership is considered to assume or take subject to under Section 752 of the Code), that has in each case been contributed to the Partnership by such Partner pursuant to Section 5.1 hereof. Capital Contributions include Initial Capital Contributions, Additional Capital Contributions, Extraordinary Capital Contributions, Partnership Overhead Contributions, and Default Contributions.

 

“ Capital Contributions Account ” shall mean a memorandum account maintained by the Partnership for each Partner for each Qualified Property, separately, for the purpose of allocating and making distributions to such Partner pursuant to Sections 7.1(b) and 7.1(c) below. The initial balance of a Partner’s Capital Contributions Account for a Qualified Property shall equal the Initial Capital Contributions or Additional Capital Contributions, as the case may be, made by such Partner to the Partnership on account of or in respect of the acquisition of such Qualified Property, and the balance of such Partner’s Capital Contributions Account for such Qualified Property shall be increased from time to time by the amount of all subsequent Extraordinary Capital Contributions and Default Contributions made by such Partner pursuant to this Agreement (and any subsequent Default Contributions deemed made by such Partner pursuant to Section 5.1(e)(i) or 5.1(f) below) on account of or in respect of such Qualified Property, and

 

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reduced by the amount of any Net Cash from Refinancings or Net Cash from Sales derived from such Qualified Property that are allocated to such Partner and applied toward the reduction of such Partner’s Capital Contributions Account pursuant to Section 7.1(b)(ii) and/or Section 7.1(c)(ii) below. Partnership Overhead Contributions that are not funded as Default Contributions shall not be included in the Capital Contributions Account for any Qualified Property. Any amount refunded to the Partnership by a Promoted Limited Partner as provided in the definition of “Promote Amount” shall not be included in the Capital Contributions Account for any Qualified Property.

 

“ Cash Flow Distribution Date ” is defined in Section 7.1(a) hereof.

 

“ Cause ” is defined in Section 8.3(a ) hereof.

 

“ Challenging General Partner ” is defined in Section 11.1(d) hereof.

 

“ Claim Amount ” is defined in Section 5.1(f) hereof.

 

“ Clarion REIT ” shall mean Clarion Lion Properties Fund Holdings REIT, LLC, a Delaware limited liability company that elected to be taxed as a real estate investment trust pursuant to Section 856 of the Code.

 

“ CM Fee ” is defined in Section 3.10(c)(iii) hereof.

 

“ Code ” shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of future laws.

 

“ Contributing Partner ” is defined in Section 5.1(f) hereof.

 

“ Contribution Agreement ” shall mean the agreement pursuant to which a Partner contributes an Approved Qualified Property to the Partnership pursuant to Section 5.1 hereof, which agreement shall be in the form attached as Exhibit A to this Agreement.

 

“ CPI ” shall mean the Revised Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, U.S. City Average, All Items, based on 2002 as 100. If the CPI hereafter ceases to use the 2002 Base as 100, then the CPI with the new base shall be used. If the Bureau of Labor Statistics ceases to publish the CPI, then the successor or most nearly comparable index shall be used. In the event that the U.S. Department of Labor, Bureau of Labor Statistics, changes the publication frequency of the CPI so that it is not available when required under the Agreement, then the CPI for the closest preceding month for which a CPI is available shall be used in place of the CPI no longer available.

 

“ Default Amount ” is defined in Section 5.1(e ) hereof.

 

“ Default Contribution ” is defined in Section 5.1(e) hereof.

 

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“ Defaulting Contributing Partner ” is defined in Section 5.1(f) hereof.

 

“ Defaulting Partner ” is defined in Section 5.1(e) hereof.

 

“ Default Loan ” is defined in Section 5.1(e) hereof.

 

“ Disposition Fee ” is defined in Section 3.6(h) hereof.

 

“ Economic Risk of Loss ” shall have the meaning specified in Regulations Section 1.752-2.

 

“ Environmental Assessment ” shall mean, with respect to any Proposed Qualified Property, a phase one environmental site assessment performed by a qualified environmental consultant selected by the Managing General Partner in accordance with the then current ASTM Standard Practice for Environmental Site Assessments, E1527 and, if required by the Managing General Partner, any additional Phase II sampling, investigation, monitoring or other activities performed by a qualified environmental consultant. It is agreed by the Partners that Island Environmental will constitute a qualified environmental consultant for purposes of this Agreement and will remain a qualified environmental consultant for this purpose unless its general ability to perform environmental assessments has declined materially since the date of this Agreement.

 

“ Environmental Law ” shall mean, as to a Qualified Property, every federal, state, county or other governmental law, statute, ordinance, rule, regulation, requirement, order (including any consent order), or other binding obligation, injunction, writ or decision relating to or addressing the environment or hazardous materials, including, but not limited to, those federal statutes commonly referred to as the Clean Air Act, Clean Water Act, Resource Conservation Recovery Act, Toxic Substances Control Act, Comprehensive Environmental Response, Compensation and Liability Act and the Endangered Species Act as well as all regulations promulgated thereunder and all state laws and regulations equivalent thereto, as each such statute, regulation or state law or regulation equivalent may be amended from time to time, to the extent applicable to such Qualified Property.

 

“ Extraordinary Advance Notice ” is defined in Section 5.1(c)(ii) hereof.

 

“ Extraordinary Call ” is defined in Section 5.1(c)(i) hereof.

 

“ Extraordinary Capital Contribution ” is defined in Section 5.1(c)(i) hereof.

 

“ Extraordinary Funding ” is defined in Section 5.1(c)(i) hereof.

 

“ Fair Market Value ” shall mean an amount (in cash) that a bona fide, willing buyer under no compulsion to buy and a bona fide, willing and unrelated seller

 

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under no compulsion to sell would pay and accept, respectively, for the purchase and sale of a Qualified Property, taking into account any liens, restrictions and agreements then in effect and binding upon the Qualified Property or any successor owner thereof and any options, rights of first refusal or offer or other rights or options that either burden the Qualified Property or run to the benefit of the owner of the Qualified Property; provided , however, that in determining the Fair Market Value of any Qualified Property, none of the options, rights of first offer or other rights of the Partners hereunder shall be taken into consideration.

 

“ Federal ” is defined in the Preamble hereto.

 

“ Federal Board ” shall mean the Board of Trustees of Federal.

 

“ Federal GP ” is defined in the Preamble hereto.

 

“ Federal Partner ” or “ Federal Partners ” is defined in the Preamble hereto.

 

“ Fee Disclosure ” is defined in Section 3.11(g) hereof.

 

“ Final Proposal Materials ” is defined in Section 3.6(c) hereof.

 

“ Financing Fee ” is defined in Section 3.6(g ) hereof.

 

“ Fund ” is defined in the Preamble hereto.

 

“ Fund GP ” is defined in the Preamble hereto.

 

“ Fund Partner ” or “ Fund Partners ” is defined in the Preamble hereto.

 

“ General Partner ” or “ General Partners ” is defined in the Preamble hereto. The Partnership shall have no more than two (2) General Partners.

 

“ Gross Collected Rents ”, for any period in question and for any Qualified Property, shall mean all of the following without duplication (i) the base rents and escalations of base rents, (ii) percentage rents and other rents, (iii) lease termination fees, (iv) common area maintenance costs (including capital items), real estate taxes, insurance premiums and loss reserves, and other fees, costs and expenses passed through to, and paid by, tenants as additional rent or pass-through expenses pursuant to their leases, and (v) late fees and other penalties paid by tenants, in each event if and to the extent actually received by the Partnership (or an SP Subsidiary) from the tenants of such Qualified Property during such period. The term “Gross Collected Rents” specifically excludes security deposits and other deposits unless and until such deposits are applied as rental income, rents paid more than thirty (30) days in advance of the due date until the month in which such rents become due, rent refunds, and interest income.

 

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“ Indemnified Party ” is defined in Section 3.13(a) hereof.

 

“ Initial Capital Contribution ” shall mean, with respect to each Partner, an amount equal to the sum of (x) the amount of cash and (y) the Fair Market Value of any property (determined as of the date such property is contributed by such Partner and net of any liabilities secured by such property that the Partnership is considered to assume or take subject to under Section 752 of the Code), that has in each case been contributed to the Partnership by such Partner on or as of the date hereof.

 

“ Interest Price ” is defined in Section 11.1(a) hereof.

 

“ IRR ” shall be determined with respect to each individual Qualified Property separately and shall mean the discount rate, which shall be compounded monthly and expressed as a percentage based on a 12-month period, at which the net present value (as of the date that any Fund Partner makes or is deemed to make each IRR Contribution to the Partnership on account of or in respect of such Qualified Property) of the sum of all Net Cash Flow from Operations, Net Cash from Refinancings and Net Cash from Sales derived from such Qualified Property and allocated to such Fund Partner pursuant to Sections 7.1(a) , 7.1(b) , 7.1(c)(i) , 7.1(c)(ii) , and/or 7.1(c)(iii) of this Agreement with respect to such IRR Contributions (and IRR Contributions deemed made by such Partner pursuant to Section 5.1(e)(i) or 5.1(f) below), equals the amount of such IRR Contributions (and IRR Contributions deemed made by such Partner pursuant to Section 5.1(e)(i) or 5.1(f) below). A Fund Partner shall be deemed to have received a specified IRR, compounded monthly, with respect to an IRR Contribution (or deemed IRR Contribution) it made to the Partnership in respect of a Qualified Property upon the allocation to such Fund Partner of a cumulative amount of Net Cash Flow from Operations, Net Cash from Refinancings and/or Net Cash from Sales derived from such Qualified Property pursuant to Sections 7.1(a) , 7.1(b) , 7.1(c)(i) , 7.1(c)(ii) , and/or 7.1(c)(iii) of this Agreement that causes (1) the net present value of the aggregate of all such allocations to such Fund Partner in respect of such Qualified Property pursuant to said Sections 7.1(a) , 7.1(b) , 7.1(c)(i) , 7.1(c)(ii) , and/or 7.1(c)(iii) with respect to such IRR Contribution (and/or deemed IRR Contribution), discounted at the specified IRR, from the date of each such allocation back to the date on which such IRR Contribution was made (or deemed to have been made pursuant to Section 5.1(e)(i) or 5.1(f) below), reduced by (2) the amount of such IRR Contribution, to equal zero. Attached hereto as Exhibit B are certain examples of the calculation of IRR.

 

“ IRR Contributions ” shall mean all Initial Capital Contributions, Additional Capital Contributions, Extraordinary Capital Contributions, and one-half of all Default Contributions made by any Fund Partner to the Partnership, specifically excluding any Partnership Overhead Contribution made by a Fund Partner unless made as a Default Contribution.

 

“ Leasing Parameters ” shall mean the leasing parameters set forth on Schedule 3 attached hereto.

 

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“ Leveraged NOI ” shall mean, with respect to a Qualified Property and for the period in question, the aggregate Gross Collected Rents actually received by the Partnership (or SP Subsidiary, as the case may be) from such Qualified Property for the period in question, minus (i) all Operating Expenses of such Qualified Property other than Operating Expenses funded from reserves that were previously treated as Operating Expenses when such reserves were created, and (ii) all interest payments made on mortgage loans secured by such Qualified Property (but excluding payments made in respect of principal under any such mortgage loans).

 

“ Limited Partner ” or “ Limited Partners ” is defined in the Preamble hereto.

 

“ Lion Fund ” shall mean Clarion Lion Properties Fund, LLC, a Delaware limited liability company.

 

“ Liquidating Events ” is defined in Section 9.1 hereof.

 

“ Liquidation ” shall mean (a) when used with respect to the Partnership, the earlier of (i) the date upon which the Partnership is terminated under Section 708(b)(1) of the Code and (ii) the date upon which the Partnership ceases to be a going concern, and (b) when used with respect to any Partner, the earlier of (i) the date upon which there is a Liquidation of the Partner and (ii) the date upon which such Partner’s entire Partnership Interest is terminated other than by transfer, assignment or other disposition to a Person other than the Partnership.

 

“ Liquidator ” shall mean the Managing General Partner, unless the Managing General Partner’s Bankruptcy, insolvency, removal, withdrawal or liquidation or default hereunder shall have preceded the Liquidation of the Partnership, in which case the Liquidator shall be any Person designated as such by the Other General Partner.

 

“ Losses ” and “ Profits ” are defined in Section 6.2(b ) hereof.

 

“ Major Decision ” is defined in Section 3.4 hereof.

 

“ Management Agreement ” shall mean each agreement between the Property Manager and the Partnership or SP Subsidiary for a Qualified Property, which agreement shall be substantially in the form attached hereto as Exhibit C .

 

“ Management Fee ” is defined in Section 3.10(c)(i) hereof.

 

“ Managing General Partner ” shall mean the Person in whom the management of the Partnership is vested pursuant to the terms of this Agreement. Federal GP shall be the Managing General Partner until the occurrence of one of the events specified in Section 3.1(a) hereof.

 

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“ Material Modification ” shall mean a modification relating to the treatment of Capital Accounts, distributions and/or allocations hereunder which, when considered on a cumulative basis with the effect of all other such modifications previously made, is likely to adversely affect the amount ultimately distributable or paid to any Partner hereunder as determined by the independent accountants of the Partnership.

 

“ MBR&M ” is defined in Section 4.8 hereof.

 

“ Net Cash Flow from Operations ” shall be determined separately for each Qualified Property and, for each Qualified Property, shall mean the aggregate gross revenues derived from the operations of such Qualified Property (excluding sales, other dispositions or refinancings of, or other capital transactions relating to, such Qualified Property) less the sum of any portion thereof used (i) to pay Operating Expenses, leasing or other brokerage commissions (other than sales or financing commissions that are netted from Net Cash from Sales or Net Cash from Refinancings), Tenant Improvement Fees, CM Fees, capital improvements or expenditures, tenant improvements that are not reimbursed by tenants, tenant work allowances or replacements, leasing-related legal fees, costs and expenses, indemnities, and other fees, costs, expenses, and payments made in respect of such Qualified Property pursuant to this Agreement and not deducted in the definitions of “Net Cash from Refinancings” or “Net Cash from Sales”, (ii) to make debt payments due and payable in connection with any financing relating to such Qualified Property that is obtained by the Partnership or the SP Subsidiary that is the owner of such Qualified Property or that is secured by such Qualified Property ( excluding , however , amounts required to pay Default Loans), or (iii) to establish reasonable reserves (other than reserves that are treated and deducted as Operating Expenses pursuant to the definition of “Operating Expenses” hereinbelow) for capital improvements, replacements, debt payments and contingencies for such Qualified Property, as such reserves are calculated, established and maintained by the Managing General Partner pursuant to Section 3.11(d ). “Net Cash Flow from Operations” shall be determined on a cash (rather than an accrual) basis, and shall not be reduced by real estate depreciation or by cost amortization, cost recovery deductions or similar allowances, but shall be increased by an amount equal to any reduction of reserves previously deducted from Net Cash Flow from Operations as Operating Expenses or otherwise pursuant to clause (iii) above.

 

“ Net Cash from Refinancings ” shall be determined for each Qualified Property separately and shall mean the net amount payable to the Partnership or the SP Subsidiary that owns such Qualified Property from the financing or refinancing of such Qualified Property, as set forth on the settlement statement for the financing or refinancing (which settlement statement shall include the deduction of amounts required to retire existing indebtedness) that is approved by the Partnership less (a) any and all reserves required in connection with such financing or refinancing by the lender(s) providing the financing or refinancing (to the extent not reflected on the settlement statement described above), provided that at such time, if any, as any portion of the reserves is released to the Partnership or SP Subsidiary that owns such Qualified Property, and the reserves released

 

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do not constitute reimbursement of Permitted Expenses previously paid by the Partnership or such SP Subsidiary and are not required to be used to pay such Permitted Expenses, such reserves so released shall be treated as Net Cash from Refinancings, (b) nonrefundable fees paid to the lender, brokerage commissions, finder’s fees and similar compensation paid to third-parties, all closing, transaction and other costs incurred and paid by the Partnership or such SP Subsidiary in connection with such financing or refinancing, including, without limitation, Financing Fees and attorneys’ and consultants’ fees, costs and expenses, in each event only to the extent not reflected on the settlement statement described above, and (c) if and to the extent not set forth on the settlement statement described above, the amount applied to retire any existing debt outstanding against such Qualified Property or otherwise paid from the proceeds of such refinancing.

 

“ Net Cash from Sales ” shall be determined for each Qualified Property separately and shall mean the gross cash proceeds derived from the sale or other disposition (including casualty and condemnation) of such Qualified Property or other capital transaction relating to such Qualified Property less (a) any Disposition Fees, all brokerage commissions (if any) paid to Third Parties, all closing, transaction and other costs incurred and paid by the Partnership or the SP Subsidiary that owns such Qualified Property in connection with such sale or other disposition (including casualty and condemnation); (b) all amounts provided to the purchaser of such Qualified Property as a credit or credits against the contractual purchase price of such Qualified Property (excluding credits and adjustments given or made for income or expense prorations, which adjustments shall be included in the calculation of Net Cash Flow from Operations for such Qualified Property); (c) the net amount required to retire any debt outstanding against such Qualified Property or the assets involved in such capital transaction (including all costs, expenses and fees incurred in connection therewith, but only if and to the extent that such costs, expenses and fees are not already deducted pursuant to clause (a) above); (d) solely in the case of casualty or condemnation, all proceeds applied to rebuild, repair or restore all or any portion of such Qualified Property; and (e) any amounts required to fund any reserves to be used for the liabilities arising as a result of or subsequent to the sale of such Qualified Property, or as a result of or subsequent to consummation of such capital transaction, up to the levels agreed to by the General Partners, unless and until such reserves are distributed to the Partners (in which event the distributed reserves will be treated as Net Cash from Sales). Upon the sale or total disposition of a Qualified Property, or the occurrence of any casualty or condemnation of a Qualified Property resulting in a total loss of the Qualified Property, all unapplied reserves originally funded pursuant to the definition of “Net Cash Flow from Operations” for such Qualified Property shall be distributed to the Partners, and Net Cash from Sales shall be increased by all such distributed reserve amounts. “Net Cash from Sales” shall include all principal and interest payments made with respect to any note or other obligation received by the Partnership in connection with the sale or other disposition of the subject Qualified Property or consummation of any such capital transaction.

