Exhibit
10.12


 


LOAN AGREEMENT


 


Dated as of February 18, 2004


 


by and among


 


ARC19TX LP and ARC COMMUNITIES 19 LLC 

as Borrower,


 


and


 


MERRILL LYNCH MORTGAGE LENDING, INC.


 

















 


TABLE OF CONTENTS


 


	
  ARTICLE I.  CERTAIN DEFINITIONS

  
	
  Section 1.1.

  	
  Definitions.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.  GENERAL TERMS

  
	
  Section 2.1.

  	
  The Loan.

  	
   

  
	
  Section 2.2.

  	
  Use of Proceeds.

  	
   

  
	
  Section 2.3.

  	
  Security for the
  Loan.

  	
   

  
	
  Section 2.4.

  	
  Borrower’s Note.

  	
   

  
	
  Section 2.5.

  	
  Principal and
  Interest.

  	
   

  
	
  Section 2.6.

  	
  Voluntary Prepayment.

  	
   

  
	
  Section
  2.7.

  	
  Mandatory
  Prepayment; Capital Events; Certain Transfers.

  	
   

  
	
  Section
  2.8.

  	
  Application
  of Payments After Event of Default.

  	
   

  
	
  Section 2.9.

  	
  Method and
  Place of Payment

  	
   

  
	
  Section 2.10.

  	
  Taxes.

  	
   

  
	
  Section 2.11.

  	
  Release of
  Collateral.

  	
   

  
	
  Section 2.12.

  	
  Central Cash
  Management.

  	
   

  
	
  Section 2.13.

  	
  Reserve Accounts.

  	
   

  
	
  Section
  2.14.

  	
  Additional
  Provisions Relating to the Pledged Accounts.

  	
   

  
	
  Section 2.15.

  	
  Security Agreement.

  	
   

  
	
  Section 2.16.

  	
  Mortgage
  Recording Taxes.

  	
   

  
	
  Section 2.17.

  	
  Extension Option.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.  CONDITIONS PRECEDENT

  
	
  Section
  3.1.

  	
  Conditions
  Precedent to Closing

  	
   

  
	
  Section
  3.2.

  	
  Execution
  and Delivery of Agreement.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV.  REPRESENTATIONS AND WARRANTIES

  
	
  Section
  4.1.

  	
  Representations
  and Warranties as to Borrower

  	
   

  
	
  Section
  4.2.

  	
  Representations
  and Warranties as to the Mortgaged Property.

  	
   

  
	
  Section 4.3.

  	
  Survival of
  Representations.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.  AFFIRMATIVE COVENANTS

  
	
  Section 5.1.

  	
  Affirmative
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.  NEGATIVE COVENANTS

  
	
  Section 6.1.

  	
  Negative Covenants.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.  EVENT OF DEFAULT

  
	
  Section 7.1.

  	
  Event of Default.

  	
   

  
	
  Section 7.2.

  	
  Remedies.

  	
   

  
	
  Section 7.3.

  	
  Remedies Cumulative.

  	
   

  
	
  Section 7.4.

  	
  Default
  Administration Fee.

  	
   

  
	
  Section 7.5.

  	
  Curative Advances

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.  SINGLE-PURPOSE, BANKRUPTCY-REMOTE REPRESENTATIONS, WARRANTIES
  AND COVENANTS

  
	
  Section 8.1.

  	
  Applicable to
  Borrower

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.  MISCELLANEOUS

  
	
  Section 9.1.

  	
  Survival.

  	
   

  



 


i

















 


	
  Section 9.2.

  	
  Lender’s Discretion.

  	
   

  
	
  Section 9.3.

  	
  Governing Law.

  	
   

  
	
  Section 9.4.

  	
  Modification, Waiver in
  Writing.

  	
   

  
	
  Section 9.5.

  	
  Delay Not a Waiver.

  	
   

  
	
  Section 9.6.

  	
  Notices.

  	
   

  
	
  Section 9.7.

  	
  TRIAL BY JURY.

  	
   

  
	
  Section 9.8.

  	
  Headings.

  	
   

  
	
  Section 9.9.

  	
  Assignment.

  	
   

  
	
  Section 9.10.

  	
  Severability.

  	
   

  
	
  Section 9.11.

  	
  Preferences.

  	
   

  
	
  Section 9.12.

  	
  Waiver of Notice.

  	
   

  
	
  Section 9.13.

  	
  Failure to Consent.

  	
   

  
	
  Section 9.14.

  	
  Schedules
  Incorporated.

  	
   

  
	
  Section 9.15.

  	
  Offsets, Counterclaims and Defenses.

  	
   

  
	
  Section 9.16.

  	
  No Joint Venture or
  Partnership.

  	
   

  
	
  Section 9.17.

  	
  Waiver of
  Marshalling of Assets Defense.

  	
   

  
	
  Section 9.18.

  	
  Waiver of
  Counterclaim.

  	
   

  
	
  Section
  9.19.

  	
  Conflict;
  Construction of Documents.

  	
   

  
	
  Section 9.20.

  	
  Brokers and
  Financial Advisors.

  	
   

  
	
  Section 9.21.

  	
  Counterparts.

  	
   

  
	
  Section 9.22.

  	
  Estoppel
  Certificates.

  	
   

  
	
  Section 9.23.

  	
  Payment of Expenses.

  	
   

  
	
  Section 9.24.

  	
  Non-Recourse.

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  



 


	
  1

  	
  –

  	
  Immediate Repairs Reserved for in Deferred
  Maintenance Escrow Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2

  	
  –

  	
  Allocated Loan Amounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3

  	
  –

  	
  Homesites as of the Closing Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4

  	
  –

  	
  Exceptions to Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5

  	
  –

  	
  Addresses for Notices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6

  	
  –

  	
  Work
  Reserve Funding Conditions for Deferred Maintenance Escrow Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7

  	
  –

  	
  Organizational Chart

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8

  	
  –

  	
  Form of Quarterly Statement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9

  	
  –

  	
  Form of Monthly Statement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10

  	
  –

  	
  Form of Standard Lease as of the Closing Date

  	
   

  



 


ii

















 


LOAN AGREEMENT


 


THIS LOAN AGREEMENT, made as of February 18, 2004, is
by and among ARC19TX LP, a Delaware limited partnership and ARC COMMUNITIES 19
LLC, a Delaware limited liability company, on a joint and several basis, having
an address at 600 Grant Street, Suite 900, Denver, Colorado 80203
(collectively, “Borrower”) and MERRILL LYNCH MORTGAGE LENDING, INC., a
Delaware corporation, having an address at Four World Financial Center, 16th
Floor, 250 Vesey Street, New York, New York 
10080 (together with its successors and assigns, whether one or more, “Lender”).


 


RECITALS


 


WHEREAS, Borrower desires to obtain from Lender the
Loan in an amount equal to the Loan Amount (each as hereinafter defined) to,
with respect to certain of the Mortgaged Property (as hereinafter defined),
finance a portion of the acquisition cost of, and, with respect to other of the
Mortgaged Property, refinance existing debt at such Mortgaged Property and to
pay certain other fees and expenses;


 


WHEREAS, Lender is unwilling to make the Loan unless
Borrower executes and delivers this Agreement, the Note and the Loan Documents
(each as hereinafter defined) to which it is a party which shall establish the
terms and conditions of, and provide security for, the Loan; and


 


WHEREAS, Borrower has agreed to establish certain
accounts and to grant to Lender, a security interest therein upon the terms and
conditions of the security agreement set forth in Section 2.15.


 


NOW, THEREFORE, in consideration of the making of the
Loan by Lender and for other good and valuable consideration, the mutual
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereby covenant, agree, represent and warrant as follows:


 


ARTICLE I.

CERTAIN DEFINITIONS


 


Section 1.1.            Definitions.


 


For all purposes of this Agreement:  (1) the capitalized terms defined in this Article
1 have the meanings assigned to them in this Article 1 and include
the plural as well as the singular; (2) all accounting terms have the meanings
assigned to them in accordance with GAAP (as hereinafter defined); (3) the
words “herein”, “hereof”, and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section,
or other subdivision; and (4) the following terms have the following meanings:


 


“Account Collateral” has the meaning set forth
in Section 2.15(a) hereof.


 


“Accounts” means all accounts (as defined in
the relevant UCC), now owned or hereafter acquired by Borrower, and arising out
of or in connection with, the operation of the Mortgaged Property and all other
accounts described in the Management Agreement and all present and future
accounts receivable, inventory accounts, chattel paper, notes, insurance
policies, Instruments, Documents or other rights to payment and all forms of
obligations owing at any time to Borrower thereunder, whether now existing or
hereafter created or otherwise acquired by or on behalf of Borrower, and all
Proceeds thereof and all liens, security interests, guaranties, remedies,
privileges and other rights pertaining thereto, and all rights and remedies of
any kind forming the subject matter of any of the foregoing.


 


“Affiliate” of any specified Person means any
other Person (i) controlling or controlled by or under common control with such
specified Person; (ii) directly or indirectly owning or holding ten


 

















 


percent (10%) or more of any equity interest in the first Person; or
(iii) ten percent (10%) or more of whose equity interests are directly or
indirectly owned or held by the first Person. 
For the purposes of this definition, “control” when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities or other beneficial interests, by contract or otherwise; and the
terms “controlling” and “controlled” have the meanings correlative to the
foregoing.


 


“Agreement” means this Loan Agreement, together
with the Schedules and Exhibits hereto, as the same may from time to time
hereafter be modified, supplemented or amended.


 


“Allocated Loan Amount” means the portion of
the Loan Amount allocated to each individual Mortgaged Property, as such
amounts may be adjusted by Lender from time to time as hereinafter set forth:


 


(i)            The initial Allocated
Loan Amount for each individual Mortgaged Property shall equal the amount set
forth in Schedule 2 attached hereto.


 


(ii)           Notwithstanding the
foregoing, (a) in the event during the initial twelve (12) months after the
Closing Date or in connection with the exercise of an Extension Option by the
Borrower, Lender requests and receives updated Appraisals indicating that the
relative values of the individual Mortgaged Property are inconsistent with
their relative Allocated Loan Amounts, Lender may one time during such twelve
(12) month period or one time in connection with each such Extension Option by
notice to Borrower in writing increase or decrease the Allocated Loan Amount of
any or all of the individual Mortgaged Property in accordance with such
Appraisals to reflect such relative values and (b) in the event Lender has not
received an updated Appraisal as aforesaid but the condition of one or more of
the individual Mortgaged Property shall have suffered a Material Adverse Effect
since the most recent Appraisal or Appraisal update, Lender may, increase or
decrease the Allocated Loan Amount of any or all of the individual Mortgaged
Property as appropriate to reflect such Material Adverse Effect, provided that
any change pursuant to the preceding clause (a) or (b) shall not change the
aggregate Allocated Loan Amount.