 

“ Non-Amending General Partner ” is defined in Section 3.5(c) hereof.

 

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“ Non-Defaulting Partner ” is defined in Section 5.1(e) hereof.

 

“ Nonrecourse Liability ” shall mean any Partnership liability (or portion thereof) the Economic Risk of Loss of which is not borne by any Partner or any party related to any Partner, as such related party is described in the applicable Regulations under Code Section 752.

 

“ Offer Notice ” is defined in Section 11.1(a ) hereof.

 

“ Offer Price ” is defined in Section 11.1(a ) hereof.

 

“ Offered Agreement ” is defined in Section 11.1(a) hereof.

 

“ Offering General Partner ” is defined in Section 11.1(a) hereof.

 

“ Operating Expenses ” shall mean, with respect to each Qualified Property, (i) salaries, benefits, fees, costs and expenses attributable to the individual property manager and other personnel of Property Manager responsible for services relating to the day-to-day management, operation, maintenance, and repair of such Qualified Property, whether or not any such Person is employed by any Affiliate of the Managing General Partner, but only to the extent actually payable by the Partnership or SP Subsidiary pursuant to the Management Agreement for such Qualified Property, (ii) real estate taxes, insurance premiums and loss reserves, utility charges, snow removal costs, rent collection and lease enforcement costs, marketing and advertising fees and costs, Management Fees, maintenance expenses, costs of repairs and replacements (which, under generally accepted accounting principles consistently applied, may be expensed during the period when made), and other management fees, costs and expenses incurred in connection with the ownership, leasing, operation, repair and maintenance of such Qualified Property, (iii) property-level professional fees, costs and expenses, including accounting and non-leasing-related legal fees, costs and expenses (but excluding legal fees, costs and expenses incurred in connection with any sale, financing or other capital transaction relating to such Qualified Property), (iv) any and all amounts reserved by the Partnership or SP Subsidiary to pay future Operating Expenses incurred in connection with such Qualified Property other than amounts reserved from proceeds of a financing or refinancing (as described in the definition of “Net Cash from Refinancings”), and (v) any and all other reasonable and customary operating costs and expenses incurred and actually paid to Third Parties retained in connection with the ownership, leasing, operation, repair and maintenance of such Qualified Property. Operating Expenses for a Qualified Property shall not include Partnership Overhead Expenses, amounts payable pursuant to Default Loans, tenant improvement fees, costs and expenses, leasing-related commissions, leasing-related legal fees, costs and expenses, capital improvement fees, costs and expenses that are, under generally accepted accounting principles consistently applied, not expensed but capitalized over the useful life of the improvement, tenant work allowances, Tenant Improvement Fees, CM Fees, non-refundable fees, closing costs and other expenses incurred in connection with any sale, financing or refinancing or other capital

 

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transaction relating to such Qualified Property, and any fees, costs or expenses described in clauses (i) through (v) of this definition above that are paid from any reserve funded from the proceeds of any financing or refinancing of such Qualified Property and excluded from Net Cash from Refinancings pursuant to the definition of “Net Cash from Refinancings”.

 

“ Other General Partner ” shall mean the General Partner (if any) who is not the Managing General Partner. Initially, the Other General Partner shall be the Fund GP.

 

“ Other Partners ” in respect of any or all of the Federal Partners shall mean the Fund Partners and in respect of any or all of the Fund Partners shall mean the Federal Partners.

 

“ Partner ” or “ Partners ” is defined in the Preamble hereto.

 

“ Partner Nonrecourse Debt ” shall have the meaning set forth in Regulations Section 1.704-2(b)(4).

 

“ Partner Nonrecourse Debt Minimum Gain ” shall have the meaning set forth in Regulations Section 1.704-2(i)(2).

 

“ Partner Nonrecourse Deductions ” is defined in Section 6.3(d) hereof.

 

“ Partnership ” is defined in the Preamble hereto.

 

“ Partnership Interest ” shall mean, with respect to each Partner, a Partner’s entire right, title and interest in, to and against the Partnership (including, without limitation, such Partner’s management, approval and/or consent rights and economic rights hereunder).

 

“ Partnership Minimum Gain ” shall have the meaning set forth in Section 1.704-2(b)(2) and (d) of the Regulations.

 

“ Partnership Overhead Contributions ” is defined in Section 5.1(d) hereof.

 

“ Partnership Overhead Expenses ” shall mean, for any period in question, the aggregate fees, costs and expenses incurred in connection with the operation of the Partnership and/or the Partnership’s business other than (i) any fees, costs and expenses that are incurred directly in connection with (or can be allocated to) any particular Qualified Property that is owned directly or indirectly by the Partnership (such as Operating Expenses, capital expenditures, leasing-related fees, costs and expenses [including professional fees, costs and expenses], etc.) (collectively, “ Property-Related Overhead Expenses ” ) and (ii) any legal fees, costs or expenses for any single dispute or

 

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other matter (other than Acquisition Activities) incurred in connection with the Partnership’s business or affairs (including, without limitation, fees, costs and expenses of arbitration or litigation, including expert witness fees and costs) that cannot be allocated to one or more particular Qualified Property(ies) and that exceed Five Hundred Thousand Dollars ($500,000) in the aggregate (including, without limitation, the portion of the legal fees up to $500,000) ( “ Excluded Overhead Expenses ” ). All Property-Related Overhead Expenses will be allocated to such Qualified Property or Qualified Properties for which such Property-Related Overhead Expenses were incurred, and all Excluded Overhead Expenses will be allocated, in their entirety, among all Qualified Properties owned by the SP Subsidiaries at the time that the legal fees first commenced to accrue, pro rata based upon the total Initial Capital Contributions or Additional Capital Contributions, as the case may be, made by the Partners in connection with the acquisitions of such Qualified Properties. Partnership Overhead Expenses include, without limitation, (a) all filing fees and formation charges or taxes payable in connection with the formation, operation and/or existence of the Partnership, (b) audit, tax reporting, government and other regulatory filing and reporting fees, costs and expenses (except to the extent any such fees, costs and expenses are specific to a particular SP Subsidiary or Qualified Property, in which event such fees, costs and expenses shall be treated as Operating Expenses of that Qualified Property), and (c) fees, costs and expenses incurred in connection with the Partnership’s consideration of any Proposed Qualified Property and other Acquisition Activities, but only if and to the extent that such Proposed Qualified Property is not purchased by the Partnership and no Partner is obligated to pay such fees, costs or expenses pursuant to any term or provision of this Agreement (including Sections 3.6(c) and/or 3.6(f) ).

 

“ Percentage Interest ” shall mean the entire undivided percentage interest in the Partnership of any Partner at any particular time, (a) expressed as a percentage rounded to the nearest one one-thousandth percent (0.001%), (b) determined at such time by dividing the total Capital Contributions and deemed Capital Contributions (in the case of any Default Contributions) made to the Partnership by such Partner by the total Capital Contributions and deemed Capital Contributions (in the case of any Default Contributions) made to the Partnership by all Partners, and (c) as may be adjusted from time to time in accordance with the terms hereof. The Percentage Interest of each Partner as of the date hereof shall be as described on Schedule 2 hereto.

 

“ Permitted Expenses ” shall mean, for each Qualified Property for each annual period covered by an Annual Plan (and to the extent within, and not in excess of, a budget line item of such Annual Plan), (i) Operating Expenses, and (ii) other payments, fees, costs and expenses taken into account in connection with the determination of Net Cash Flow from Operations (as set forth in the definition of “Net Cash Flow from Operations” herein), plus , with respect to each budget line item in the Annual Budget portion of such Annual Plan relating to any of the foregoing items (i) and (ii) above (other than those set forth in the immediately following sentence), but subject to the penultimate sentence of this definition below, the greater of (x) five percent (5%) of each such budget line item or (y) Twenty Thousand Dollars ($20,000.00) in any fiscal year for a particular

 

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Qualified Property. Permitted Expenses shall also mean (a) all reasonable and customary costs and expenses of Third Parties retained in connection with the Acquisition Activities as provided in (and subject to) Section 3.6(f ) hereof, (b) all reasonable costs or expenses incurred in implementing a Major Decision agreed to by the General Partners as provided in Section 3.4 hereof and not otherwise already included in an Annual Plan, (c) any and all real estate taxes and insurance premiums payable in connection with (or allocated to) the Qualified Property and snow removal costs and expenses (if such costs and expenses are included within the Annual Plan for the Qualified Property) that exceed the “per budget line item” threshold established in the immediately preceding sentence, and (d) all costs and expenses incurred in connection with capital improvements and replacements, including, without limitation, the related CM Fee (if applicable), that exceed the “per budget line item” threshold established in the immediately preceding sentence but do not exceed, in the aggregate, 10% of the amount included in the Annual Budget for such costs and expenses. Notwithstanding anything to the contrary stated or implied in this definition, in no event shall the term “Permitted Expenses” include or mean, without the prior unanimous written consent of the General Partners, any Expense Overruns (defined immediately below) that, when added to all other Expense Overruns previously incurred or reserved during any fiscal year, exceed Fifty Thousand Dollars ($50,000). As used hereinabove, the term “ Expense Overruns ” shall mean any fees, costs, expenses, or other amounts that are incurred in connection with (or relate to) a particular Qualified Property ( including , without limitation, any fees, costs and expenses described in the first sentence of this definition [ items (i) and (ii) ] but excluding the fees, costs and expenses described in clauses (a) through (d) of this definition immediately above) that are either not included in any budget line item in the Annual Plan for such Qualified Property or that exceed the budget line item in the Annual Budget portion of the Annual Plan for such Qualified Property relating to such fee, cost, expense or other amount.

 

“ Person ” shall mean any individual, trust (including a business trust), unincorporated association, corporation, limited liability company, joint stock company, general partnership, limited partnership, joint venture, governmental authority or other entity.

 

“ Physical Inspection Report ” shall mean a report prepared by a qualified independent third party engineer, architect or other real estate inspector selected by the Managing General Partner and reasonably acceptable to the Other General Partner concerning the physical condition of any Proposed Qualified Property.

 

“ Plan Amendment ” is defined in Section 3.5(c ).

 

“ Plan Asset Regulation ” shall mean U.S. Department of Labor Regulations found at 29 C.F.R. 2510.3-101.

 

“ Preliminary Proposal Materials ” is defined in Section 3.6(b) hereof.

 

“ Profits ” and “ Losses ” are defined in Section 6.2(b ) hereof.

 

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“ Promote Account ” shall mean a memorandum account maintained by the Partnership for each Promoted Limited Partner for each Qualified Property separately for the purpose of making distributions to the Partners pursuant to Section 7.1(a)(i) , Section 7.1(b)(i) and Section 7.1(c)(i) below. The initial balance of a Promoted Limited Partner’s Promote Account for a particular Qualified Property shall be zero. The balance of a Promoted Limited Partner’s Promote Account shall be increased from time to time, on a quarterly basis as of the end of each fiscal quarter of the Partnership, by the amount of any Estimated Promote Amount or Promote Amount, as the case may be, payable to the Promoted Limited Partner with respect to such Qualified Property for such fiscal quarter. The balance of a Promoted Limited Partner’s Promote Account shall be reduced from time to time by (i) any adjustments made to any Promote Amount at the end of any fiscal year or upon the dissolution of the Partnership or sale or other disposition of the entire Qualified Property pursuant to the definition of “Promote Amount” below and (ii) the amount of any distributions of Net Cash Flow from Operations, Net Cash from Refinancings and Net Cash from Sales derived from such Qualified Property, distributed to the Promoted Limited Partner, and applied toward the reduction of such Promoted Limited Partner’s Promote Account pursuant to Sections 7.1(a)(i) , 7.1(b)(i) and/or 7.1(c)(i) below. Notwithstanding anything to the contrary stated or implied in this Agreement, the Promote Amount shall cease to accrue, and a Promoted Limited Partner shall not have any right to any further accrual of any Promote Amount, (i) in the case of Federal or any Affiliate of Federal as a Promoted Limited Partner, upon and following the removal or resignation of Federal GP or any other Approved Federal Party as the Managing General Partner (unless an Approved Federal Party is concurrently substituted as Managing General Partner), and (ii) in the case of the Fund or any Affiliate of the Fund as a Promoted Limited Partner, upon and following the removal or resignation of Fund GP or any other Approved Fund Party as the Managing General Partner (unless an Approved Fund Party is concurrently substituted as Managing General Partner).

 

“ Promote Amount ” shall be calculated separately for each Qualified Property and shall mean, with respect to a particular Qualified Property for any fiscal year, an amount equal to the product of (i) twenty percent (20%) multiplied by (ii) an amount equal to the excess, if any, of (x) the aggregate Leveraged NOI of such Qualified Property for such fiscal year over (y) an amount equal to the product of 8.75% multiplied by the sum of (A) the weighted average of the aggregate outstanding balances of the Capital Contributions Accounts of the Partners with respect to such Qualified Property during such fiscal year plus (B) the aggregate capital expenditures actually funded or reserved for such Qualified Property pursuant to the initial Annual Plan adopted by the General Partners for such Qualified Property at the time of such Qualified Property’s acquisition or contribution and not paid with Capital Contributions (the “ Initial Capital Reserves ” ). The Promote Amount shall accrue and be credited to a Promoted Limited Partner’s Promote Account quarterly as provided hereinbelow. At the end of each of the first three (3) fiscal quarters of a fiscal year ( i.e. , the quarters ending March 31, June 30 and September 30), estimates of the Promote Amount (the “ Estimated Promote Amount ” ) shall be credited to the Promoted Limited Partner’s Promote Account. The Estimated

 

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Promote Amount for any of such first three fiscal quarters shall be calculated by multiplying (1) twenty percent (20%) by (2) an amount equal to the excess of the Leveraged NOI of such Qualified Property for such fiscal quarter over an amount equal to the product of 2.1875% multiplied by the sum of (a) the weighted average of the aggregate outstanding balances of the Capital Contributions Accounts of the Partners with respect to such Qualified Property during such fiscal quarter plus (b) the Initial Capital Reserves. The amount credited (or debited) to the Promoted Limited Partner’s Promote Account in the last quarter of any fiscal year or upon the date of dissolution of the Partnership or sale or other disposition of the entire Qualified Property, whichever occurs first, shall equal the difference (whether positive or negative) between the Promote Amount for such fiscal year and the aggregate Estimated Promote Amounts credited to such Promoted Limited Partner’s Promote Account for the previous fiscal quarters of such fiscal year. If, at the end of a fiscal year or upon the date of dissolution of the Partnership or sale or other disposition of the entire Qualified Property, the aggregate Estimated Promote Amounts previously credited to the Promoted Limited Partner’s Promote Account for such fiscal year and distributed to the Promoted Limited Partner exceed the Promote Amount for such fiscal year, then such Promoted Limited Partner shall refund to the Partnership, in immediately available funds, the difference. Any refund payable to the Partnership pursuant to the preceding sentence shall be treated as Net Cash from Operations and distributed to the Partners pursuant to Section 7.1(a)(ii) ; provided that , if such refund is payable following the dissolution of the Partnership or sale or other disposition of the entire Qualified Property, then the refund will be treated as Net Proceeds from Sales and will be distributed to the Partners pursuant to Sections 7.1(c)(ii) through 7.1(c)(v) . The Promote Amount for any fiscal year shall be determined by the Managing General Partner concurrently with the delivery of the Annual Reports required pursuant to Section 4.3 , and by the Sales Proceeds Distribution Date with respect to the dissolution of the Partnership or the sale or other disposition of an entire Qualified Property. Notwithstanding anything to the contrary stated or implied in this Agreement, the Promote Amount shall cease to accrue for the benefit of a Promoted Limited Partner, and the Promoted Limited Partner shall have no right to any further accrual of the Promote Amount, upon and following (A) in the case of Federal or any Approved Federal Party as a Promoted Limited Partner, the removal or resignation of Federal GP or any other Approved Federal Party as the Managing General Partner (unless another Approved Federal Party is concurrently substituted as Managing General Partner), and (B) in the case of the Fund or any Approved Fund Party as a Promoted Limited Partner, the removal or resignation of Fund GP or any other Approved Fund Party as the Managing General Partner (unless another Approved Fund Party is concurrently substituted as Managing General Partner).

 

“ Promoted Limited Partner ” shall mean, at any particular time, (i) so long as Federal GP or any Approved Federal Party is the Managing General Partner, Federal and/or any other Approved Federal Party who is then a Limited Partner of the Partnership, and (ii) if Fund GP or any Approved Fund Party is at any time the Managing General Partner, then so long as Fund GP or any other Approved Fund Party is Managing General Partner, the Fund and/or any other Approved Fund Party who is then a Limited Partner of the Partnership.

 

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“ Property Manager ” shall mean the Person who is retained by an SP Subsidiary pursuant to a Management Agreement to manage one or more Qualified Properties, who will be, initially, Federal or another Affiliate of Federal.

 

“ Proposed Plan ” is defined in Section 3.5(a ) hereof.

 

“ Proposed Qualified Property ” is defined in Section 3.6(a) hereof.

 

“ Qualified Property ” or “ Qualified Properties ” shall mean each parcel of real property acquired by an SP Subsidiary as provided in Section 3.6 hereof, together with all buildings, structures and improvements located thereon, fixtures contained therein, appurtenances thereto and all personal property owned in connection therewith.

 

“ Refinancing Proceeds Distribution Date ” is defined in Section 7.1(b) hereof.

 

“ REIT is defined in Section 2.4 hereof.

 

“ REIT Regulations ” is defined in Section 2.4 hereof.

 

“ Regulations ” shall mean the income tax regulations promulgated under the Code, whether temporary, proposed or finalized, as such regulations may be amended from time to time (including corresponding provisions of future regulations).

 

“ Regulatory Allocations ” is defined in Section 6.3(f) hereof.

 

“ Related Partner ” shall mean, (i) with respect to Federal GP, Federal and any other Affiliate of Federal who is a Partner, and (ii) with respect to Fund GP, Fund and any other Affiliate of Fund who is a Partner.

 

“ Removal Notice ” is defined in Section 8.3(a ) hereof.