 


“Appraisal” means each appraisal with respect
to an individual Mortgaged Property prepared by an Appraiser in accordance with
the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation,
in compliance with the requirements of Title 11 of the Financial Institution
Reform, Recovery and Enforcement Act and utilizing customary valuation methods
such as the income, sales/market or cost approaches.


 


“Appraiser” means a nationally recognized MAI
appraiser selected by Borrower and reasonably approved by Lender.


 


“Approved Capital Expenditures” has the meaning
set forth in Section 2.13(a)(iii) hereof.


 


“Assignment of Rents and Leases” means, with
respect to the Mortgaged Property, an Assignment of Rents and Leases (and, if
there are more than one, each and every one of them), dated as of the Closing
Date, granted by Borrower to Lender with respect to the Leases, as same may
thereafter from time to time be supplemented, amended, modified or extended.


 


“Assumed Loan Debt Service” means the product
of the Market Constant and the Principal Indebtedness.


 


2

















 


“Basic Carrying Costs” means the following
costs with respect to the Mortgaged Property: 
(i) Impositions and (ii) insurance premiums for policies of insurance
required to be maintained by Borrower pursuant to this Agreement or the other
Loan Documents.


 


“Borrower” has the meaning provided in the
first paragraph of this Agreement.


 


“Borrower Release Price Contribution” means,
with respect to a Capital Event of an individual Mortgaged Property, the amount
required to be deposited into the Collection Account if the Release Price for
such individual Mortgaged Property shall be greater than the Capital Event
Proceeds received in connection with such Capital Event, which amount shall be
equal to the difference between such Release Price and such Capital Event
Proceeds.


 


“Business Day” means any day other than a
Saturday, a Sunday or a day on which commercial banks in the State of New York
are authorized or obligated by law, governmental decree or executive order to
be closed.  When used with respect to an
Interest Determination Date, “Business Day” shall mean any day other
than a Saturday, a Sunday or a day on which banks in London, England are closed
for interbank or foreign exchange transactions.


 


“Capital Event” means any transfer, sale,
assignment, conveyance, liquidation, disposition (other than a Taking) or
refinancing of all or any portion of a Mortgaged Property or any interest
therein and “Capital Events” shall have a meaning correlative to the
foregoing; provided, that the granting of an easement that benefits any
Mortgaged Property shall not constitute a Capital Event for purposes of this Agreement.


 


“Capital Event Proceeds” means any cash
proceeds of a Capital Event received by Borrower net of any cash prorations,
adjustments and credits with respect to such Capital Event and net of
reasonable third-party expenses paid in connection with such Capital Event.


 


“Capital Improvement Costs” means costs
incurred or to be incurred in connection with replacements and capital repairs
made to the Mortgaged Property which would be capitalized in accordance with
GAAP.


 


“CERCLA” has the meaning set forth in Section
5.1(d)(i) hereof.


 


“Chattel Paper” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
all “chattel paper” as defined in the UCC (whether tangible chattel paper or
electronic chattel paper).


 


“Closing Date” means the date of the funding of
the Loan.


 


“Code” means the Internal Revenue Code of 1986,
as amended, and as it may be further amended from time to time, any successor
statutes thereto, and applicable U.S. 
Department of Treasury regulations issued pursuant thereto in temporary
or final form.


 


“Collateral” means, collectively, the Land,
Improvements, Leases, Rents, Personalty, and all Proceeds, and (to the full
extent assignable) Permits, which is or hereafter may become subject to a Lien
in favor Lender as security for the Loan (whether pursuant to the Mortgages,
any other Loan Document or otherwise), all whether now owned or hereafter
acquired and all other property which is or hereafter may become subject to a
Lien in favor Lender as security for the Loan and including all property of any
kind described as part of the Mortgaged Property under any of the Mortgages.


 


3

















 


“Collateral Assignment of Hedge” means the
Collateral Assignment of Hedge, dated as of the applicable date and executed by
Borrower, Lender and the hedge counterparty.


 


“Collateral Security Instrument” means any
right, document or instrument, other than the Mortgages, given as security for
the Loan, including, without limitation, the Collateral Assignment of Hedge,
the Contract Assignment and the Pledge Agreement.


 


“Collection Account” has the meaning set forth
in Section 2.12(a) hereof.


 


“Collection Account Agreement” means the
Collection Account Agreement, dated as of the applicable date and executed by
Borrower, Lender and the Collection Account Bank, relating to the Collection
Account and the Reserve Accounts and any other accounts maintained with the
Collection Account Bank.


 


“Collection Account Bank” means Key Bank, or any
successor financial institution appointed by Lender.


 


“Collection Period” means, with respect to any
Payment Date, the period commencing on and including the eleventh (11th) day in
the month preceding the month in which such Payment Date occurs through and
including the tenth (10th) day in the month in which such Payment Date occurs; provided,
however, that in the case of the first Payment Date, the “Collection
Period” shall commence on the Closing Date.


 


“Commitment” means the Commitment dated
December 31, 2003 entered into by Affordable Residential Communities, LP,
Citigroup Global Markets Realty Corp. 
and Merrill Lynch Mortgage Lending, Inc.  with respect to the Loan.


 


“Condemnation Proceeds” means, in the event of
a Taking with respect to the Mortgaged Property, the proceeds in respect of
such Taking less any reasonable third party out-of-pocket expenses incurred in
prosecuting the claim for and otherwise collecting such proceeds.