 

“ Responding General Partner ” is defined in Section 11.1(a) hereof.

 

“ Response Notice ” is defined in Section 11.1(a) hereof.

 

“ Rights Trigger Date ” shall mean the earlier of (x) the date that Federal GP or any other Approved Federal Party is removed as the Managing General Partner for Cause pursuant to Section 8.3 of this Agreement or any other applicable term or provision of this Agreement and (y) the third (3 ^rd ) anniversary of the date of this Agreement.

 

“ Sales Proceeds Distribution Date ” is defined in Section 7.1(c) hereof.

 

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“ Section 704(c) Property ” shall mean (i) each item of property to which Section 704(c) of the Code or Section 1.704-3(a)(3) of the Regulations applies that is contributed to the Partnership, and (ii) any property owned by the Partnership which is governed by the principles of Section 704(c) of the Code, as contemplated by Section 1.704-1(b)(4)(i) and other analogous provisions of the Regulations.

 

“ Shares ” shall mean the common shares of beneficial interest, par value $.01 per share, of Federal.

 

“ Shaw Pittman ” is defined in Section 4.8 hereof.

 

“ Significant Litigation ” means any litigation, arbitration, mediation and/or similar dispute resolution matters and/or proceedings pertaining to a particular dispute or series of related disputes that either General Partner reasonably estimates will cost the Partnership and/or any SP Subsidiaries aggregate legal fees, costs and expenses in excess of Five Hundred Thousand Dollars ($500,000).

 

“ Small Shop Tenant ” shall mean a tenant of any Qualified Property who does not lease in excess of fifteen thousand (15,000) rentable square feet at such Qualified Property in the aggregate.

 

“ SP Subsidiary ” shall mean (i) a limited partnership which shall be wholly-owned (directly or indirectly) by the Partnership, the purpose of which is limited to acquiring, financing, holding for investment, preserving, managing, operating, improving, leasing, selling, exchanging, transferring and otherwise using or disposing of a Qualified Property or Qualified Properties and (ii) a limited liability company, wholly-owned by the Partnership, the purpose of which is limited to serving as the general partner of a limited partnership satisfying the conditions of clause (i) of this definition. Except as otherwise provided in Section 3.4(iv) of this Agreement, the limited partnership agreement for each SP Subsidiary that is a limited partnership shall be substantially in the form of Exhibit D-1 attached hereto, and the limited liability company agreement for each SP Subsidiary that is a limited liability company shall be substantially in the form of Exhibit D-2 attached hereto.

 

“ Tax Depreciation ” shall mean, with respect to any property owned by the Partnership, depreciation, accelerated cost recovery, or modified cost recovery, and any other amortization or deduction allowed or allowable for federal, state or local income tax purposes.

 

“ Tax Matters Partner ” is defined in Section 6.5 hereof.

 

“ Tenant Improvement Fee ” is defined in Section 3.10(c)(ii) hereof.

 

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“ Third Parties ” shall mean consultants, engineers, environmental consultants, accountants, attorneys, contractors and subcontractors, brokers or managers, but excluding any Affiliate of the Managing General Partner.

 

ARTICLE II

FORMATION, DURATION AND PURPOSES

 

Section 2.1 Formation . Pursuant to the Delaware Revised Uniform Limited Partnership Act, codified in the Delaware Code Annotated, Title 6, Sections 17-101 to 17-1111, as the same may be amended from time to time (the “ Act ”), the Partners agree to form and hereby form the Partnership by entering into this Agreement. The Partners hereby acknowledge that a certificate of limited partnership has been executed and filed in the office of the Delaware Secretary of State on or before the date hereof. The execution and filing of such certificate of limited partnership with the Delaware Secretary of State is hereby authorized, ratified and approved by the Partners. The rights, liabilities and obligations of any Partner with respect to the Partnership shall be determined in accordance with the Act and this Agreement. To the extent anything contained in this Agreement modifies, supplements or otherwise affects any such right, liability, or obligation arising under the Act, this Agreement shall supercede the Act to the extent not restricted thereby.

 

Section 2.2 Name; Registered Agent and Registered Office . The name of the Partnership and the name under which the business of the Partnership shall be conducted shall be “ Federal/Lion Venture LP ”. The registered agent of the Partnership shall be Corporation Services Company, and the registered office of the Partnership shall be at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The Managing General Partner may select another such registered agent or registered office from time to time upon ten (10) Business Days prior written notice thereof to, and the consent of, the Other General Partner.

 

Section 2.3 Principal Office . The principal place of business and office of the Partnership shall be located at 1626 East Jefferson Street, Rockville, Maryland 20852-4041, or at such other place as the Managing General Partner may determine from time to time. The business of the Partnership may also be conducted at such additional place or places as the Managing General Partner may determine.

 

Section 2.4 Purposes and Business . The business of the Partnership is to, directly or indirectly through SP Subsidiaries, acquire, finance, refinance, hold for investment, preserve, manage, operate, improve, lease, sell, exchange, transfer and otherwise use or dispose of the Qualified Properties as may be acquired by the Partnership or any SP Subsidiary from time to time pursuant to the terms hereof, which Qualified Properties may be, subject to the Acquisition Parameters, located anywhere in the United States and shall not be used primarily for agricultural, horticultural, ranch, or mining purposes. In connection therewith and without limiting the foregoing, the Partnership shall have the power to dispose of the Qualified Properties in accordance

 

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with the terms of this Agreement and to engage in any and all activities related or incidental thereto, all for the benefit of the Partners. The Partners acknowledge that it is their mutual intention to structure the Partnership and its revenues from the operation of the Qualified Properties so as to eliminate or minimize in the case of Federal and Clarion REIT, any additional taxes under Section 857 or Section 4981 of the Code (collectively, the “ REIT Regulations ” ) or related issues which might adversely affect the ability of Federal or Clarion REIT to maintain qualification as a real estate investment trust ( “ REIT ” ) under Section 856 of the Code.

 

Section 2.5 Term . The term of the Partnership shall commence on the date of this Agreement and shall continue in full force and effect until fifteen (15) years from the date hereof, unless sooner terminated pursuant to the terms hereof or extended pursuant to the written agreement of the General Partners. No Partner may withdraw from the Partnership without the prior consent of the General Partners, other than as expressly provided in this Agreement.

 

Section 2.6 Other Qualifications . The Partnership shall file or record such documents and take such other actions under the laws of any jurisdiction in which the Partnership does business as are necessary or desirable to permit the Partnership to do business in any such jurisdiction and to promote the limitation of liability for the Partners in any such jurisdiction.

 

Section 2.7 Limitation on the Rights of Partners . Except as otherwise specifically provided in this Agreement, (a) no Partner shall have the right to withdraw or retire from, or reduce its contribution to the capital of, the Partnership; (b) no Partner shall have the right to demand or receive property other than cash in return for its Capital Contributions; and (c) no Partner shall have priority over any other Partner either as to the return of its Capital Contribution or as to profits or distributions.

 

ARTICLE III

MANAGEMENT RIGHTS, DUTIES, AND POWERS

OF THE MANAGING GENERAL PARTNER; TRANSACTIONS INVOLVING

PARTNERS

 

Section 3.1 Management .

 

(a) Management by the Managing General Partner . Federal GP (or another Approved Federal Party who is a General Partner) shall be the Managing General Partner until (x) Federal GP or any Approved Federal Party who is then Managing General Partner resigns as the Managing General Partner without concurrently appointing an Approved Federal Party (who has been admitted as a General Partner of the Partnership) to succeed it, or (y) Federal GP (or any other Approved Federal Party who is then the Managing General Partner in accordance with this Agreement) is removed as the Managing General Partner as provided in Article VIII hereof. If Federal GP or any Approved Federal Party who is then the

 

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Managing General Partner resigns as Managing General Partner without concurrently appointing an Approved Federal Party (who has been admitted as a General Partner of the Partnership) to succeed it, then the Other General Partner may, in its discretion, designate a substitute Managing General Partner (which substitute Managing General Partner may be such Other General Partner). The Managing General Partner shall manage the investments, business and day-to-day affairs of the Partnership and shall be responsible for acquisitions and dispositions of Qualified Properties, subject , however , to the provisions of Section 3.4 hereof with respect to Major Decisions, of Section 3.6 and Section 3.7 hereof with respect to the acquisition or sale of Qualified Properties, and any other provisions of this Agreement establishing restrictions, limitations or requirements on the investments, business and day-to-day affairs of the Partnership. The Managing General Partner shall manage the investments, business and day-to-day affairs of the Partnership in accordance with the Annual Plan adopted pursuant to (and in accordance with) Sections 3.4 and 3.5 hereof. Any action taken by the Managing General Partner in accordance with the terms of this Agreement shall constitute the act of and serve to bind the Partnership.

 

(b) Delegation to the Property Manager . The Managing General Partner shall have the right to retain the Property Manager and delegate (pursuant to Section 3.1(a ) above) to the Property Manager any of the following duties and responsibilities with respect to any Qualified Property or Proposed Qualified Property: the management of such Qualified Property and the performance of the tasks necessary for the evaluation of any Proposed Qualified Property and the acquisition of any Approved Qualified Property as contemplated in Section 3.6 hereof. The Property Manager shall be qualified to do business in all jurisdictions in which the Partnership does business or owns properties if such qualification is required, and if the Property Manager can be qualified by law in such jurisdiction. If Federal GP in its capacity as Managing General Partner elects to retain the Property Manager with respect to any Qualified Property or Proposed Qualified Property, the Partnership and the Property Manager shall enter into a Management Agreement substantially in the form attached hereto as Exhibit C and made a part hereof. The Managing General Partner may replace the Property Manager at a particular Qualified Property or Proposed Qualified Property in accordance with the Management Agreement for that Qualified Property or Proposed Qualified Property; provided that , in addition to any requirements set forth in the Management Agreement, for so long as the Managing General Partner is an Affiliate of the Property Manager for a particular Qualified Property or Proposed Qualified Property, as a condition to the replacement of such Property Manager, (x) the Other General Partner (and, if Fund GP is the Other General Partner, the Advisor) shall have received written notice of such replacement, (y) the Other General Partner shall have approved, in writing, the replacement Property Manager, and (z) the replacement Property Manager shall have entered into an agreement substantially in the form attached hereto as Exhibit C . Any property

 

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management or operating agreement between the Partnership (or any SP Subsidiary) and any Property Manager that is not substantially in the form attached hereto as Exhibit C must be reasonably acceptable to all General Partners. The Property Manager, in its capacity as such, shall have no interest in or rights under this Agreement, shall not be admitted as a substitute for any Partner and shall not have any of the rights of a Partner under the Act or this Agreement. The Property Manager, in its capacity as such, also shall have no interest in or rights relating to the Partnership or any Qualified Property or Proposed Qualified Property, except as provided in the Management Agreement relating to such Qualified Property or Proposed Qualified Property. The Property Manager may be authorized to perform such tasks of the Managing General Partner specified in Section 3.3 hereof as the Managing General Partner reasonably deems necessary or appropriate in connection with the management of the Qualified Properties, the evaluation of Proposed Qualified Properties or the acquisition of Approved Qualified Properties, but in all cases in accordance with (and subject to) the Annual Plan and the requirements of Section 3.4 , Section 3.6 and Section 3.7 hereof and any other provisions of this Agreement establishing restrictions, limitations or requirements on the investments, business and day-to-day affairs of the Partnership. The Property Manager shall not have the authority to execute or deliver documents on behalf of the Partnership or to bind the Partnership, except as expressly set forth in the Management Agreement between the Partnership (or SP Subsidiary, as the case may be) and the Property Manager. Notwithstanding anything to the contrary contained in Section 3.3 hereof, the Property Manager shall not have any authority to borrow or draw down funds or finance or refinance any part of any purchase price or incur indebtedness secured by any Qualified Property or any unsecured indebtedness. Any delegation to the Property Manager provided in this Section 3.1(b ) shall be supervised by the Managing General Partner and such delegation shall not relieve such Managing General Partner of any of its obligations hereunder as “Managing General Partner”.

 

(c) Right to Rely on Authority of the Managing General Partner . Any action taken by the Managing General Partner, acting on behalf of the Partnership pursuant to the authority conferred thereon in this Agreement, shall be binding on the Partnership.

 

(d) No Management by the Other Partners . The Other General Partner shall have the authority to approve Major Decisions. The Other General Partner shall also have the authority to consent to certain acts of the Managing General Partner, the Property Manager and the Partnership, in each case as and to the extent provided in this Agreement. Neither the Other General Partner nor any of the Limited Partners shall participate in the control of the business of the Partnership or transact any business for the Partnership or have the power to sign documents for or otherwise bind the Partnership and none of such Other General

 

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Partner or Limited Partners shall perform nor have the authority to perform any act, thing or deed in the name of or on behalf of the Managing General Partner, the Property Manager or the Partnership ( provided , however , that the Other General Partner shall have the right to appoint a replacement Managing General Partner pursuant to Section 8.3(a ) and to exercise certain rights on behalf of the Partnership pursuant to Section 3.1(e) ). The Other General Partner and Limited Partners may give any consents, approvals or other authorizations described in this Agreement without being deemed to have participated in the control of the Partnership.

 

(e) Other Partner’s Right to Enforce Partnership Rights Against Affiliates of Managing General Partner . Notwithstanding anything herein to the contrary, if the Managing General Partner has failed to enforce any of the Partnership’s rights against any Affiliate of the Managing General Partner that has defaulted on any obligation owed to the Partnership or an SP Subsidiary at law or in equity, under this Agreement or under any agreement between the Partnership and any such Affiliate of the Managing General Partner, the Other General Partner shall be entitled to exercise, on behalf of the Partnership and at the expense of the Partnership (either in the Partnership’s own capacity or as general partner of the Partnership), the Partnership’s or SP Subsidiary’s rights and obligations arising at law or in equity or under such agreements, as the case may be, all without the consent or approval of the Managing General Partner; provided, that such Other General Partner shall not have the right to terminate such agreements or any rights of the Affiliate of the Managing General Partner under such agreements without Cause without the consent of the Managing General Partner.

 

Section 3.2 Meetings of the General Partners

 

(a) Meetings of the General Partners . The General Partners of the Partnership may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the General Partners shall be held telephonically once per month at such time and at such place as shall from time to time be reasonably determined by the Managing General Partner subject to consent by the Other General Partner. Regular or special meetings of the General Partners may be called by any General Partner on not less than ten (10) Business Day’s written notice to the Other General Partner. The Advisor may attend meetings of the General Partners but shall not vote on behalf of Fund GP. Except as otherwise provided by the Act, the Limited Partners shall not be entitled to vote on any Partnership matter. The meetings of the General Partners in November and December of each fiscal year shall include the finalization and, to the extent approval is required by this Agreement, approval of the Annual Plan for the next fiscal year. In addition, at least two (2) of the regular monthly meetings of the General Partners during each fiscal year, which two (2) meetings shall be held at least four (4) months apart, shall reaffirm or modify, as the General Partners may agree in their sole discretion, the Acquisition Parameters.

 

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(b) Acts of the General Partners . Both General Partners must be present at any meeting of the Partners, and all acts requiring the approval of both of the General Partners must be approved unanimously by the General Partners. Each General Partner present at a meeting and entitled to participate in such meeting shall be entitled to one vote with respect to any action. If either General Partner shall not be present at any meeting of the General Partners, the other General Partner present at such meeting shall adjourn the meeting from time to time, without notice other than announcement of the date and location of the adjourned meeting, until both General Partners shall be present. Any action required or permitted to be taken at any meeting of the General Partners may be taken without a meeting if both General Partners consent thereto in writing, and the writing or writings are filed with the minutes of such proceedings of the General Partners.

 

(c) Electronic Communication . General Partners may participate in meetings of the General Partners by means of telephone conference or similar communications equipment that allows all persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Partnership.

 

(d) Authorized Representatives . Prior to the first annual meeting of the General Partners and prior to the time Fund GP or Federal GP casts a vote: (i) Fund GP shall deliver to Federal GP a list of individuals who are authorized to attend meetings of the General Partners and cast votes on its behalf and shall update such list from time to time to reflect any changes in authorized individuals; and (ii) Federal GP shall deliver to Fund GP an incumbency certificate naming all of Federal GP’s executive officers who are authorized to attend meetings and cast votes on its behalf and shall replace such certificate from time to time whenever there is a change in Federal GP’s executive officers who are authorized to attend such meetings and cast votes on its behalf. Each of Federal GP’s executive officers are authorized to attend meetings of the General Partners and to cast votes on behalf of Federal GP. Regardless of the number of authorized individuals who attend meetings of the General Partners, each of the Fund GP and Federal GP shall have only one (1) vote on each matter on which the General Partners have the right to vote and which is presented for a vote at the meeting. Federal GP shall be entitled to rely, without investigation, on the voting authority of each individual included on the most recent list of authorized Fund GP representatives provided to Federal GP by the Fund GP, and the Fund GP shall be entitled to rely, without investigation, on the voting authority of each individual included on the

 

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most recent list of authorized Federal GP executive officer representatives in Federal GP’s most recent incumbency certificate provided to the Fund GP by Federal GP.

 

(e) Informational Meetings . The Managing General Partner shall hold informational meetings with the Other General Partner (and, if the Other General Partner is Fund GP or an Affiliate of the Fund, the Advisor) to review and discuss the Partnership’s activities and business upon ten (10) Business Days’ prior written notice by the Other General Partner. Fund GP may, but shall not be obligated to, attend informational meetings that are attended by the Advisor. Such meetings shall be held at a mutually convenient time at the Rockville, Maryland offices of Federal, unless the General Partners otherwise agree.