 


“Contest” has the meaning set forth in Section
9.24(D)(1) hereof.


 


“Contingent Obligation” means, as used in the
definition of Other Borrowings, without duplication, any obligation of Borrower
guaranteeing any indebtedness, leases, dividends or other obligations (“primary
obligations”) of any other Person (the “primary obligor”) in any
manner, whether directly or indirectly. 
Without limiting the generality of the foregoing, the term “Contingent
Obligation” shall include any obligation of Borrower:


 


(i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor;


 


(ii) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the primary
obligor;


 


(iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation; or


 


(iv)  otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof.


 


4

















 


The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof (assuming Borrower is required to perform thereunder) as
determined by Lender in good faith.


 


“Contract Assignment” means, with respect to
the Mortgaged Property, the Assignment of Contracts, Licenses, Permits,
Agreements, Warranties and Approvals, dated as of the Closing Date and executed
by Borrower.


 


“Contracts” means the Management Agreement and
all other agreements to which Borrower is a party or which are assigned to
Borrower by the Manager in the Management Agreement and which are executed in
connection with the construction, operation and management of the Mortgaged
Property (including, without limitation, agreements for the sale, lease or
exchange of goods or other property and/or the performance of services by it,
in each case whether now in existence or hereafter arising or acquired) as any
such agreements have been or may be from time to time amended, supplemented or
otherwise modified.


 


“Debt Service Coverage Ratio” means, as of any
date of calculation with respect to the Mortgaged Property, the quotient
expressed to two decimal places of the Underwritten Net Cash Flow divided by
the Assumed Loan Debt Service.


 


“Debt Service Coverage Test” means, (x) as of
the Closing Date and as of any date of reunderwriting selected by Lender
pursuant to the Side Agreement, a test which shall be satisfied if the
Underwritten Net Cash Flow is at least equal to the product of 1.16 and the
Assumed Loan Debt Service and (y) as of any date of calculation after the
Closing Date (other than in connection with a reunderwriting by the Lender
pursuant to the Side Agreement), a test which shall be satisfied if the
Underwritten Net Cash Flow is at least equal to the product of 1.25 and the
Assumed Loan Debt Service.


 


“Debt Service Reserve Account” has the meaning
set forth in Section 2.13(c).


 


“Deed of Trust Trustee” means the trustee under
any Mortgage that constitutes a “deed of trust” under applicable law.


 


“Default” means the occurrence of any event
which, but for the giving of notice or the passage of time, or both, would be
an Event of Default.


 


“Default Administration Fee” means an amount
equal to the product of (x) 1% and (y) the Principal Indebtedness as of
the date the Default Administration Fee becomes payable; provided, that
any Exit Fee paid by the Borrower shall be credited against the Borrower’s
obligation to pay the Default Administration Fee.


 


“Default Rate” means the per annum interest
rate equal to the lesser of (a) 5.0% per annum in excess of the rate otherwise
applicable hereunder and (b) the maximum rate allowable by applicable law.


 


“Deferred Maintenance Escrow Account” has the
meaning set forth in Section 2.13(a).


 


“Deposit Account” means all of Borrower’s
right, title and interest, whether now owned or hereafter acquired, in, to and
under all “deposit accounts” as defined in the UCC.


 


“Disclosure Certificate” has the meaning set
forth in Section 5.1(w) hereof.


 


5

















 


“Disclosure Documents” has the meaning set
forth in Section 5.1(w) hereof.


 


“Documents” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
all “documents” as defined in the UCC (whether negotiable or non-negotiable) or
other receipts covering, evidencing or representing goods.


 


“EO13224” has the meaning set forth in Section
4.1(v) hereof.


 


“Eligible Account” means a separate and
identifiable account from all other funds held by the holding institution,
which account is either (i) an account maintained with a federal or state
chartered depository institution or trust company that (A) satisfies the Rating
Criteria and (B) insures the deposits made to such account through the Federal
Deposit Insurance Corporation, or (ii) a segregated trust account maintained
with the corporate trust department of a federal or state chartered depository
institution or trust company subject to regulations regarding fiduciary funds
on deposit similar to Title 12 of the Code of Federal Regulations Section
9.10(b) which, in either case, has corporate trust powers, acting in its
fiduciary capacity and in either case having combined capital and surplus of at
least $100,000,000 or otherwise acceptable to the Rating Agencies.  An Eligible Account shall not be evidenced
by a certificate of deposit, passbook, other instrument or any other physical
indicia of ownership.  Following a downgrade
below the Rating Criteria, withdrawal, qualification or suspension of such
institution’s rating, each account must at Lender’s request promptly (and in
any case within not more than thirty (30) calendar days) be moved to a
qualifying institution or to one or more segregated trust accounts in the trust
department of such institution, if permitted.


 


“Engineer” means an Independent Engineer
selected by Borrower and reasonably approved by Lender.


 


“Environmental Auditor” means an Independent
environmental auditor selected by Borrower and reasonably approved by Lender.


 


“Environmental Claim” means any notice,
notification, request for information, claim, administrative, regulatory or
judicial action, suit, judgment, demand or other written communication (whether
written or oral) by any Person or Governmental Authority alleging or asserting
liability with respect to Borrower or any Mortgaged Property (whether for
damages, contribution, indemnification, cost recovery, compensation, injunctive
relief, investigatory, response, remedial or cleanup costs, damages to natural
resources, personal injuries, fines or penalties) arising out of, based on or
resulting from (i) the presence, Use or Release into the environment of any
Hazardous Substance at any location (whether or not owned, managed or operated
by Borrower) that affects Borrower or any Mortgaged Property, (ii) any fact,
circumstance, condition or occurrence forming the basis of any violation, or
alleged violation, of any Environmental Law or (iii) any alleged injury or
threat of injury to human health, safety or the environment.


 


“Environmental Indemnity Agreement” means the
Environmental Indemnity Agreement dated as of the Closing Date, from Borrower
and the Guarantor, collectively, as indemnitor, to Lender, as indemnitee, as
the same may be amended, modified or supplemented from time to time.


 


“Environmental Laws” means any and all present
and future federal, state or local laws, statutes, ordinances, rules or
regulations, or any judicial interpretation thereof, any judicial or
administrative orders, decrees or judgments thereunder issued by a Governmental
Authority, and any permits, approvals, licenses, registrations, filings and
authorizations, in each case as now or hereafter in effect, relating to the
environment, human health or safety, or the Release or threatened Release of Hazardous
Substances or otherwise relating to the Use of Hazardous Substances.


 


6

















 


“Environmental Reports” means each and every
“Phase I Environmental Site Assessment” (and, if applicable, “Phase II
Environment Site Assessment”) as referred to in the ASTM Standards on
Environmental Site Assessments for Commercial Real Estate, E 1527-2000 and an
asbestos survey, with respect to each Mortgaged Property, prepared by one or
more Environmental Auditors and delivered to Lender and any amendments or
supplements thereto delivered to Lender.


 


“Equipment” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
(i) all “equipment” as defined in the UCC, and (ii) all of the following
(regardless of how classified under the UCC): 
all building materials, construction materials, personal property
constituting furniture, fittings, appliances, apparatus, leasehold
improvements, machinery, devices, interior improvements, appurtenances,
equipment, plant, furnishings, fixtures, computers, electronic data processing
equipment, telecommunications equipment and other fixed assets now owned or
hereafter acquired by Borrower, and all Proceeds of (i) and (ii) as well as all
additions to, substitutions for, replacements of or accessions to any of the
items recited as aforesaid and all attachments, components, parts (including
spare parts) and accessories, whether installed thereon or affixed thereto, all
regardless of whether the same are located on any Mortgaged Property or are
located elsewhere (including, without limitation, in warehouses or other
storage facilities or in the possession of or on the premises of a bailee,
vendor or manufacturer) for purposes of manufacture, storage, fabrication or
transportation and all extensions and replacements to, and proceeds of, any of
the foregoing.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the regulations
promulgated thereunder.  Section references
to ERISA are to ERISA, as in effect at the date of this Agreement and, as of
the relevant date, any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.


 


“ERISA Affiliate” means any corporation or trade
or business that is a member of any group of organizations (i) described in
Section 414(b) or (c) of the Code of which Borrower is a member and (ii) solely
for purposes of potential liability under Section 302(c)(11) of ERISA and
Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the
Code of which Borrower is a member.


 


“Event of Default” has the meaning set forth in
Section 7.1 hereof.


 


“Exit Fee” means 0.50% of the outstanding
Principal Indebtedness prepaid or repaid at any time (including the Maturity
Date); provided, however, that notwithstanding the foregoing, in
the event the initial Lender or an Affiliate of the initial Lender provides the
funds for a refinancing, then the Exit Fee shall be reduced by an amount equal
to 0.50% of the principal amount of any first mortgage loan(s) provided by
Lender in connection therewith.


 


“Extension Conditions,” “Extension Fee,”
“Extension Notice,” and “Extension Option” have the respective
meanings set forth in Section 2.17(a) hereof.


 


“Final Maturity Date” has the meaning set forth
in Section 2.17(a) hereof.


 


“First Extended Maturity Date” has the meaning
set forth in Section 2.17(a) hereof.


 


“Fiscal Year” means the 12-month period ending
on December 31st of each year (or, in the case of the first fiscal year, such
shorter period from the Closing Date through such date) or such other fiscal
year of Borrower as Borrower may select from time to time with the prior consent
of Lender.


 


“Fitch” means Fitch, Inc.  and its successors.


 


7

















 


“Foreign Lender” has the meaning set forth in Section
2.10(b) hereof.


 


“Fund” has the meaning set forth in the
definition of “Permitted Investments”.


 


“Funding Losses” has the meaning set forth in Section
2.5(e) hereof.


 


“Funding Party” means any bank or other entity,
if any, which is indirectly or directly funding Lender with respect to the
Loan, in whole or in part, including, without limitation, any direct assignee
of the Loan (but excluding any investors in any securities issued in connection
with a Secondary Market Transaction with respect to the Loan).


 


“GAAP” means generally accepted accounting
principles in the United States of America as of the date of the applicable
financial report, consistently applied.


 


“General Intangibles” means all of Borrower’s
right, title and interest, whether now owned or hereafter acquired, in, to and
under (i) all “general intangibles” as defined in the relevant UCC, now owned
or hereafter acquired by Borrower and (ii) all of the following
(regardless of how characterized):  all
agreements, covenants, restrictions or encumbrances affecting the Mortgaged
Property or any part thereof.


 


“General Partner” means, with respect to the
entity comprising the Borrower that is a Delaware limited partnership, ARC
19TXGP LLC, a Delaware limited liability company.