 

Section 3.3 Authority of the Managing General Partner . Except as otherwise provided in this Article III , the Managing General Partner is hereby authorized to do the following, for and in the name and on behalf of the Partnership, as may be necessary, convenient or incidental to the implementation of the Annual Plan or to the accomplishment of the purposes of the Partnership ( provided , that if any of the following constitutes a Major Decision that is not specifically set forth in the approved Annual Plan, the Managing General Partner shall first obtain the consent of the Other General Partner pursuant to Section 3.4 hereof):

 

(i) acquire by purchase, exchange or otherwise, any Proposed Qualified Property consistent with the purposes of the Partnership, but only in accordance with Section 3.6 hereof;

 

(ii) operate, manage and maintain each of the Qualified Properties;

 

(iii) take such action as is necessary to form, create or set up any SP Subsidiary that has been approved by the General Partners in accordance with Section 3.4 and Section 3.6 hereof;

 

(iv) dissolve, terminate or wind-up any SP Subsidiary, provided that any Qualified Property held by such SP Subsidiary has been disposed of in accordance with Section 3.7 or Section 11.1 hereof or transferred to the Partnership or any other SP Subsidiary;

 

(v) enter into, amend, extend or renew any lease of any Qualified Property or any part thereof or interest therein approved by the General Partners as part of the Annual Plan (but only if and to the extent that such approval is required hereunder) or that satisfies the Leasing Parameters;

 

(vi) initiate legal proceedings or arbitration with respect to any lease of any Qualified Property or part thereof or interest therein; provided that, so long as Federal GP or any Affiliate of Federal is the Managing General Partner,

 

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the prior written approval of the Other General Partner must be first obtained unless such legal proceeding or arbitration shall have arisen in connection with (w) any matter of an emergency nature, (x) the collection of rent or other charges provided for in any lease of a Qualified Property or portion thereof or interest therein, (y) the enforcement of any remedies of an SP Subsidiary under any lease of a Qualified Property that is not an Anchor Lease, or (z) an uninsured claim of $100,000 or less;

 

(vii) dispose of any or all of the Qualified Properties by sale, lease, exchange or otherwise, and grant an option for the sale, lease, exchange or otherwise of any or all the Qualified Properties, but only in accordance with Section 3.7 hereof;

 

(viii) employ and dismiss from employment any and all employees, agents, independent contractors and, subject to Section 4.8 hereof, attorneys and accountants for the Partnership;

 

(ix) pay all Permitted Expenses;

 

(x) execute and deliver, on behalf of the Partnership, and cause the Partnership to perform, any and all agreements, contracts, documents, certifications and instruments necessary or convenient in connection with the management, maintenance and ownership of the Qualified Properties and in connection with any other matters with respect to which the Managing General Partner has authority to act pursuant to the Annual Plan or as set forth in this Section 3.3 , including, without limitation, causing the appropriate SP Subsidiary to execute, deliver and perform a Management Agreement with the Property Manager, provided that the formation of such SP Subsidiary has been approved by the General Partners in accordance with Section 3.4 and Section 3.6 hereof and that such Management Agreement is substantially in the form of Exhibit C hereto;

 

(xi) draw down funds as needed under any approved lines of credit or other financing previously approved under Section 3.4 hereof;

 

(xii) finance or refinance a portion of the purchase price of any Qualified Property and incur (and refinance) indebtedness secured by any Qualified Property, or any portion thereof or any interest or estate therein and incur any other secured or unsecured borrowings or other indebtedness;

 

(xiii) implement those Major Decisions that are specifically set forth in the Annual Plan or that have been approved by the Other General Partner pursuant to Section 3.4 below; and

 

(xiv) subject to any conditions expressly provided in this Agreement, engage in any kind of activity and perform and carry out contracts of any kind

 

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necessary or incidental to or in connection with the accomplishment of the purposes of the Partnership as may be lawfully carried out or performed by a limited partnership under the laws of each state in which the Partnership is then formed or registered or qualified to do business.

 

Section 3.4 Major Decisions . Notwithstanding anything to the contrary contained in this Agreement, the Managing General Partner shall not take, on behalf of the Partnership, and shall not permit the Partnership or the Property Manager to take, any action, make any decision, expend any sum or undertake or suffer any obligation which comes within the scope of any Major Decision, unless (a) the Managing General Partner delivers written notice to the Other General Partner of its desire to take, or cause the Partnership to take, any such action, make any such decision, expend any such sum, or undertake or suffer any such obligation, briefly describing such action, decision, expenditure, or obligation and the Managing General Partner’s reasons therefor, and (b) such Major Decision is approved by the Other General Partner in advance in writing (including any written approval delivered at a meeting in accordance with Section 3.2 hereof) or is specifically set forth in the Annual Plan approved by the General Partners or constitutes the entering into of a lease that satisfies the Leasing Parameters; provided that , the failure of the Other General Partner to approve or deny any action, decision, expenditure or obligation specified in clauses (iv) , (vii) , (xiv) , (xv) , (xvii) , (xxiv) , or to the extent of any action, decision, expenditure or obligation described in said clauses to be taken, made or assumed by an SP Subsidiary, (xxix) , within five (5) Business Days following delivery of the written notice from the Managing General Partner to the Other General Partner, shall constitute approval of such action, decision, expenditure, or obligation. As used herein, so long as Federal GP or any Affiliate of Federal is the Managing General Partner, “ Major Decision ” shall mean a decision to take any of the following actions (and if and so long as neither Federal GP nor any Affiliate of Federal is the Managing General Partner, then notwithstanding anything to the contrary stated or implied in this Agreement, a “ Major Decision ” shall mean only a decision to take any of the actions described in clauses (i) , (ii) , (iii) , (iv) , (v) , (vi) , (vii) , (viii) , (ix) , (xii) , (xvi) , (xx) , (xxii) , (xxiii) , (xxv) , (xxvi) , (xxvii) , (xxviii) , and (xxix) below):

 

(i) the acquisition by purchase, exchange or otherwise of any Proposed Qualified Property or other real property except in accordance with Section 3.6 hereof;

 

(ii) the disposition by sale, lease, exchange or otherwise, and the granting of an option for the sale, lease, exchange or other disposition of any or all of the Qualified Properties (or any portion thereof or interest therein), except in accordance with Section 11.1 hereof, and except , in each event, for any lease of space that complies with the parameters for such space as set forth in the approved Annual Plan or any lease that satisfies all of the Leasing Parameters;

 

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(iii) (A) the financing or refinancing of, or the increasing of any mortgage indebtedness encumbering, any Qualified Property, or any portion thereof or any interest or estate therein, whether recourse or non-recourse to the Partnership or SP Subsidiary, (B) the provision or giving of any guaranty (or assumption of any personal liability or obligation) by the Partnership, any SP Subsidiary or, unless previously approved in writing by the Other General Partner, either in connection with the Other General Partner’s approval of a prior Major Decision (such as a financing or refinancing) or otherwise, any Partner or Affiliate of a Partner (to the extent that any such guaranty is given, or personal liability is assumed, by such Partner or Affiliate of a Partner in connection with any Qualified Property or SP Subsidiary or other Partnership business), (C) the incurrence of indebtedness secured by any Qualified Property, or any portion thereof or any interest or estate therein, or (D) the incurrence of any other secured or unsecured borrowings or other indebtedness by the Partnership ( other than trade payables and short-term insignificant borrowings with terms that do not exceed 60-days and that are incurred in the ordinary course of business), including, without limitation, determination of the terms and conditions of any of the foregoing, and any amendments to such terms and conditions except as contemplated in an Annual Plan or approved in accordance with this Section 3.4 ;

 

(iv) the formation, creation or setting up of any SP Subsidiary, each of which shall be established pursuant to the appropriate form of governance documents for such SP Subsidiary in the forms attached hereto as Exhibits D-1 and D-2 , subject to non-material changes in form or any other changes reasonably or customarily requested by the lender or any rating agency participating in the financing (if any) for the Qualified Property owned or to be owned by that SP Subsidiary and any other changes or modifications that the General Partners mutually agree upon in writing, and any subsequent amendments, modifications or supplements of or to any governance documents of any SP Subsidiary;

 

(v) the making of any loan ( other than (x) a loan, in an aggregate principal amount that does not exceed $75,000, made to any tenant of a Qualified Property for the purpose of permitting such tenant to make tenant improvements and (y) a loan in a principal amount that does not exceed $10,000 made in connection with the capitalization of any approved SP Subsidiary);

 

(vi) the entering into of any transaction or agreement with or for the benefit of, or the employment or engagement of, any Affiliate of the Managing General Partner, except as expressly contemplated in Sections 3.1(b) and 3.10 hereof or any of the Exhibits hereto;

 

(vii) the causing or permitting of an encumbrance of or against any Qualified Property or any portion thereof other than (x) utility easements and other covenants that do not run underneath any structures located on a Qualified

 

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Property, do not materially adversely affect the use, operation or value of the Qualified Property, and do not impose any material obligations on the owner of the Qualified Property that have not been included in the approved Annual Plan for such Qualified Property, (y) mortgages, deeds of trust, collateral assignments, subordination, non-disturbance and attornment agreements, and similar customary loan and security documents recorded in connection with any financing approved by the General Partners pursuant to this Section 3.4 , and (z) mechanic’s liens, judgment liens and similar monetary liens that the Managing General Partner contests and for which adequate provision (through bonding, reserves or otherwise) is made promptly after the recordation of such liens;

 

(viii) to the extent that the approval of the Other General Partner is required pursuant to Section 5.1(c) hereof, the decision to fund an operating deficit of the Partnership or any SP Subsidiary in response to an Extraordinary Call to the Partners;

 

(ix) the construction, alteration, improvement, repair, rehabilitation, razing, rebuilding, or replacement of any building or other improvements or the making of any capital improvements, replacements, repairs, alterations or changes in, to or on any Qualified Property, or any part thereof, except to the extent (x) provided for in the Annual Plan, or (y) the expenditure associated therewith constitutes a Permitted Expense; provided that repairs of emergency nature may be undertaken without prior approval of the Other General Partner provided the Managing General Partner notifies the Other General Partner in writing thereof within two (2) Business Days following the commencement of such emergency repairs;

 

(x) the incurring of any expense other than a Permitted Expense; provided that, notwithstanding the foregoing, repairs of an emergency nature may be undertaken without prior approval of the Other General Partner provided the Managing General Partner notifies the Other General Partner in writing thereof within two (2) Business Days following the commencement thereof;

 

(xi) the reinvestment for restoration purposes of (A) insurance proceeds in excess of $500,000 received by the Partnership in connection with the damage or destruction of any Qualified Property or (B) condemnation proceeds in excess of $500,000 received by the Partnership in connection with the taking or settlement in lieu of a threatened taking of all or any portion of any Qualified Property; provided that (x) if the determination is made not to reinvest any such insurance or condemnation proceeds, then so much thereof as may be necessary shall be applied to the razing, cleanup and any other disposition of the remaining improvements as may be required by law or by a reasonably prudent property manager and the balance of such insurance or condemnation proceeds shall be distributed in accordance with this Agreement, and (y) any reinvestment of

 

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insurance or condemnation proceeds that is contractually required under any lease or the terms of any financing or refinancing of a Qualified Property approved in each case by the General Partners shall not be a Major Decision subject to this Section 3.4 ;

 

(xii) the use of any revenues derived from one Qualified Property to pay any Operating Expenses or other fees, costs or expenses of any kind or nature of any other Qualified Property, or to fund operating or other deficits for any other Qualified Property, unless such payment or such deficit funding from one Qualified Property to another Qualified Property is specifically and expressly approved in the Annual Plan, provided that, no such payment or deficit funding shall be included in any Annual Plan or agreed to by the General Partners unless, in connection therewith, the General Partners also agree on amendments to this Agreement (including amendments to certain of the definitions included in Article I hereof) to address the appropriate treatment [for purposes of the allocations and distributions among the Partners] of such payment or deficit funding from one Qualified Property to another Qualified Property;

 

(xiii) the approval of the Annual Plan (including the Annual Budget), and any amendments, modifications or supplements thereof or thereto, in each event to be approved in accordance with the procedures set forth in Section 3.5 below;

 

(xiv) the initiation of legal proceedings or arbitration with respect to any lease of any Qualified Property or part thereof or interest therein; provided that the initiation of such legal proceedings or arbitration shall not be a Major Decision subject to this Section 3.4 if such legal proceedings or arbitration are (x) in connection with any matter of an emergency nature, (y) for the collection of rent or other charges provided for in a lease of any Qualified Property or portion thereof or interest therein ( specifically excluding , however, any action for eviction or to terminate or cancel any Anchor Lease), or (z) to enforce any remedies of an SP Subsidiary under any lease of a Qualified Property that is not an Anchor Lease;

 

(xv) the commencement of any litigation or the making of any claim by the Partnership, or the settlement of any litigation or claim against the Partnership, involving any claim for which the uninsured portion exceeds $100,000;

 

(xvi) the commencement of any case, proceeding or other action seeking protection for the Partnership as debtor under any existing or future law of any jurisdiction relating to Bankruptcy, insolvency, reorganization or relief of debtors; any consent to the entry of an order for relief in or institution of any case, proceeding or other action brought by any third party against the Partnership as a debtor under any existing or future law of any jurisdiction relating to Bankruptcy,

 

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insolvency, reorganization or relief of debtors; the filing of an answer in any involuntary case or proceeding described in the previous clause admitting the material allegations of the petition therefor or otherwise failing to contest any such involuntary case or proceeding; the seeking of or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for the Partnership or for a substantial portion of its Qualified Properties; any assignment for the benefit of the creditors of the Partnership; or the admission in writing that the Partnership is unable to pay its debts as they mature or that the Partnership is not paying its debts as they become due;

 

(xvii) the entering into, amending, extending, renewing, or terminating of any Anchor Lease, or the entering into, amending, extending, renewing, or terminating of any other lease of space at a Qualified Property, if and to the extent that such other lease, amendment, extension, modification, renewal, or termination does not comply with the Leasing Parameters, and in each event only if any such Anchor Lease or other lease, amendment, extension, renewal, or termination is not already approved by the General Partners as part of the Annual Plan; provided that , (A) any collateral assignment of a lease or leases to a lender that has made a loan secured by a Qualified Property in connection with any debt or financing approved in accordance with this Agreement, and/or (B) the delivery to, or as directed by, a tenant or any such lender of any rent commencement notices, notices of possession, estoppel certificates, or similar communications shall not be a Major Decision subject to this Section 3.4 ;

 

(xviii) the replacement of the Property Manager, or the entering into, amending, modifying, supplementing, or consenting to the assignment of any Management Agreement entered into with any Property Manager (including, without limitation, the approval of any form of management agreement, amendment, modification or supplement); except that , the Managing General Partner may, without the consent of the Other General Partner, cause the Partnership to (x) enter into a Management Agreement in the form of Exhibit C attached hereto with its Affiliate in accordance with Section 3.1(b) and (y) collaterally assign any Management Agreement to a lender in connection with any financing or refinancing secured by a Qualified Property and approved by the General Partners pursuant to Section 3.4(iii) above;

 

(xix) the execution of any agreement, contract, understanding, or other arrangement to effectuate a Major Decision that has not been approved in accordance with the terms of this Agreement; provided that the execution of a non-binding letter of intent in accordance with Section 3.6(a ) hereof shall not be a Major Decision subject to this Section 3.4 ;

 

(xx) the extension of the statute of limitations for assessing or computing any tax liability against the Partnership or the amount of any Partnership tax item or to settle any dispute with respect to any material income or any material tax;

 

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(xxi) any action that would jeopardize the Partnership’s status as a real estate operating company under the Plan Asset Regulation or result in the Partnership owning (or treated as owning) assets that do not qualify as an investment in real estate for purposes of qualifying the Partnership as an operating company under the Plan Asset Regulation;

 

(xxii) any change in the legal status or structure of the Partnership as a limited partnership formed pursuant to the laws of the State of Delaware;

 

(xxiii) the authorization or effectuation of any merger or consolidation of the Partnership with or into one or more other entities;

 

(xxiv) the retention by the Partnership or any SP Subsidiary of any auditors, accountants or legal counsel, except as further provided by Section 4.8 below;

 

(xxv) any action that could adversely affect the status of either Federal or Clarion REIT as a real estate investment trust as defined in Section 856 of the Code; any action that is reasonably likely to result in the imposition of an excise tax on either Federal or Clarion REIT; and any action which could cause any Partner’s distributive share or interest in the Partnership assets, or the gross income of the Partnership, not to satisfy the real estate investment trust provisions of the Code;

 

(xxvi) the adoption, amendment or modification of the policies of the Partnership with respect to the maintenance of the books and records of the Partnership;

 

(xxvii) the adoption or implementation of any tax policies for the Partnership, and the making or revocation of any tax elections (including, without limitation, any election under Section 754 of the Code), or of any elections regarding any available reporting method pursuant to the Code or state or local tax laws, and/or any change in the reporting method to be utilized by the Partnership;

 

(xxviii) the transfer of any Partner’s Partnership Interest, or the transfer of the Managing General Partner’s rights, obligations or liabilities under this Agreement, except as otherwise provided or permitted pursuant to Article VIII and/or Article XI hereof; or

 

(xxix) the taking of any of the actions listed above by or through an SP Subsidiary or any other subsidiary of the Partnership (but only if and to the

 

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extent that (A) any such action constitutes a Major Decision pursuant to the introductory paragraph of this Section 3.4 and (B) any such action, if taken by or through the Partnership, has not previously been approved by the General Partners in accordance with the provisions of this Agreement, it being understood that the approval by the General Partners in accordance with the provisions of this Agreement of the taking of any of the actions listed above by the Partnership shall also constitute approval of all such actions if such actions are instead taken by or through an SP Subsidiary or any other subsidiary of the Partnership).

 

Section 3.5 Preliminary and Annual Plans .