 


“Governmental Authority” means any nation or
government, any state, county, municipality or other political subdivision
thereof or any governmental body, agency, authority, department or commission
(including, without limitation, any taxing authority) or any instrumentality or
officer of any of the foregoing (including, without limitation, any court or
tribunal) exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation,
partnership or other entity directly or indirectly owned or controlled by the
foregoing.


 


“Gross Revenue” means, for any period, the
total dollar amount of all income and receipts received by, or for the account
of, Borrower in the ordinary course of business with respect to the Mortgaged
Property, but excluding Loss Proceeds (other than the proceeds of business
interruption insurance or the proceeds of a temporary Taking in lieu of Rents
which shall be included in Gross Revenue).


 


“Guarantor” means Affordable Residential
Communities Inc., a Maryland corporation, and Affordable Residential
Communities LP, a Delaware limited partnership, on a joint and several basis.


 


“Guaranty of Nonrecourse Obligations” means,
with respect to the Loan, the Guaranty of Nonrecourse Obligations guaranteeing
the exceptions to the nonrecourse provisions of the Loan Documents for which
liability is retained as described in Section 9.24 hereof from the
Guarantor to Lender.


 


“Hazardous Substance” means, collectively, (i)
any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls (“PCBs”), lead in drinking water, lead-based paint and radon,
(ii) any chemicals or other materials or substances which are now or hereafter
become defined as or included in the definitions of “hazardous substances”,
“hazardous wastes”, “hazardous materials”, “extremely hazardous wastes”,
“restricted hazardous wastes”, “toxic substances”, “toxic pollutants”,
“contaminants”, “pollutants” or words of similar import under any Environmental
Law and (iii) any other chemical or any


 


8

















 


other hazardous material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.


 


“Homesites” means, with respect to each
Mortgaged Property, the manufactured housing sites located thereon which are
capable of being leased to a Person to accommodate a manufactured or mobile
home, the number of each of which is set forth on Schedule 3 attached
hereto, as such number may be updated from time to time with the mutual written
agreement of Lender and Borrower.  Such
schedule shall include a breakdown of manufactured housing sites that are
capable of accommodating single and double wide manufactured homes, to the
extent such information is reasonably available to the Borrower.  “Immediate Repairs” has the meaning
set forth in Section 2.13(a)(ii) hereof.


 


“Impositions” means all taxes (including,
without limitation, all real estate, ad valorem, sales (including those imposed
on lease rentals), use, single business, gross receipts, value added,
intangible transaction privilege, privilege or license or similar taxes),
assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed within the term
of the Loan), ground rents, water, sewer or other rents and charges, excises,
levies, governmental fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental
charges, in each case whether general or special, ordinary or extraordinary,
foreseen or unforeseen, in respect of each Mortgaged Property (including all
interest and penalties thereon), accruing during or in respect of the term
hereof and which may be assessed against or imposed on or in respect of or be a
Lien upon (1) Borrower (including, without limitation, all income, franchise,
single business or other taxes imposed on Borrower for the privilege of doing
business in the jurisdiction in which each Mortgaged Property, or any other collateral
delivered or pledged to Lender in connection with the Loan, is located) or
Lender, or (2) any Mortgaged Property, or any other collateral delivered or
pledged to Lender in connection with the Loan, or any part thereof or any Rents
therefrom or any estate, right, title or interest therein, or (3) any
occupancy, operation, use or possession of, or sales from, or activity
conducted on, or in connection with any Mortgaged Property or the leasing or
use of any Mortgaged Property or any part thereof, or the acquisition or
financing of the acquisition of any Mortgaged Property by Borrower.


 


“Improvements” means all buildings, structures,
fixtures and improvements now or hereafter owned by Borrower of every nature
whatsoever situated on any Land constituting part of the Mortgaged Property
(including, without limitation, all gas and electric fixtures, radiators,
heaters, engines and machinery, boilers, ranges, elevators and motors, plumbing
and heating fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes, and cleaning apparatus which are or shall be affixed
to the Land or said buildings, structures or improvements and including any
additions, enlargements, extensions, modifications, repairs or replacements
thereto).


 


“Indebtedness” means the Principal
Indebtedness, together with all other obligations and liabilities due or to
become due to Lender pursuant hereto, under the Note or in accordance with any
of the other Loan Documents, and all other amounts, sums and expenses paid by
or payable to Lender hereunder or pursuant to the Note or any of the other Loan
Documents.


 


“Indemnified Parties” has the meaning set forth
in Section 5.1(i).


 


“Independent” means, when used with respect to
any Person, a Person that (i) does not have any direct financial interest or
any material indirect financial interest in Borrower or in any Affiliate of
Borrower, (ii) is not connected with Borrower or any Affiliate of Borrower as
an officer, employee,


 


9

















 


trustee, partner, director or person performing similar functions, and
(iii) is not a member of the immediate family of any Person described in
clauses (i) or (ii).


 


“Independent Manager” has the meaning set forth
in Section 8.1(ee).


 


“Index Maturity” has the meaning set forth in
the definition of LIBOR.


 


“Instruments” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
all “instruments” as defined in the UCC.


 


“Insurance Escrow Account” has the meaning set
forth in Section 2.13(b).


 


“Insurance Premiums” has the meaning set forth
in Section 5.1(x)(iii).


 


“Insurance Proceeds” means, in the event of a
casualty with respect to the Mortgaged Property, the proceeds received under
any insurance policy applicable thereto.