 

(a) Preparation and Approval of Plans . So long as Federal GP or any Affiliate of Federal is the Managing General Partner, the Managing General Partner shall prepare and deliver to the Other General Partner and the Advisor for the General Partners’ approval or disapproval a proposed annual plan for the next fiscal year of the Partnership (as further described below, a “ Proposed Plan ”). The Proposed Plan shall cover the Partnership and each Qualified Property and shall include: a proposed Annual Budget covering the Partnership and each Qualified Property and a brief narrative description of the material portions thereof; a plan of operations for each Qualified Property, including anticipated repairs and improvements; estimated financing needs and estimated financing costs; estimated cash flow projections; a description of tenants then in occupancy in each Qualified Property; a schedule of any leases of any portion of a Qualified Property, any leases which are expiring during such fiscal year and the plans for the re-leasing of such Qualified Properties and any lease restructures (such as subleasing or expansion by a tenant) of which the Managing General Partner is aware; and projected capital improvements and capital repairs. The Managing General Partner shall prepare and submit a Proposed Plan to the Other General Partner and the Advisor on or before October 1st of the year prior to such fiscal year. The Other General Partner shall provide the Managing General Partner, in writing, any comments or requested changes the Other General Partner may have to such Proposed Plan within fifteen (15) days after its receipt thereof. If the Other General Partner fails to provide any comments or requested changes in writing within such fifteen (15) day period, then the Managing General Partner may at any time after the expiration of such fifteen (15) day period deliver to the Other General Partner a second written notice containing the Proposed Plan (which second notice will state, in all caps and bold-face type, that the Proposed Plan will be deemed approved if the Other General Partner, within five (5) Business Days after receipt of such second notice, fails to deliver a written objection to such Proposed Plan that specifies in reasonable detail the Other General Partner’s objections to such Proposed Plan), and if the Other General Partner, within five (5) Business Days after its receipt of such second notice, does not deliver to the Managing General Partner a written objection to such Proposed Plan specifying in reasonable detail the Other General Partner’s objections to such

 

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Proposed Plan, then the Proposed Plan shall be deemed to have been approved by the General Partners and shall be the Annual Plan (as defined below) for the Partnership’s next fiscal year. If the Other General Partner provides comments within the fifteen (15) day or five (5) Business Day periods described above, then the Managing General Partner shall submit a revised Proposed Plan to the Other General Partner and the Advisor incorporating or otherwise addressing the Other General Partner’s requested changes no later than fifteen (15) Business Days after receipt of the Other General Partner’s comments. Any Proposed Plan approved or deemed approved by the General Partners in accordance with this Section 3.5(a ) shall become the annual plan for the next fiscal year of the Partnership (any such Proposed Plan approved (or deemed approved) by the General Partners for any fiscal year of the Partnership, as may be amended from time to time by a Plan Amendment in accordance with Section 3.5(c ) hereof, an “ Annual Plan ”). A model of an Annual Plan is attached as Schedule 4 and made a part hereof.

 

(b) Dispute Concerning an Annual Budget . If, prior to the commencement of any fiscal year, the General Partners have not reached an agreement as to the amount to be allocated to any budget line item set forth in the Annual Budget portion of the Proposed Plan for the Partnership or any Qualified Property, as the case may be, for such fiscal year, then (i) as to any such disputed budget line item, the Annual Budget portion of the Annual Plan for the Partnership or the applicable Qualified Property, as the case may be, for the immediately preceding fiscal year (exclusive of any non-recurring capital expenditures) shall be controlling but only with respect to such disputed budget line item (in each case adjusted to reflect the increases in the CPI for September of such fiscal year over the CPI for September of such immediately preceding fiscal year) and only until such time as the General Partners reach an agreement on the amount to be allocated to such budget line item, and (ii) as to any budget line item or items that are not in dispute, the Annual Budget portion of the Proposed Plan shall control.

 

(c) Amendments to Annual Plans . If in any General Partner’s judgment an Annual Plan requires amendment, such General Partner (the “ Amending General Partner ”) shall deliver to the other General Partner (the “ Non-Amending General Partner ”) (and, if the Non-Amending General Partner is Fund GP or another Affiliate of the Fund, to the Advisor) a written notice setting forth the proposed amendment to the Annual Plan and the reasons therefor. The Non-Amending General Partner shall approve or disapprove (which approval shall not be unreasonably withheld), in writing, such proposed amendment within ten (10) Business Days after receipt thereof. If the Non-Amending General Partner approves such amendment in writing (any such approved amendment, a “ Plan Amendment ”), the Annual Plan (including, without limitation any amendments to the Annual Budget portion thereof) shall be amended by the Plan Amendment as set forth in the written notice described in the preceding sentence.

 

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If the Non-Amending General Partner elects to disapprove such proposed amendment, the Non-Amending General Partner’s written response shall specify in reasonable detail its reasons for disapproving such amendment. If the Non-Amending General Partner fails to approve or disapprove such Plan Amendment within the ten (10) Business Day Period described above, which approval shall not be unreasonably withheld, then the Amending General Partner may at any time after the expiration of such ten (10) Business Day period deliver to the Non-Amending General Partner a second written notice setting forth the proposed amendment (which second notice will state, in all caps and bold-face type, that the proposed amendment to the Annual Plan will be deemed approved if the Non-Amending General Partner fails to deliver a written objection to such proposed amendment, specifying in reasonable detail the reasons for its objection, within three (3) Business Days after receipt of such second notice), and if the Non-Amending General Partner does not deliver to the Amending General Partner a written objection to such proposed amendment, specifying in reasonable detail the reasons for its objection, within three (3) Business Days after its receipt of such second notice, then the General Partners shall be deemed to have approved the Plan Amendment, and the Annual Plan shall be amended by the Plan Amendment.

 

(d) Applicability of Annual Plan Provisions . Notwithstanding anything to the contrary stated or implied in this Agreement, the terms and provisions of this Section 3.5 shall apply only so long as Federal GP or any other Affiliate of Federal is the Managing General Partner. If, at any time during the term of the Partnership, none Federal GP, Federal or any Affiliate of Federal is the Managing General Partner, then the Managing General Partner shall be free to adopt such management and operating plans and budgets as the Managing General Partner may desire or deem appropriate in its sole but good faith discretion and to manage and operate the Qualified Properties without any consent or approval rights of the Other General Partner, except as expressly provided in Section 3.4 .

 

Section 3.6 Qualified Property Acquisitions .

 

(a) Generally . The Managing General Partner shall use its commercially reasonable efforts to originate properties that satisfy the Acquisition Parameters set forth in Schedule 1 for acquisition by the Partnership or an SP Subsidiary (any such property, a “ Proposed Qualified Property ”) and shall consult regularly with the Other General Partner (and, if the Other General Partner is Fund GP or an Affiliate of the Fund, the Advisor) regarding each Proposed Qualified Property; provided that , nothing stated herein will prevent or limit the right of the Other General Partner to advise the Managing General Partner of the location and identity of a Proposed Qualified Property, in which event the Managing General Partner, in its sole and absolute discretion, may elect to evaluate and pursue such Proposed Qualified Property for acquisition by the

 

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Partnership (or an SP Subsidiary). Notwithstanding the foregoing proviso, the Managing General Partner shall have no obligation whatsoever to consider, evaluate or investigate any such Proposed Qualified Property described in such proviso, but if the Managing General Partner fails to advise the Other General Partner, in writing, of the Managing General Partner’s election to pursue the acquisition of the Proposed Qualified Property on behalf of the Partnership (or an SP Subsidiary) within five (5) Business Days after the Other General Partner has delivered to the Managing General Partner written notice identifying such Proposed Qualified Property, then the Managing General Partner shall be conclusively deemed to have elected not to pursue the acquisition of such Proposed Qualified Property by the Partnership (or any SP Subsidiary), and the Other General Partner (and its Affiliates) shall be free to acquire (and pursue the acquisition of) such Proposed Qualified Property for its or their own account.

 

(b) Preliminary Approval by Other General Partner . The Managing General Partner or its Affiliate may enter into any non-binding letter of intent concerning the acquisition of a Proposed Qualified Property by the Partnership (or an SP Subsidiary), may make any refundable earnest money deposit using the Managing General Partner’s or its Affiliate’s funds, and may commence and perform such contract negotiations and such underwriting, due diligence and other property analysis as the Managing General Partner deems appropriate with respect to the proposed acquisition of the Proposed Qualified Property (all as further described in subsection (c) below). The Partnership and the Partners shall have no obligation, however, to reimburse such Managing General Partner (or its Affiliate) for any due diligence costs or expenses or other expenses in connection with the potential acquisition of any such Proposed Qualified Property, or to fund any amounts in respect of any earnest money deposit, unless and until the Other General Partner preliminarily approves the Proposed Qualified Property in accordance with this Section 3.6(b) . In any event, the Managing General Partner shall submit to the Other General Partner the background and supporting materials and information regarding such Proposed Qualified Property generally described on Schedule 5 attached hereto (such materials and information, collectively, the “ Preliminary Proposal Materials ” ). The Other General Partner shall, within seven (7) Business Days after receipt of such Preliminary Proposal Materials ( provided that , such seven (7) Business Day period will be extended by three (3) Business Days if the Other General Partner raises any significant questions or issues regarding the Preliminary Proposal Materials or the Proposed Qualified Property during the initial seven (7) Business Day period), provide preliminary written approval or disapproval of the acquisition of the Proposed Qualified Property by the Partnership or an SP Subsidiary ( provided that , if the Other General Partner preliminarily disapproves the Partnership’s acquisition of the Proposed Qualified Property, the Other General Partner shall include in its written disapproval notice reasonable detail regarding its reasons for its preliminary disapproval). If Other General Partner fails to deliver to the

 

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Managing General Partner written notice approving any such Proposed Qualified Property within the time period described in the immediately preceding sentence, then the Other General Partner will be deemed to have disapproved such Proposed Qualified Property, and the Managing General Partner (or its Affiliate) may thereafter acquire the Proposed Qualified Property for its own account as provided in Section 3.6(e) below. If the Other General Partner preliminarily approves the Proposed Qualified Property as provided hereinabove, then all due diligence costs or expenses, all fees, costs and expenses incurred in connection with the negotiation and execution of the documents necessary or advisable to acquire a Proposed Qualified Property (including, without limitation, attorneys’, accountants’ and appraisal fees and costs), and all other fees, costs and expenses ( but specifically excluding any non-refundable earnest money deposit) incurred in connection with the potential acquisition of any such Proposed Qualified Property, shall be paid and ultimately borne by the Partnership, unless neither the Partnership nor SP Subsidiary ultimately acquires the Proposed Qualified Property and the Proposed Qualified Property is acquired by any Partner or an Affiliate of any Partner, in which case such Partner or Affiliate shall pay all due diligence costs or expenses or other fees, costs and expenses (including attorneys’ fees, costs and expenses), as specifically provided in Section 3.6(f) below. To the extent that the Managing General Partner incurs due diligence costs or expenses or other fees, costs and expenses in connection with the potential acquisition of any such Proposed Qualified Property prior to receipt of preliminary approval or disapproval by the Other General Partner, (A) if the Other General Partner preliminarily approves such Proposed Qualified Property for acquisition by the Partnership, then the Partnership shall pay (and shall reimburse the Managing General Partner for) all such out-of-pocket and documented costs, fees and expenses incurred by the Managing General Partner (including attorneys’ fees, costs and expenses), whether incurred prior to or after such preliminary approval, but subject to the exception contained in the immediately preceding sentence and Section 3.6(f) below, and (B) if the Other General Partner preliminarily disapproves such Proposed Qualified Property for acquisition by the Partnership, then the Partnership shall have no obligation whatsoever to pay any of such fees, costs or expenses incurred by the Managing General Partner. In addition to the foregoing, upon the preliminary approval of the Other General Partner, the Managing General Partner may issue a Capital Call for Additional Capital Contributions necessary to fund (or reimburse the Managing General Partner or its Affiliate for) the earnest money deposit to be made (or made) in connection with the proposed purchase of the Proposed Qualified Property; provided that , any Additional Capital Contributions funded by any Partner pursuant to this sentence will be refunded to such Partner if the Other General Partner fails to provide final unconditional approval of the Proposed Qualified Property pursuant to Section 3.6(c) below.

 

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(c) Final Approval . Upon receipt of the written preliminary approval of the Other General Partner as provided in Section 3.6(b ) above of the acquisition by the Partnership (or an SP Subsidiary) of a Proposed Qualified Property (any Proposed Qualified Property so approved, an “ Approved Qualified Property ”), the Managing General Partner shall (i) take all commercially reasonable efforts on behalf of the Partnership to negotiate and execute all documents necessary or, in the opinion of the Managing General Partner, advisable to acquire the Approved Qualified Property pursuant to and in accordance with the terms approved by the General Partners (including formation of an SP Subsidiary to take title to such Approved Qualified Property) and (ii) complete all due diligence that the Managing General Partner deems reasonably necessary, including obtaining an Environmental Assessment and a Physical Inspection Report. The Managing General Partner shall keep the Other General Partner (and, if the Other General Partner is Fund GP or an Affiliate of the Fund, Advisor) reasonably informed of the progress of the Partnership’s due diligence and acquisition of any Approved Qualified Property, including the material findings of all due diligence and of any material matters that arise during the course thereof.

 

Upon completion of all or substantially all due diligence undertaken as specified above with respect to an Approved Qualified Property, and prior to the date that any earnest money becomes non-refundable pursuant to the purchase contract(s) for the Approved Qualified Property, the Managing General Partner’s Investment Committee must either approve or disapprove the acquisition of the Approved Qualified Property. At least five (5) Business Days prior to the date that any earnest money becomes non-refundable pursuant to the purchase contract(s) for the Approved Qualified Property, the Managing General Partner shall deliver to the Other General Partner a memorandum summarizing the material findings of the completed due diligence and any changes in the status of such Approved Qualified Property since the date of delivery of the Preliminary Proposal Materials, together with the additional materials and information described on Schedule 6 attached hereto (such memorandum and additional materials and information described on Schedule 6 attached hereto, together with the due diligence documents described in this paragraph below [if the Other General Partner requests the same], are collectively referred to as, the “ Final Proposal Materials ” ). In addition, prior to the expiration of such five (5) Business Day period, the Managing General Partner shall obtain approval of the acquisition of the Approved Qualified Property by its Investment Committee, and the Managing General Partner shall deliver to the Other General Partner evidence of such Investment Committee approval of the Approved Qualified Property. Upon request, the Managing General Partner will provide to the Other General Partner copies of the Environmental Assessment, the Physical Inspection Report and the title report, underlying title documents and survey for the Approved Qualified Property. Notwithstanding such deliveries, the Managing General

 

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Partner shall remain solely responsible for conducting such due diligence, and neither the Other General Partner nor the Advisor (if the Other General Partner is Fund GP or an Affiliate of the Fund) shall be obligated to read or review such memorandum, Environmental Assessment, Physical Inspection Report, survey, or other Final Proposal Materials.

 

The Other General Partner shall, within three (3) Business Days after receipt of the Final Proposal Materials ( provided that such three (3) Business Day period may be extended by the Other General Partner if the Other General Partner raises any significant questions or issues regarding the Final Proposal Materials or the Approved Qualified Property during the initial three (3) Business Day period, in which event such three (3) Business Day period will be extended, but not beyond the date on which any earnest money becomes non-refundable pursuant to the purchase contract(s) for the Approved Qualified Property or the diligence period expires under such contract(s), to the extent necessary to resolve such questions and issues), finally approve or disapprove (or conditionally approve, as provided below) the Proposed Qualified Property for acquisition by the Partnership or an SP Subsidiary. If the Other General Partner fails to deliver to the Managing General Partner written notice of final approval (or conditional final approval) of the Partnership’s acquisition of any such Approved Qualified Property within the time period described in the immediately preceding sentence, then the Other General Partner will be deemed to have disapproved the Partnership’s acquisition of such Approved Qualified Property, and the Managing General Partner shall have the right to either (i) attempt to renegotiate the terms of the acquisition and submit revised Final Proposal Materials to the Other General Partner for its final approval, conditional final approval or final disapproval, all in accordance with this Section 3.6 or (ii) treat such Approved Qualified Property as a disapproved Qualified Property pursuant to Section 3.6(e) below. Notwithstanding the foregoing, however, if all due diligence is not fully completed at the time that the Final Proposal Materials are delivered to Other General Partner for approval, the Other General Partner may condition any final approval on (i) the satisfactory completion of all due diligence, in which event the Other General Partner, within the time period specified in the preceding sentence, shall submit to the Managing General Partner in writing and in reasonable detail a complete list of the conditions that must be satisfied for the Other General Partner to be required to give final approval of the Partnership’s (or SP Subsidiary’s) purchase of the Approved Qualified Property, and (ii) the absence, in the reasonable opinion of the Other General Partner, of any material adverse condition relating to or affecting the Approved Qualified Property that may be disclosed by such uncompleted due diligence.

 

If the Other General Partner gives conditional final approval for acquisition by the Partnership of the Approved Qualified Property, the Managing General Partner may elect to cancel the proposed acquisition of the Approved

 

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Qualified Property or may proceed with the completion of all remaining due diligence and, as the results of such due diligence are obtained, submit such results to the Other General Partner for approval or disapproval (which approval or disapproval shall be given by the Other General Partner in writing within two (2) Business Days following the Other General Partner’s receipt of such results). If the Other General Partner disapproves the Partnership’s acquisition of any such Approved Qualified Property, or the Other General Partner fails to respond to the results of any such due diligence within the afore-said two (2) Business Day period, then neither the Partnership nor any SP Subsidiary shall acquire the Approved Qualified Property, and such Approved Qualified Property shall be treated as a disapproved Proposed Qualified Property pursuant to Section 3.6(e) below. If an Approved Qualified Property is conditionally approved but subsequently disapproved pursuant to the immediately preceding sentence, then notwithstanding anything to the contrary stated in this Agreement, any non-refundable earnest money deposit that may be lost in connection with the proposed acquisition of the Proposed Qualified Property will be borne and paid solely by the Managing General Partner (and its Affiliates), and the Managing General Partner shall refund or reimburse to the Partnership any Partnership funds previously paid or utilized to make any such deposit (and each Partner who made an Additional Capital Contribution in respect of such deposit shall be refunded such Additional Capital Contribution), and except as otherwise provided in Section 3.6(f) below, all other fees, costs and expenses (including attorneys’ and due diligence fees, costs and expenses and fees, costs and expenses incurred in connection with the negotiation and execution of the documents necessary or advisable to acquire a Proposed Qualified Property) will be borne and paid by the Partnership.

 

If the Other General Partner provides final approval of the Partnership’s acquisition of the Approved Qualified Property, either initially or following conditional final approval of the Partnership’s acquisition of the Approved Qualified Property, then the Managing General Partner shall proceed on behalf of the Partnership with the acquisition of the Approved Qualified Property in accordance with the approved purchase contracts and Final Proposal Materials, and if any of the Managing General Partner’s funds were used to fund any earnest money deposit, and the Managing General Partner has not been previously reimbursed such funds pursuant to this Section 3.6 above, the Partnership shall reimburse to the Managing General Partner such funds (and the Managing General Partner may issue a Capital Call for Additional Capital Contributions required to make such reimbursement).

 

It is understood and agreed that (x) the Managing General Partner (or its Affiliate) may deposit its own funds as a refundable earnest money deposit, or after a Proposed Qualified Property is preliminarily approved by the Other General Partner, issue a Capital Call for Additional Capital Contributions

 

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necessary to fund a refundable earnest money deposit, in connection with the proposed acquisition of any Proposed Qualified Property, and (y) subject to the express terms and provisions of the immediately preceding paragraph, the Partnership’s funds (obtained from Additional Capital Contributions) shall be substituted (and such funds reimbursed to the Managing General Partner or its Affiliate, as the case may be) or committed, as the case may be, on a nonrefundable basis only after due diligence is completed and the Other General Partner has confirmed its unconditional final approval of the acquisition pursuant to this Section 3.6 . After the Partnership has substituted or committed its funds on a nonrefundable basis in accordance with clause (y) of the prior sentence, if the terms of the acquisition change in any material respect from the terms described in the Final Proposal Materials, any such change shall require the written consent of the Other General Partner within three (3) Business Days after the Managing General Partner provides the Other General Partner with written notice of such material change or changes, and (i) neither the Partnership nor any SP Subsidiary shall proceed with the acquisition of, or acquire, such Approved Qualified Property prior to obtaining the Other General Partner’s approval of such change(s) and (ii) none of the Managing General Partner, an Affiliate of Federal, the Fund GP or an Affiliate of the Fund GP shall proceed with the acquisition of, or shall acquire, such Approved Qualified Property prior to obtaining the Other General Partner’s written disapproval of such change(s).

 

Within five (5) Business Days after the closing of an Approved Qualified Property, the Managing General Partner shall deliver to the Other General Partner (x) a closing statement acknowledging the receipt of and setting forth the application of the Partners’ Capital Contributions and any other funds of the Partnership used to acquire such Approved Qualified Property or to pay closing costs (including an estimate of costs not finalized at closing, including legal fees, costs and expenses) associated therewith and (y) copies of all certificates of insurance delivered in connection with such closing as requested by the Other General Partner.

 

(d) Properties Which Do Not Comply With Acquisition Parameters . With respect to any Proposed Qualified Property that does not comply in all respects with the Acquisition Parameters and that the Managing General Partner elects to submit to the Other General Partner for approval pursuant to Section 3.6(a ) hereof, the Managing General Partner shall deliver to the Other General Partner (and, if the Other General Partner is Fund GP or an Affiliate of the Fund, the Advisor), in addition to the other materials to be delivered to the Other General Partner pursuant to Sections 3.6(a) and 3.6(b) above, a reasonably detailed written description of (i) the ways in which such Proposed Qualified Property does not comply with the Acquisition Parameters and (ii) the reasons to nonetheless consider the Proposed Qualified Property for acquisition by the Partnership or an SP Subsidiary. The Partners acknowledge that the information contained in the Preliminary Approval Materials attached as Schedule 5 satisfies the requirements of this Section 3.6(d) .

 

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(e) Disapproved Qualified Properties . If the Other General Partner (x) disapproves (or is deemed to have disapproved as provided in Section 3.6(b ) or Section 3.6(c) hereof) any Proposed Qualified Property, or (y) fails after the completion of due diligence to provide unconditional final approval of the acquisition following any change to the terms of the acquisition as provided in the sixth paragraph of Section 3.6(c) above, the Managing General Partner, its Affiliates or their designee shall have the right to acquire such Proposed Qualified Property or Approved Qualified Property for their own account or with or in connection with any other Person.

 

(f) Acquisition Costs . The Partnership shall be liable and shall reimburse the Managing General Partner for payment or reimbursement of all out-of-pocket and documented fees, costs and expenses arising in connection with the identification or evaluation of, the bidding on and the structuring and negotiation of and contracting for the acquisition or attempted acquisition of, and the due diligence undertaken in connection with, any Proposed Qualified Property or Approved Qualified Property (such activities, the “ Acquisition Activities ”); provided that , notwithstanding the foregoing, (i) the Partnership shall not be liable or responsible for any such fees, costs or expenses described above unless and until the Other General Partner has provided its preliminary approval of the Proposed Qualified Property pursuant to Section 3.6(b) above, (ii) although the Managing General Partner may initially utilize Partnership funds to make an earnest money deposit, the Partnership shall not, in any event, bear any non-refundable earnest money deposit until the Other General Partner has provided its unconditional final approval of the Proposed Qualified Property pursuant to Section 3.6(c) above, and if the Other General Partner does not provide such unconditional final approval, any Partnership funds utilized to make any earnest money deposit will be refunded or reimbursed to the Partnership by the Managing General Partner, (iii) the Partnership shall not be liable for any portion of any overhead costs of a Partner or Affiliate of a Partner, except that, to the extent that the Partnership is otherwise liable or responsible for any fees, costs and expenses incurred in connection with any Acquisition Activities pursuant to this Section 3.6(f) , the Partnership shall be liable for all fees, costs and expenses of Federal’s in-house legal staff utilized in connection with such Acquisition Activities (but only to the extent permitted by, and subject to, Section 3.10(c)(iv) below), and (iv) if for any reason other than pursuant to Section 11.1 hereof, a Partner or any Affiliate of a Partner (instead of the Partnership or an SP Subsidiary) acquires title to any Proposed Qualified Property or Approved Qualified Property, such Partner (or its Affiliate) shall pay all of such fees, costs and expenses (and reimburse the Partnership for any refundable or nonrefundable deposits funded by the Partnership in connection with the acquisition of such property), including,

 

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without limitation, any earnest money deposit, incurred or to be incurred (or paid or deposited) in connection with the Acquisition Activities relating to such Proposed Qualified Property or Approved Qualified Property.

 

(g) Acquisition Fee; Financing Fee . Upon the acquisition of any Approved Qualified Property by the Partnership or by an SP Subsidiary pursuant to this Section 3.6 ( excluding , however , any Approved Qualified Property contributed in whole or in part by Federal or its Affiliate at any time while Federal or any Approved Federal Party is the Managing General Partner hereunder), the Partnership shall pay to the Managing General Partner an acquisition fee (the “ Acquisition Fee ”) equal to the sum of the following:

 

(i) (x) the amount up to $20 million of the gross purchase price of such acquired Approved Qualified Property multiplied by (y) 0.80% plus

 

(ii) (x) the amount from $20 million up to $30 million of the gross purchase price of such acquired Approved Qualified Property multiplied by (2) 0.65% plus

 

(iii) the amount over $30 million of the gross purchase price of such acquired Approved Qualified Property multiplied by (2) 0.50%.

 

For example, if the purchase price of such acquired Approved Qualified Property were $25 million, the Acquisition Fee payable by the Partnership to the Managing General Partner would equal $192,500 ( i.e. , [.80% x $20,000,000 = $160,000] + [.65% x $5,000,000 = $32,500]), and if the purchase price of such Approved Qualified Property were $40,000,000, the Acquisition Fee payable by the Partnership to the Managing General Partner would equal $275,000 ( i.e. , [.80% x $20,000,000 = $160,000] + [.65% x 10,000,000 = $65,000] + [.50% x $10,000,000 = $50,000]).

 

Upon the financing or refinancing of any Approved Qualified Property, the Partnership or SP Subsidiary shall pay to the Managing General Partner a fee (the “ Financing Fee ”) equal to the product of (A) .25% multiplied by (B) the aggregate principal balance advanced by the lender of such financing. For example, if the principal advanced in connection with a financing for such Approved Qualified Property were $25 million, the Financing Fee payable by the Partnership to the Managing General Partner would equal $62,500 ( i.e. , .25% x $25,000,000). It is understood and agreed by the Partners that the Financing Fee is payable in addition to any commitment or other financing fees charged by Third Parties in connection with the financing or refinancing of an Approved Qualified Property.

 

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(h) Disposition Fees . Upon the sale of any Qualified Property by the Partnership or by an SP Subsidiary pursuant to (and in accordance with) the terms and provisions of this Agreement ( excluding , however , the sale of any Qualified Property to a Partner or an Affiliate of any Partner), the Partnership shall pay the Managing General Partner a disposition fee (the “ Disposition Fee ”) equal to the product of (i) .25% multiplied by (ii) gross sales price for the Qualified Property. For example, if the gross sales price derived from the sale of a Qualified Property were $30 million, the Disposition Fee payable by the Partnership to the Managing General Partner would equal $75,000 ( i.e. , .25% x $30,000,000). It is understood and agreed by the Partners that the Disposition Fee is payable in addition to any brokerage commissions or similar charges charged by Third Parties in connection with the sale of a Qualified Property.

 

(i) Further Restrictions on Acquisitions . Under no circumstances whatsoever shall the Partnership acquire any property that is or will be subject to any leases that would not be treated at “true leases” for federal income tax purposes without the prior written consent of both General Partners (which consent may be given or withheld in each such General Partner’s sole and absolute discretion).

 

Section 3.7 Sale of Qualified Properties . The Managing General Partner shall have no authority to sell any Qualified Property without written approval by the Other General Partner (except as provided in Section 11.1 hereof).

 

Section 3.8 Limitation On Partnership Indebtedness .

 

(a) Maximum Debt . The total debt (other than trade payables in the ordinary course of business) of the Partnership (including debt of any SP Subsidiary and any debt secured by any Qualified Property) shall not exceed sixty percent (60%) of the aggregate unreturned IRR Contributions made by the Partners to the Partnership which, when all Capital Commitments described on Schedule 2 attached hereto have been fully contributed, shall be $210,000,000 of maximum debt. The total debt of any SP Subsidiary secured by any Qualified Property at the time that any such debt is obtained shall not exceed sixty-five percent (65%) of the Fair Market Value of such Qualified Property (determined as of the date that such debt is obtained). For purposes of this Section 3.8 , in connection with any debt obtained upon an SP Subsidiary’s acquisition of a Qualified Property, the Fair Market Value of such Qualified Property shall be the purchase price at the time of acquisition, and in connection with the financing or refinancing of a Qualified Property after an SP Subsidiary’s acquisition of such Qualified Property, the Fair Market Value of such Qualified Property shall be the Fair Market Value as determined by the appraisal conducted in connection with the financing or refinancing.

 

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(b) Non-Recourse to the Partners . Notwithstanding anything to the contrary contained in this Agreement, the Partnership shall not incur debt that is recourse to any of the Partners, and the Partners shall not be liable for any debts or other obligations or liabilities incurred by the Partnership or an SP Subsidiary. Notwithstanding the foregoing sentence, however, if required by a lender loaning money to an SP Subsidiary where the loan will be secured by a Qualified Property, then subject to the terms and provisions of Section 3.4 above requiring the prior approval of both General Partners, and subject to the rights and obligations of the Partnership and the Partners pursuant to Section 3.13 below, Federal, any Affiliate of Federal or the Partnership may execute a recourse obligations guaranty, environmental indemnity or similar agreement in favor of a lender in connection with any such debt and in accordance with this Agreement.

 

Section 3.9 Business Opportunity .

 

(a) Federal . Federal and each Affiliate of Federal may each engage in or possess any interest in other business ventures of any kind, independently or with others, including but not limited to the ownership, operation and management of grocery-anchored community or neighborhood retail shopping center properties, except as provided in this Section 3.9(a) with regard to future acquisitions by Federal.

 

Notwithstanding the foregoing, Federal must make available for purchase by the Partnership, and the Partnership shall have the right to purchase pursuant to Section 3.6 hereof, all properties which satisfy or comply with all the Acquisition Parameters or that, in the good faith judgment of Federal, substantially satisfy or comply with the Acquisition Parameters. Federal shall also, in good faith, present to the Partnership for purchase any properties that Federal, in its commercially reasonable judgment, deems or considers to be directly competitive with any Qualified Property owned by the Partnership or an SP Subsidiary. Notwithstanding anything to the contrary in this Agreement, Federal shall have no obligation to make available for purchase by the Partnership or to present to the Partnership for purchase any property or properties (i) if the seller(s) of the property or properties desire(s) to use a “down REIT” structure in the transaction; (ii) if Federal determines, in its good faith judgment, that the property or properties is/are suitable for significant renovation, expansion, redevelopment, repositioning, remerchandising, or re-tenanting consistent with Federal’s current investment strategy (as described in its annual report to shareholders, its reports filed with the SEC, including its Form 10-K and its Forms 8-K, and on its web site), which generally focuses on properties characterized by features such as (A) significant existing or anticipated vacancy or re-tenanting, (B) significant capital

 

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or other investment possibilities, typically to demolish improvements; add new improvements; significantly renovate, reconfigure and/or upgrade existing facilities and improvements; or maintain the property and improvements on a deferred maintenance basis, and/or (C) any combination of the foregoing; (iii) rejected by the Partnership for non-compliance with the Acquisition Parameters within the one (1) year period immediately preceding Federal’s execution of a binding agreement to acquire any such property, or (iv) from and after such time as Fund GP or any Approved Fund Party who is then a General Partner has rejected for acquisition by the Partnership (or an SP Subsidiary) three (3) Proposed Qualified Properties that (A) are not owned by Federal (or any Affiliate of Federal) at the time that Federal presents such properties to Fund GP or such Approved Fund Party for acquisition by the Partnership or an SP Subsidiary and (B) satisfy all of the Acquisition Parameters at the time that Fund GP or such Approved Fund Party rejects such Proposed Qualified Properties.

 

Federal or any Affiliate of Federal may only acquire (i) the properties it is required to offer to the Partnership in accordance with this Section 3.9(a) after Fund GP or any other Approved Fund Party that is then a General Partner has disapproved (or is deemed to have disapproved) such property as provided in Section 3.6 hereof, and (ii) properties that it is not required to offer to the Partnership under this Section 3.9(a) .

 

(b) The Fund . Subject to the next sentence immediately below, the Fund and any of its Affiliates may engage in or possess any interest in other business ventures of any kind, independently or with others, including but not limited to the ownership, operation and management of grocery-anchored community or neighborhood retail shopping center real property. Notwithstanding the foregoing, the Fund and any Approved Fund Party must make available for purchase by the Partnership, and the Partnership shall have the right to purchase pursuant to Section 3.6 hereof, all properties it considers for acquisition that satisfy or comply with all the Acquisition Parameters or that, in the good faith judgment of the Fund, substantially satisfy or comply with the Acquisition Parameters.

 

(c) Duties and Conflicts . Subject to Federal’s obligations pursuant to Section 3.6 and Section 3.9(a ) hereof and under any separate agreement between any Partner and the Partnership that has been authorized in accordance with this Agreement, and subject to the Fund’s obligations under Section 3.9(b) hereof, each Partner recognizes that the other Partners and their Affiliates have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such Persons are entitled to carry on such other business interests, activities and investments. The Partners and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf

 

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or on behalf of other entities with which they are affiliated or associated, and such Persons may engage in any activities, whether or not competitive with the Partnership, without any obligation (except as expressed in Sections 3.6 and 3.9(a )) to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper.

 

Section 3.10 Payments to Federal GP or the Property Manager .

 

(a) Managing General Partner Expenses . The Managing General Partner shall pay (i) the salaries of all of its officers and regular employees and all employment expenses related thereto, (ii) general overhead expenses, (iii) record-keeping expenses, (iv) the costs of the office space and facilities which it requires, (v) the costs of such office space and facilities as the Partnership reasonably requires, (vi) all out of pocket costs and expenses incurred in connection with the management of the Qualified Properties and the Partnership, and (vii) costs and expenses relating to Acquisition Activities as set forth in and limited by Section 3.6(f ); provided that , nothing in this Section 3.10(a) shall be deemed to limit in any way the Partnership’s obligations to reimburse the Managing General Partner any Permitted Expenses or to pay the fees payable to the Managing General Partner as expressly provided in this Agreement.

 

(b) Partnership Expenses . The Partnership shall pay all Permitted Expenses. The Managing General Partner is authorized, in the name and on behalf of the Partnership, to reimburse itself for Permitted Expenses paid by the Managing General Partner or to reimburse the Property Manager for Permitted Expenses paid by the Property Manager.

 

(c) Management Fee; Tenant Improvement Fee; CM Fee; In-House Legal Fees.

 

(i) The Partnership, as the sole member of the general partner of each SP Subsidiary that is a limited partnership, shall cause each such SP Subsidiary that is a limited partnership to pay to the Property Manager, pursuant to (and in accordance with) its Management Agreement with the Property Manager, an annual Management Fee (“ Management Fee ”) in the amounts set forth in the Management Agreement. Such Management Fee shall be payable to Property Manager on a monthly basis, subject to and in accordance with the terms and provisions of such Management Agreement.

 

(ii) In those cases in which the Property Manager provides construction management services in connection with the tenant improvements or tenant fit-out to be constructed for a Small Shop Tenant’s premises, Property

 

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Manager shall be entitled to a fee (the “ Tenant Improvement Fee ” ) for all tenant coordination/construction management services provided by Property Manager in connection with such tenant improvement work in the amounts (and on the terms) set forth in the Management Agreement. Such fee shall be paid by the SP Subsidiary that is a party to the Management Agreement relating to the Qualified Property for which the Property Manager provides the tenant coordination services.

 

(iii) In addition to the foregoing, the Property Manager shall be entitled to a construction management fee (the “ CM Fee ” ) in connection with any capital improvement project at any Qualified Property in the amounts (and on the terms) set forth in the Management Agreement. Such fee shall be paid by the SP Subsidiary that is a party to the Management Agreement relating to the Qualified Property for which the Property Manager provides the construction management services.