 


“Insurance Requirements” means all material
terms of any insurance policy required pursuant to this Agreement or any of the
Mortgages and all material regulations, rules and other requirements of the
National Board of Fire Underwriters or such other body exercising similar
functions applicable to or affecting the Mortgaged Property or any part thereof
or any use or condition thereof.


 


“Insured Casualty” has the meaning set forth in
Section 5.1(x)(iv)(B).


 


“Intellectual Property” means all of Borrower’s
right, title and interest, whether now owned or hereafter acquired, in, to and
under the trademark licenses, trademarks, rights in intellectual property,
trade names, service marks and copyrights, copyright licenses, patents, patent
licenses or the license to use intellectual property such as computer software
owned or licensed by Borrower or other proprietary business information
relating to Borrower’s policies, procedures, manuals and trade secrets.


 


“Interest Accrual Period” means, in connection
with the calculation of interest accrued with respect to any Payment Date, the
period commencing on and including the first (1st) Business Day in
the month in which such Payment Date occurs through and including the day
preceding the first (1st) Business Day of the month following the
month in which such Payment Date occurs; provided,  however, that
the first Interest Accrual Period for the Loan shall commence on March 1, 2004.


 


“Interest Determination Date” means, in
connection with the calculation of interest to accrue for any Interest Accrual
Period, the second Business Day preceding the first (1st) day of
such Interest Accrual Period.


 


“Interested Parties” has the meaning set forth
in Section 5.1(w) hereof.


 


“Inventory” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
all “inventory” as defined in the UCC and shall include all Documents
representing the same.


 


“Investment Property” means all of Borrower’s
right, title and interest, whether now owned or hereafter acquired, in, to and
under all “investment property” as defined in the UCC.


 


“IRS” has the meaning provided in Section
2.10(b) hereof.


 


10

















 


“Land” means the parcels of real estate described
on Exhibit A attached to the Mortgages and made a part hereof.


 


“Laundry Leases” has the meaning provided in Section
5.1(dd) hereof.


 


“Leases” means all leases, subleases, lettings,
occupancy agreements, tenancies and licenses by Borrower as landlord of the
Mortgaged Property or any part thereof now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor.


 


“Leasing Commissions” means leasing commissions
incurred by Borrower in connection with leasing any Mortgaged Property or any
portion thereof (including renewals of existing Leases).


 


“Legal Requirements” means all governmental
statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and
injunctions of Governmental Authorities (including, without limitation, any of
the foregoing relating to zoning, parking or land use, any and all
Environmental Laws and the Americans with Disabilities Act) affecting Borrower
or any Mortgaged Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof (whether now or hereafter
enacted and in force), and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, at any time in force affecting the
Mortgaged Property or any part thereof or any utility services or septic
systems or other infrastructure serving any portion of the Mortgaged Property
(including, without limitation, any which may (i) require repairs,
modifications or alterations in or to the Mortgaged Property or any part
thereof or any utility services or septic systems or other infrastructure
serving any portion of the Mortgaged Property, or (ii) in any way limit
the use and enjoyment thereof).


 


“Lender” has the meaning provided in the first
paragraph of this Agreement.


 


“Lender’s Terms” has the meaning provided in Section
5.1(v).


 


“Letter of Credit Rights” means all of
Borrower’s right, title and interest, whether now owned or hereafter acquired,
in, to and under all “letter of credit rights” as defined in the UCC.


 


“LIBOR” means the rate per annum calculated as
set forth below:


 


(i)            On each Interest
Determination Date, LIBOR will be determined on the basis of the offered rate
for deposits of not less than U.S. 
$1,000,000 for a period of one month (the “Index Maturity”),
commencing on such Interest Determination Date, which appears on Dow Jones
Market Service (formerly Telerate) Page 3750 as of 11:00 a.m., London time (or
such other page as may replace the Dow Jones Market Service (formerly Telerate)
Page on that service for the purposes of displaying London interbank offered
rates of major banks).  If no such
offered rate appears, LIBOR with respect to the relevant Interest Accrual
Period will be determined as described in (ii) below.


 


(ii)           With respect to an
Interest Determination Date on which no such offered rate appears on Dow Jones
Market Service (formerly Telerate) Page 3750 as described in (i) above, LIBOR
shall be the arithmetic mean, expressed as a percentage, of the offered rates
for deposits in U.S.  dollars for the
Index Maturity which appears on the Reuters Screen LIBO Page as of 11:00 a.m.,
London time, on such date.  If, in turn,
such rate is not displayed on the Reuters Screen LIBO Page at such time, then
LIBOR for such date will be obtained from the preceding Business Day for which
the Reuters Screen LIBO Page displayed a rate for the Index Maturity.