 

(iv) In addition to the foregoing, if Federal’s in-house legal staff provides any legal services in connection with the acquisition, disposition, financing, leasing, management, or operation of any Qualified Property, then so long as the legal fees charged by Federal for such services would otherwise constitute Permitted Expenses and are, in the aggregate, reasonable in light of the services rendered ( e.g. , the aggregate number of hours charged for a particular service is reasonable), the Partnership shall pay to Federal, as reimbursement for such legal services, legal fees at the following rates: $75 per hour for Federal’s in-house paralegals, $150 per hour for Federal’s in-house attorneys who do not hold the title of Vice President or Senior Vice President, and $300 per hour for Federal’s in-house attorneys who hold the title of Vice President or Senior Vice President, and all references in this Agreement to “legal fees” shall include the fees described in this subsection (iv) . The Partners hereby agree that the hourly rates described in the preceding sentence are reasonable as of the date of this Agreement. The hourly rates for legal services rendered by Federal’s in-house attorneys will be subject to review and adjustment on an annual basis in connection with the approval of the Annual Plan.

 

(v) Concurrently with the distribution of the annual reports required by Section 4.3 below, the Property Manager shall provide to the Advisor and the Fund GP a written statement setting forth (i) the Gross Collected Rents relating to each Qualified Property for such fiscal year and (ii) the Management Fee, all Tenant Improvement Fees, all CM Fees, and all legal fees, costs and expenses paid or reimbursed to the Property Manager, Federal or any Affiliate of Federal during such fiscal year (together with invoices and such other documentation as may be reasonably necessary to substantiate such fees, costs and expenses) relating to each Qualified Property for such fiscal year.

 

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Section 3.11 Other Duties and Obligations of the Managing General Partner .

 

(a) Partnership’s Continued Existence . The Managing General Partner shall take all reasonable actions which may be necessary or appropriate for the continuation of the Partnership’s valid existence as a limited partnership under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Partners or to enable the Partnership to conduct the business in which it is engaged, it being acknowledged by the Partners that all costs and expenses associated with such actions constitute Partnership Overhead Expenses (except for any fees, costs and expenses that do not otherwise constitute Partnership Overhead Expenses pursuant to the definition of “Partnership Overhead Expenses” in Article I hereof).

 

(b) Personal Liability . The Managing General Partner shall at all times use its best efforts to conduct its affairs and the affairs of the Partnership in such a manner that the Limited Partners shall not have any personal liability with respect to any Partnership liability or obligation in excess of that portion of their respective Capital Commitments actually called by the Managing General Partner pursuant to Section 5.1(a ), Section 5.1(b ), Section 5.1(c) , and Section 5.1(d) hereof.

 

(c) Partnership for Tax Purposes . The Managing General Partner shall take all actions necessary to assure that the Partnership will be treated as a partnership for federal and state income tax purposes and be governed by the applicable provisions of Subchapter K of Chapter 1 of the Code, it being acknowledged by the Partners that all costs and expenses associated with such actions constitute Partnership Overhead Expenses (except for any fees, costs and expenses that do not otherwise constitute Partnership Overhead Expenses pursuant to the definition of “Partnership Overhead Expenses” in Article I hereof).

 

(d) Reasonable Reserves . The Managing General Partner shall establish and maintain out of Partnership funds reasonable reserves for periodic expenses such as real property taxes and assessments and insurance premiums, working capital, capital expenditures and to pay other costs and expenses incident to ownership of the Qualified Properties and for such other Partnership purposes as the Managing General Partner deems appropriate, all as provided for and in accordance with the Annual Plan.

 

(e) Deviations from the Annual Budget . The Managing General Partner shall, as soon as practicable after the Managing General Partner discovers or learns about the incurrence or potential incurrence by the Partnership or any SP Subsidiary of any fee, cost, expense or other amount in connection with (or relating to) any Qualified Property that is not a Permitted Expense, orally inform the Other General Partner of such fee, cost, expense or other amount.

 

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(f) Time Devoted to the Partnership . The Managing General Partner and its officers and key employees shall devote such time and attention to the Partnership business as shall be reasonably necessary to supervise the Partnership’s business and affairs in accordance with the provisions of this Agreement.

 

(g) Fee Disclosure . In connection with the formation of the Partnership and related matters, Federal has agreed to pay a fee to Wachovia Securities, LLC, and the Partnership has agreed to pay to Wachovia, or reimburse to Federal, a portion of this fee, all in accordance with the terms of that separate letter agreement, dated of even date herewith, by and between Federal and the Partnership. Federal hereby represents and warrants that the fees described in the referenced letter agreement (the “ Fee Disclosure ”) represent all fees, bonuses, and other compensation paid or payable by or on behalf of the Partnership, Managing General Partner, Federal or any of their respective Affiliates to any placement agent, finder, broker, or other individual or entity (other than salaries payable to the officers and employees of the Managing General Partner) in connection with the formation of the Partnership, the Partnership’s (or any SP Subsidiary’s) acquisition of any Qualified Property concurrently upon the formation of the Partnership, and/or the purchase by the Fund Partners of their respective interests in the Partnership.

 

Notwithstanding anything to the contrary contained in this Agreement or any subscription or other agreement relating hereto, the Managing General Partner hereby agrees that Fund GP, the Fund or their respective Affiliates may disclose the information contained in the Fee Disclosure (i) to its or their investors, employees, agents, consultants (including, without limitation, legal counsel and accountants), prospective lenders and actual lenders, and prospective purchasers and actual purchasers in connection with any matter relating to the Partnership or the Partnership’s business, (ii) as may be reasonably necessary or desirable for reporting and regulatory purposes (including, without limitation, tax reporting), and (iii) as and to the extent required by law or court order.

 

Each Partner hereby represents that, except as described in the letter agreement referenced in the first paragraph of this Section 3.11(g) , it has not dealt with any placement agent, broker, finder or other individual or entity in connection with this Agreement, the formation of the Partnership, the Partnership’s (or any SP Subsidiary’s) acquisition of any Qualified Property concurrently upon the formation of the Partnership, and/or the purchase by the Partners of their respective interests in the Partnership, and each Partner hereby agrees to indemnify and defend the other Partners and the Partnership and hold

 

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them each harmless from and against all liability, loss, cost, damage, and expense (including attorneys’ fees and costs incurred in the investigation, defense and settlement of the matter) which the other Partners or the Partnership shall ever suffer or incur by reason of any claim by any placement agent, broker, finder or other individual or entity, whether or not meritorious, for any compensation with respect to such indemnifying Partner’s dealings in connection with this Agreement, the formation of the Partnership, the Partnership’s (or any SP Subsidiary’s) acquisition of any Qualified Property concurrently upon the formation of the Partnership, and/or the purchase by the Partners of their respective interests in the Partnership.

 

Section 3.12 Exculpation .

 

(a) Federal . None of any Federal Partner, any Affiliate of any Federal Partner, or any officer, director, trustee or employee of any Federal Partner or its Affiliate shall be liable, responsible or accountable in damages or otherwise to the Partnership or any other Partner for any act or omission on behalf of the Partnership, in good faith and within the scope of the authority conferred on Federal GP as Managing General Partner under this Agreement or otherwise under this Agreement, as the case may be, or by law, unless such act or failure to act (i) is or results in a breach of any representation, warranty or covenant of any Federal Partner contained in this Agreement, which breach had or has a material adverse effect on the Partnership or the Fund Partners and is not cured within fifteen (15) days after notice thereof is delivered to Federal GP by any Fund Partner, (ii) was fraudulent or committed in bad faith or (iii) constituted gross negligence or willful misconduct. Notwithstanding anything in the preceding sentence to the contrary, if any Federal Partner or any Affiliate of a Federal Partner enters into a separate agreement to provide services for the Partnership or any SP Subsidiary (such as a Management Agreement), then the liabilities and obligations of such Federal Partner or Affiliate, in its capacity as service provider under such agreement, shall be governed by the terms and provisions of such service agreement, and the terms and provisions hereof shall not exculpate or exonerate such Person from any obligation or liability under such agreement or at law (except to the extent expressly so provided in such service agreement).

 

(b) The Fund . None of any Fund Partner, the Advisor, any Affiliate of any Fund Partner or the Advisor, or any officer, director or employee of any Fund Partner, the Advisor, or their respective Affiliates shall be liable, responsible or accountable in damages or otherwise to the Partnership or to any other Partner for any act or omission on behalf of the Partnership, in good faith and within the scope of authority conferred on any such Person under this Agreement or by law, unless such act or failure to act (i) is or results in a breach of any representation, warranty or covenant of any Fund Partner contained in this Agreement, which breach had or has a material adverse effect on the Partnership or any Federal

 

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Partner and is not cured within fifteen (15) days after notice thereof is delivered to Fund GP by any Federal Partner, (ii) was fraudulent or committed in bad faith or (iii) constituted gross negligence or willful misconduct. Notwithstanding anything in the preceding sentence to the contrary, if any Fund Partner or any Affiliate of a Fund Partner enters into a separate agreement to provide services for the Partnership or any SP Subsidiary (such as a Management Agreement), then the liabilities and obligations of such Fund Partner or Affiliate, in its capacity as service provider under such agreement, shall be governed by the terms and provisions of such service agreement, and the terms and provisions hereof shall not exculpate or exonerate such Person from any obligation or liability under such agreement or at law (except to the extent expressly so provided in such service agreement).

 

(c) Survival . The provisions of this Section 3.12 shall survive any termination of the Partnership or this Agreement.

 

Section 3.13 Indemnification .

 

(a) By the Partnership . The Partnership shall indemnify, defend and hold harmless any Person (an “ Indemnified Party ”) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of any act or omission or alleged act or omission arising out of such Indemnified Party’s activities on behalf of the Partnership or in furtherance of the interest of the Partnership as (i) a Partner or an officer, director, employee, Affiliate or agent of a Partner or (ii) the Managing General Partner, Other General Partner, Advisor or an officer, director, employee, Affiliate or agent of any of them, against personal liability, claims, losses, damages, and expenses for which such Indemnified Party has not been reimbursed by insurance proceeds or otherwise (including attorneys’ fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by such Indemnified Party in connection with such action, suit or proceeding and any appeal therefrom, unless such Indemnified Party (A) acted fraudulently, in bad faith or with gross negligence or willful misconduct, or (B) by such act or failure to act breached any representation, warranty or covenant contained in this Agreement, which breach had or has a material adverse effect on the Partnership or any Partner and is not cured within fifteen (15) days after notice thereof by the aggrieved Partner(s). In addition to the foregoing, the Partnership shall indemnify, defend and hold harmless any Partner (or any Affiliate of any Partner) who executes and delivers any recourse obligations guaranty, environmental indemnity or similar agreement in favor of a lender in connection with any loan made to an SP Subsidiary or the Partnership, or assumes, in writing, any other personal liability or obligation pertaining to or arising from any such loan, in each event in accordance with this Agreement, unless (and except to the extent that) any such liability or obligation is/are

 

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incurred as a result of (x) any fraud, bad faith, gross negligence, or willful misconduct of such Partner or its Affiliate(s) or (y) any breach or default by such Partner (or its Affiliate) of any representation, warranty or covenant contained in this Agreement, which breach had or has a material adverse effect on the Partnership or any Partner and is not cured within fifteen (15) days after delivery of notice thereof to the breaching or defaulting party. Any indemnity by the Partnership under this Agreement shall be provided out of, and to the extent of, Partnership revenues and assets only, and no Partner shall have any personal liability on account of the Partnership’s obligations under this Agreement, provided , however , that each Partner shall nevertheless have full personal liability for the indemnification obligations of such Partner pursuant to this Section 3.13 below. The indemnification provided under this Section 3.13 shall (x) be in addition to, and shall not limit or diminish, the coverage of the Partners or any Affiliates under any insurance maintained by the Partnership and (y) apply to any legal action, suit or proceeding commenced by a Partner or in the right of a Partner or the Partnership. The indemnification provided under this Section 3.13 shall be a contract right and shall include the right to be reimbursed for reasonable expenses incurred by any such Indemnified Party within thirty (30) days after such expenses are incurred. Notwithstanding the foregoing to the contrary, if any Partner or any Affiliate of a Partner enters into a separate agreement to provide services for the Partnership or any SP Subsidiary (such as a Management Agreement), then the rights (including rights to indemnification), liabilities and obligations of such Partner or Affiliate, in its capacity as service provider under such agreement, shall be governed by the terms and provisions of such service agreement, and the terms and provisions hereof shall not apply nor shall the Partnership or any SP Subsidiary be obligated to indemnify such Partner or Affiliate (except to the extent expressly so provided in such service agreement).

 

(b) By Federal . Federal shall indemnify, defend and hold harmless the Fund Partners and the Advisor from and against any liabilities, claims, losses, damages, and expenses incurred by the Fund Partners or the Advisor (including attorneys’ fees, judgments, fines and amounts paid in settlement) as a result of any act or omission by any Federal Partner which (i) constitutes or results in a breach of any representation, warranty or covenant of any Federal Partner contained in this Agreement, which breach had or has a material adverse effect on any Fund Partner, or the Advisor and is not cured within fifteen (15) days after notice thereof from the aggrieved Fund Partner or Advisor, (ii) was performed or omitted fraudulently or in bad faith, or (iii) constituted gross negligence or willful misconduct.

 

(c) By Fund . Fund shall indemnify, defend and hold harmless the Federal Partners from and against any liabilities, claims, losses, damages, and expenses incurred by the Federal Partners (including attorneys’ fees, judgments, fines and amounts paid in settlement) as a result of any act or omission by any

 

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Fund Partner which (i) constitutes or results in a breach of any representation, warranty or covenant of any Fund Partner contained in this Agreement, which breach had or has a material adverse effect on any Federal Partner and is not cured within fifteen (15) days after notice thereof from the aggrieved Federal Partner, (ii) was performed or omitted fraudulently or in bad faith or (iii) constituted gross negligence or willful misconduct.

 

Section 3.14 Fiduciary Responsibility . Subject to the provisions set forth in Section 3.9 and Section 3.12(a) hereof, the Managing General Partner acknowledges that it is under a common law fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership and the Partners and consequently must exercise good faith and integrity in handling Partnership affairs.

 

Section 3.15 REIT Savings Provision . Notwithstanding any provision of this Agreement to the contrary, neither the Partnership nor the Managing General Partner shall take or omit to take any action that (i) could adversely affect the status of either Federal or Clarion REIT as a real estate investment trust as defined in Section 856 of the Code; (ii) is reasonably likely to result in the imposition of an excise tax on either Federal or Clarion REIT; or (iii) could cause any Partner’s distributive share or interest in the Partnership assets, or the gross income of the Partnership, not to satisfy the real estate investment trust provisions of the Code. In no event shall the Managing General Partner be liable for any action or omission in compliance with this Section 3.15 .

 

ARTICLE IV

BOOKS AND RECORDS; REPORTS TO PARTNERS

 

Section 4.1 Books . The Managing General Partner shall maintain or cause to be maintained separate, full and accurate books and records of the Partnership, and any Partner or any authorized representative of any Partner, including the Advisor, shall have the right to inspect, examine and copy the same and to meet with employees of the Managing General Partner responsible for preparing the same at reasonable times during business hours and upon reasonable notice. So long as Federal GP or any Affiliate of Federal is the Managing General Partner, all policies of the Partnership with respect to the maintenance of such books and records shall be subject to approval by all of the Partners.

 

Section 4.2 Monthly and Quarterly Reports .

 

(a) Monthly Reports . The Managing General Partner shall prepare and distribute to the Other General Partner and the Advisor within fifteen (15) days after the last day of each month a report with respect to the Partnership and each Qualified Property, including, without limitation, an operating statement for the Partnership and each Qualified Property for each monthly period and year-to-date showing variances from the Annual Budget portion of the Annual Plan and, for each Qualified Property, a schedule of aged accounts receivable, an occupancy and leasing status report, and a rent roll.

 

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(b) Quarterly Reports . The Managing General Partner shall, no later than the twentieth (20 ^th ) day of the third (3 ^rd ) month of each fiscal quarter,

 

(i) prepare and distribute to the Other General Partner and the Advisor a year-to-date consolidated report with respect to the Partnership (with the last month of each such report comprised of forecasted, rather than actual, results), prepared in accordance with generally accepted accounting principles, consistently applied, including (a) a balance sheet, (b) a profit and loss statement, (c) a statement of changes in the Partners’ Capital Accounts, (d) a cash flow and distribution statement, (e) a report briefly describing each variance from the applicable budget line item in the consolidated Annual Budget portion of the Annual Plan and any fees, costs or expenses incurred by the Partnership or any SP Subsidiary that do not constitute Permitted Expenses, (f) calculations in sufficient detail to verify the accuracy of all fees and other amounts paid or payable to the Property Manager under the Management Agreement, (g) bank reconciliation reports, and (h) such other reports as any Partner may reasonably request; and

 

(ii) prepare and distribute to the Other General Partner and the Advisor simultaneously with each quarterly report a report with respect to each Qualified Property, including an operating statement for the quarter and year-to-date showing each variance from the budget line items in the Annual Budget portion of the Annual Plan, and a narrative describing material market changes (as determined in good faith by the Managing General Partner or Property Manager), and material changes in property operations, physical condition, capital expenditures and leasing and occupancy.

 

Section 4.3 Annual Reports . The Managing General Partner shall prepare and distribute to the Other General Partner and the Advisor within twenty-five (25) days after the end of each fiscal year financial statements with respect to the Partnership, which include the items set forth in clauses (i) and (ii) of Section 4.2(b) above with respect to such fiscal year. Such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied, and shall be audited at the Partnership’s expense by such nationally recognized firm of independent certified public accountants selected by the Managing General Partner with the consent of the Other General Partner as provided in Section 4.8 hereof. All reports delivered pursuant to this Section 4.3 shall also include unaudited calculations in sufficient detail to verify the accuracy of all fees and other amounts paid or payable to the Property Manager pursuant to the terms of this Agreement and/or the Management Agreement and such other reports as any Partner may reasonably request.

 

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Section 4.4 Appraisals; Additional Reports .

 

(a) Appraisals . The Advisor expects to cause each Qualified Property to be appraised, at the Fund Partners’ or Advisor’s expense, each calendar quarter by a third-party appraiser selected by the appraisal management firm for the Lion Fund. The Managing General Partner and the Property Manager shall reasonably cooperate with such appraiser in connection with any such appraisal, shall provide such information to the appraiser as is reasonably requested by the appraiser to the extent the same has not been previously provided to the Advisor and, no more frequently than once per calendar quarter, shall cause its employees to be reasonably available to meet with and answer questions of the appraiser so as to enable the appraiser to compete its appraisals in a timely manner. None of the Managing General Partner, the Property Manager, the Fund Partners or the Advisor shall have any liability with respect to any acts or actions taken by an appraiser, including but not limited to appraisals.

 

(b) Additional Reports . The Managing General Partner shall prepare and distribute to the Partners such additional financial, property, investment and other reports regarding the Partnership, the Qualified Properties or any related matter as any Partner may reasonably request, including without limitation information necessary to enable the Advisor to provide the Fund Partners with a valuation of their respective Percentage Interests and/or Partnership Interests. To the extent any Partner deems it appropriate or necessary, the Managing General Partner agrees to reasonably cooperate in any audit or examination conducted by such Partner or its consultants of any of the information contained in any report delivered pursuant to this Article IV .

 

Section 4.5 Accountants; Tax Returns .

 

(a) The Managing General Partner shall engage such nationally recognized firm of independent certified public accountants approved by the Other General Partner as provided in Section 4.8 hereof (but only if and to the extent that such approval is required pursuant to said Section 4.8 ) to review, or to sign as preparer, all federal, state and local tax returns which the Partnership is required to file.

 

(b) On or before January 15 ^th of each year, the Managing General Partner shall prepare and distribute to the Partners a statement of the Partnership’s estimated taxable earnings for the prior calendar year.

 

(c) The Managing General Partner will furnish to each Partner within forty-five (45) days after the end of each calendar year, or as soon thereafter as is practicable, a Schedule K-1 or such other statement as is required by the Internal Revenue Service which sets forth such Partner’s share of the profits or losses and other relevant fiscal items of the Partnership for such fiscal year.

 

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(d) The Managing General Partner shall deliver to the Partners copies of all federal, state and local income tax returns and information returns, if any, which the Partnership is required to file.

 

Section 4.6 Accounting and Fiscal Year . The Managing General Partner shall keep the Partnership books and records on the accrual basis. The fiscal year of the Partnership shall end on December 31.

 

Section 4.7 Partnership Funds .

 

(a) Generally . The funds of the Partnership shall be deposited into such account or accounts as are designated by the Managing General Partner; provided that , at least one of the signatories for each account of the Partnership or any SP Subsidiary shall be a Person designated in writing by the Other General Partner from time to time. All withdrawals from or charges against such accounts shall be made by the Managing General Partner or by those Persons designated from time to time by the Managing General Partner or the Other General Partner ( provided that , Persons designated by the Other General Partner will not make any withdrawals from or charges against such accounts prior to the occurrence of any of the events with respect to the Managing General Partner described in Section 3.1(a) above).

 

(b) Restrictions on Deposits . Pending distribution or expenditure in accordance with the terms of this Agreement, funds of the Partnership may be invested, in the reasonable discretion of the Managing General Partner, in United States government obligations, insured obligations which are rated not lower than AA by Standard & Poor’s or have a comparable rating from a nationally recognized rating agency, collateralized bank time deposits, repurchase agreements, money market funds, commercial paper which is rated not lower than P-1, certificates of deposit which are rated not lower than AA by Standard & Poor’s or have a comparable rating from a nationally recognized rating agency, banker’s acceptances eligible for purchase by the Federal Reserve and bonds and other evidences of indebtedness and preferred stock which are rated not lower than AA by Standard & Poor’s or are of a comparable credit quality.

 

Section 4.8 Attorneys and Accountants . The initial accountants for the Partnership shall be Grant Thornton LLP, and so long as Federal GP or any Approved Federal Party is the Managing General Partner, the accountants may be replaced by the Managing General Partner only with the prior written approval of the Other General Partner, and provided that , except as otherwise provided in this sentence above, the accounting firm for the Partnership must be among the four (4) largest accounting firms in the United States when chosen and must provide accounting services at market rates. The attorneys for the Partnership may be selected by the Managing General Partner, but so long as Federal GP or any Approved Federal Party is the Managing General Partner, the Other General Partner must first approve, in writing, any attorneys retained in

 

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connection with (a) any Significant Litigation, (b) any advice, matter or dispute involving the Partnership and/or any SP Subsidiary and relating to the Employee Retirement Income Security Act of 1974, as amended, or (c) any advice, matter or dispute relating to actual or alleged “unrelated business taxable income” (as defined in the Code) of the Partnership or any SP Subsidiary. The Partners specifically acknowledge and agree that Mayer, Brown, Rowe & Maw LLP ( “ MBR&M ” ) and/or Shaw Pittman LLP ( “ Shaw Pittman ” ) shall be permitted to render legal advice and to provide legal services to the Partnership from time to time, and each Partner covenants and agrees that such representation of the Partnership by MBR&M and/or Shaw Pittman shall not alone (i) result in the existence of an attorney/client relationship between MBR&M, on the one hand, and the Federal Partners (and/or their Affiliates), on the other hand; (ii) result in the existence of an attorney/client relationship between Shaw Pittman, on the one hand, and the Fund Partners or Advisor (and/or their Affiliates), on the other hand; and/or (iii) disqualify MBR&M and/or Shaw Pittman from providing legal advice and legal services as set forth in Section 12.17(a) and 12.17(b) of this Agreement at any time in the future.

 

ARTICLE V

CONTRIBUTIONS

 

Section 5.1 Capital Contributions .

 

(a) Generally; Percentage Interests . Each Partner shall make an Initial Capital Contribution to the Partnership in an amount and at such time as the Partners have agreed. Except as provided in this Section 5.1 , (i) no Partner shall be obligated to make any Additional Capital Contribution, Extraordinary Funding or Partnership Overhead Contribution to the Partnership and (ii) any Additional Capital Contribution, Extraordinary Funding or Partnership Overhead Contribution shall be made by the Partners in proportion to their respective Percentage Interests as determined at the time of the Capital Call, Extraordinary Call or Partnership Overhead Contribution. The Partners shall have the Percentage Interests in the Partnership set forth opposite each Partner’s name on Schedule 2 hereto, as may be adjusted from time to time pursuant to Section 5.1(e) or 5.1(f) hereof.

 

(b) Additional Capital Contributions . If the Partnership requires capital to acquire an Approved Qualified Property, the Managing General Partner shall be entitled to require an additional Capital Contribution (an “ Additional Capital Contribution ”) from the Partners in an amount not in excess of the amount necessary to acquire such Approved Qualified Property plus the Acquisition Fee, the Financing Fee (unless such Financing Fee is paid from the proceeds of the applicable financing), all other fees, costs and expenses incurred in connection with obtaining financing for the Approved Qualified Property (but only to the extent that such other fees, costs and expenses are not funded from proceeds of such financing), all of Federal’s in-house legal fees incurred in

 

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connection with such acquisition and any related financing (but only to the extent that such fees are payable by the Partnership pursuant to Section 3.10(c)(iv) above), and all reasonable and customary fees, costs and expenses incurred by the Partnership for Third Parties retained in connection with or attributable to the Acquisition Activities; provided that (i) each Partner shall be required to contribute as an Additional Capital Contribution the amount determined by multiplying such Partner’s Percentage Interest by the amounts described in this sentence immediately above and (ii) no Partner shall be required to contribute the amount described in clause (i) above if such amount, when added to the total of all of such Partner’s prior Capital Contributions ( excluding all Default Contributions), exceeds such Partner’s Capital Commitment. If the Managing General Partner shall provide to the Partners a written notice calling for Additional Capital Contributions (any such notice, a “ Capital Call ”) setting forth the total amount of capital required, the amount that each Partner is required to contribute as such Partner’s Additional Capital Contribution (as determined pursuant to clause (i) above), and the due date on which the Managing General Partner is requiring that such Additional Capital Contributions be contributed to the Partnership, which due date shall be at least ten (10) Business Days after the date on which the Partners actually received the Capital Call and not more than one (1) Business Day prior to the scheduled closing of the acquisition of such Approved Qualified Property; each Partner shall contribute such Partner’s Additional Capital Contribution in immediately available funds on or before such due date. If the acquisition of an Approved Qualified Property fails to close and the Managing General Partner determines that there will not be a closing within fifteen (15) days of the date of the originally scheduled closing, (x) the Managing General Partner shall inform the Partners of such failure and return each Partner’s Additional Capital Contribution made with respect thereto and (y) each Partner’s Capital Contribution and Capital Contributions Account balances shall be restored to the levels thereof immediately prior to the making of such Additional Capital Contributions. If, at any time after the Partners have each made aggregate Capital Contributions ( excluding Default Contributions) that equal or exceed their Capital Commitment, the Partners elect to contribute additional capital, the Partners shall contribute such additional capital in accordance with their respective Percentage Interests. A Partner may contribute to the Partnership an Approved Qualified Property, or an equity interest therein, pursuant to a Contribution Agreement and receive Initial Capital Contribution or Additional Capital Contribution, as the case may be, credit for such contribution.

 

(c) Extraordinary Fundings . The Partners may be required to make Extraordinary Capital Contributions (as defined below) from time to time pursuant to (and in accordance with) this Section 5.1(c) below.

 

(i) If the Partnership requires additional funds to cover any costs and expenses for which a Qualified Property (or the SP Subsidiary that owns such

 

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Qualified Property) has insufficient funds, then unless the General Partners agree to fund such deficits from the revenues of another Qualified Property pursuant to Section 3.4 hereof, the Managing General Partner may make a written request therefor (any such request, an “ Extraordinary Call ”) setting forth the amount requested and the due date therefor, which due date shall be at least ten (10) Business Days after the date on which the Partners actually receive the Extraordinary Call. The Other General Partner shall have the right to approve or disapprove any Extraordinary Call ( provided that , notwithstanding the foregoing, any Extraordinary Call for amounts required to pay any Permitted Expense that cannot be paid from available revenues of the Qualified Property [or the SP Subsidiary that owns such Qualified Property] or proceeds of a financing obtained by the applicable SP Subsidiary will be deemed approved by the Other General Partner for all purposes hereunder). If the Other General Partner elects or is deemed to elect to approve an Extraordinary Call, then each Partner shall be required to fund an amount equal to the amount determined by multiplying such Partner’s Percentage Interest by the amount set forth in such approved Extraordinary Call (the total amount required to be funded pursuant to each such Extraordinary Call, an “ Extraordinary Funding ”). If the Other General Partner elects not to approve (and is not deemed to approve) an Extraordinary Call, then no Partner shall have any obligation (or right) to fund such disapproved Extraordinary Call or make any such Extraordinary Capital Contribution (defined below), and the Managing General Partner may elect, in its discretion, to cover such shortfall in funds by Partnership borrowings (which borrowings will be subject to the approval of the Other General Partner if and to the extent provided by Section 3.4 hereof); provided that , such Managing General Partner shall not be required to rely on its own credit or expend its own funds to cover such shortfall (except to the extent of its indemnification obligations under Section 3.13 of this Agreement). A Partner’s share of any Extraordinary Funding shall be made as a supplementary Capital Contribution by such Partner to the Partnership (any such contribution, an “ Extraordinary Capital Contribution ”). Each Partner shall contribute its Extraordinary Capital Contribution in immediately available funds on or before the due date to which the Partners agreed in the Extraordinary Call.

 

(ii) Notwithstanding the foregoing provisions of this Section 5.1(c) to the contrary, if the Managing General Partner requests the Other General Partner’s approval of any Extraordinary Call for an amount (A) that is required in order to prevent the occurrence of an event of default on the part of an SP Subsidiary or the Partnership under any financing that is secured by a Qualified Property and (B) that is not otherwise available or obtainable from revenues of the applicable Qualified Property or proceeds of any financing obtained or obtainable by the SP Subsidiary that owns such Qualified Property prior to the ripening of such event of default, and if the Other General Partner fails to approve (and is not deemed to approve) such Extraordinary Call (and make its and its Related Partner’s Extraordinary Capital Contributions required thereby) before the

 

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Business Day prior to the date that the failure to pay such amount will ripen into an event of default, then the Managing General Partner may advance such sums as may be necessary in order to prevent the occurrence of such event of default. If the Managing General Partner advances any sums in order to prevent the occurrence of an event of default pursuant to the immediately preceding sentence, then the Managing General Partner shall, concurrently with the making of such advance, deliver to the Other General Partner written notice that the Managing General Partner has made such advance and specifying the Extraordinary Funding required to reimburse the Managing General Partner for such advance (an “ Extraordinary Advance Notice ”). If, prior to the date that the Qualified Property is transferred to the Managing General Partner or its designee pursuant to this Section 5.1(c)(ii) below, the Other General Partner approves the Extraordinary Funding described in the Extraordinary Advance Notice, and the Other General Partner and its Related Partner make their respective Extraordinary Capital Contributions required thereby, or the Other General Partner authorizes the use of revenues or proceeds derived from any other Qualified Property to satisfy the Extraordinary Funding and the General Partners agree upon an amendment to this Agreement that addresses the treatment of such payment or deficit funding from one Qualified Property to another Qualified Property (as required by Section 3.4(xii) ), then (1) if the Other General Partner and its Related Partners make Extraordinary Capital Contributions, the entire sum of such Extraordinary Capital Contributions will be distributed by the Partnership to reimburse the Managing General Partner for a portion of the amounts previously advanced by the Managing General Partner in respect of such loan, and the aggregate amount of such advance that is not reimbursed to such Managing General Partner from such Extraordinary Capital Contributions shall be deemed to constitute the Managing General Partner’s and its Related Partner’s respective Extraordinary Capital Contributions required by such Extraordinary Advance Notice, or (2) if the Other General Partner authorizes the use of revenues or other proceeds from another Qualified Property to satisfy such Extraordinary Funding and the General Partners agree upon an amendment to this Agreement that addresses the treatment of such payment or deficit funding from one Qualified Property to another Qualified Property, then all such revenues and proceeds will be paid to the Managing General Partner to reimburse such Managing General Partner for the amounts previously advanced by such Managing General Partner. If, within five (5) Business Days after the Other General Partner’s receipt of an Extraordinary Advance Notice, the Other General Partner fails to approve the Extraordinary Funding requested pursuant to such Extraordinary Advance Notice, and the General Partners fail to agree upon the utilization of revenues or other proceeds from another Qualified Property to pay the amounts that are the subject of the Extraordinary Advance Notice (or the General Partners fail to agree upon an amendment to this Agreement that addresses the treatment of such payment or deficit funding from one Qualified Property to another Qualified Property), then the Managing General Partner may, at its election at any time from and after the

 

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expiration of such five (5) Business Day period, acquire the Qualified Property that is secured by the subject debt on the terms and conditions of this Section 5.1(c)(ii) below. In addition to the foregoing, if the Other General Partner approves any such Extraordinary Funding requested pursuant to an Extraordinary Advance Notice but fails to make its and its Related Partner’s Extraordinary Capital Contributions within ten (10) Business Days after receipt of the Extraordinary Advance Notice, then the Managing General Partner may, at its election at any time from and after the expiration of such ten (10) Business Day period, acquire the Qualified Property that is secured by the subject debt on the terms and conditions of this Section 5.1(c)(ii) below. If the Managing General Partner elects to acquire the Qualified Property that is secured by the subject debt pursuant to this Section 5.1(c)(ii) , then the Managing General Partner shall acquire such Qualified Property on an “as-is, where-is” basis, without any covenant, representation or warranty of any kind or nature from the SP Subsidiary, the Partnership or any of the Partners or any of their respective Affiliates, for a total purchase price of $1. If the Managing General Partner elects to purchase such Qualified Property for a total purchase price of $1, then the Partnership and SP Subsidiary shall execute such instruments and documents as may be reasonably necessary to transfer title to such Qualified Property to the Managing General Partner or its designee, the Managing General Partner shall execute and deliver such “as-is” certifications, assumptions, indemnities and releases as the Other General Partner may reasonably require in order to evidence the “as-is” nature of the transfer and to fully release the SP Subsidiary and Partnership from any and all obligations and/or liabilities relating to the Qualified Property, and the Qualified Property shall be transferred to the Managing General Partner or its designee in accordance with such documentation described hereinabove. The Managing General Partner (or its designee who acquires such Qualified Property) shall expressly, in writing, assume all obligations and liabilities relating to the Qualified Property, whether accruing prior to, on or after the date of transfer of such Qualified Property. Any and all fees, costs and expenses incurred in connection with the transfer of such Qualified Property shall be borne and paid solely by the Managing General Partner, and neither the SP Subsidiary nor the Partnership shall have any obligation or liability for any such fees, costs or expenses.

 

(iii) Notwithstanding the foregoing provisions of this Section 5.1(c) to the contrary, the Managing General Partner may, if necessary in order to prevent the occurrence of any “event of default” by an SP Subsidiary under any agreement to which such SP Subsidiary is a party (including, without limitation, any loan documents as provided in subsection (ii) above), advance amounts to the SP Subsidiary to make such payment; provided that , such amounts shall be reimbursed to the Managing General Partner, without interest, only from (A) an Extraordinary Funding and only if and to the extent that such Extraordinary Funding is approved or deemed approved by the Other General Partner hereunder

 

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or (B) prior to the payment of any distributions to any Partner under Section 7.1 hereof, revenues or other proceeds of the applicable Qualified Property. In no event shall any amounts advanced by the Managing General Partner be deemed to constitute a Capital Contribution of such Managing General Partner, unless and except to the extent that the amount advanced becomes an Extraordinary Funding that is approved (or deemed approved) by the Other General Partner in accordance with this Section 5.1(c) , and such amount is deemed to constitute the Managing General Partner’s and/or its Related Partner’s Extraordinary Capital Contribution hereunder. If (1) the Managing General Partner advances any amounts pursuant to (and in accordance with) Section 5.1(c)(ii) or this Section 5.1(c)(iii) , (2) the Other General Partner ultimately approves the advance as an Extraordinary Funding, and (3) the Other General Partner and its Related Partner fail to make their respective Extraordinary Capital Contributions on or before the latest date that such Extraordinary Capital Contributions would be due pursuant to this Section 5.1(c) , then the Other General Partner and its Related Partner shall pay to the Managing General Partner, in addition to the Extraordinary Capital Contribution that will be distrib