 


11

















 


(iii)          If on any Interest
Determination Date, Lender is required but unable to determine LIBOR in the
manner provided in paragraphs (i) and (ii) above, LIBOR for the next Interest
Accrual Period shall be the rate at which U.S. 
dollar deposits approximately equal to the principal amount of the Loan
having a 30-day term are offered by the principal London office of a leading
“money center” bank active in the London interbank market for U.S.  dollar deposits, as determined by Lender in
its sole discretion, in immediately available funds in the London interbank
market on the Determination Date.  LIBOR
for any Interest Accrual Period shall be adjusted from time to time, by
increasing the rate thereof to compensate Lender and any Funding Party for any
aggregate reserve requirements (including, without limitation, all basic,
supplemental, marginal and other reserve requirements and taking into account
any transitional adjustments or other scheduled changes in reserve requirements
during any Interest Accrual Period) which are required to be maintained by
Lender or such Funding Party with respect to “Eurocurrency liabilities” (as
presently defined in Regulation D of the Board of Governors of the Federal
Reserve System) of the same term under Regulation D, or any other regulations of
a Governmental Authority having jurisdiction over Lender or such Funding Party
of similar effect.  Notwithstanding the
foregoing, if the interest rate for Lender or any Funding Party shall be
increased in respect of reserve requirements as provided in the immediately
preceding sentence, Lender or such Funding Party shall promptly notify Borrower
in writing upon becoming aware that Borrower may be required to make the
foregoing compensation to Lender or such Funding Party.  Lender or any Funding Party that gives
notice as provided herein shall promptly withdraw such notice (by notice to
Borrower) whenever Lender or such Funding Party is no longer required to
maintain such reserves or the circumstances giving rise to such notice shall
otherwise cease.  Notwithstanding the
foregoing, Borrower shall not be required to pay any increased amounts required
by the third sentence of this definition to the extent that Lender or the
relevant Funding Party shall be compensated or reimbursed hereunder for such
amounts.  The establishment of the LIBOR
on each Interest Determination Date by Lender and Lender’s calculation of the
rate of interest applicable to the Note shall (in the absence of manifest
error) be final and binding.


 


All percentages resulting from any calculations of
LIBOR referred to in this Agreement will be carried out to five decimal places
and all U.S.  dollar amounts used in or
resulting from such calculations will be rounded upwards to the nearest cent.


 


“Lien” means any mortgage, deed of trust, lien
(statutory or other), pledge, hypothecation, assignment, security interest, or
any other encumbrance or charge on or affecting Borrower or any Mortgaged
Property or any portion thereof, or any interest therein (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and mechanic’s, materialmen’s and other similar liens and
encumbrances).


 


“Loan” means the loan made by Lender to
Borrower pursuant to the terms of this Agreement.


 


“Loan Amount” means an amount equal to
$91,863,139.


 


“Loan Documents” means this Agreement, the
Note, the Contract Assignment, the Management Agreement, the Manager’s
Subordination, the Mortgages, the Assignments of Rents and Leases, the Pledge
Agreement, the Environmental Indemnity Agreement, the Guaranty of Non-Recourse
Obligations, the Collateral Assignment of Hedge, the Side Agreement and all
other agreements, instruments, certificates and documents delivered by or on
behalf of Borrower or an Affiliate of Borrower to evidence or secure the Loan
as same may be amended or modified from time to time.


 


12

















 


“Local Collection Account” and “Local
Collection Account Bank” have the meanings set forth in Section 2.12(a).


 


“Local Collection Account Agreement” means with
respect to the Local Collection Account, the lockbox agreement, dated as of the
applicable date and executed by Borrower, Lender and the Local Collection
Account Bank.


 


“Loss Proceeds” means Condemnation Proceeds
and/or Insurance Proceeds.


 


“Loss Proceeds Account” has the meaning set
forth in Section 2.12(f) hereof.


 


“Losses” has the meaning set forth in Section
5.1(j).


 


“Management Agreement” means with respect to
any Mortgaged Property, the property management agreement entered into between
Borrower and the Manager, in such form as may be reasonably approved by Lender,
as such agreement may be amended, modified or supplemented in accordance with
the terms and conditions hereof from time to time, and any management agreement
which may hereafter be entered into with respect to any Mortgaged Property in
accordance with the terms and conditions hereof, as the same may be amended,
modified or supplemented in accordance with the terms and conditions hereof
from time to time.


 


“Manager” means ARC Management Services, Inc.,
a Delaware corporation, the current manager of the Mortgaged Property under the
current Management Agreement, or such other Person as may hereafter be charged
with management of any Mortgaged Property pursuant to a Management Agreement
entered into in accordance with the terms and conditions hereof.


 


“Manager’s Subordination” means, with respect
to each Mortgaged Property, initially the Manager’s Consent and Subordination
of Management Agreement, executed by the Manager, Borrower and Lender, dated as
of the Closing Date, and in the event a successor or assignee Manager is
engaged at any Mortgaged Property, a subordination agreement executed by
Manager, Borrower and Lender in form and substance satisfactory to Lender,
whereby, among other things, the Management Agreement is subordinated to the
Indebtedness and to the Lien of the Mortgages so long as the Loan remains
outstanding.


 


“Market Constant” means the highest of (a) the
current annual interest rate on the Loan adjusted to reflect amortization on a
thirty (30) year schedule, (b) 7.50% and (c) the Treasury Rate plus 200 basis
points adjusted to reflect amortization on a thirty (30) year schedule.


 


“Master Homesite Lease Agreement” means, with
respect to each legal entity comprising the Borrower, the related Master
Homesite Lease Agreement, dated as of February 18, 2004, by and between ARC
Housing, LLC (or with respect to any Mortgaged Property located in Texas, ARC
Housing TX LP, a Delaware limited partnership) and such entity comprising the
Borrower.


 


“Master Lease Deposits” means the security
deposits under all of the Master Homesite Lease Agreements.


 


“Master Lease Deposit Account” has the meaning
set forth in Section 2.12(a)(i).


 


“Material Adverse Effect” means a material
adverse effect upon (i) the business operations, properties, assets or
condition (financial or otherwise) of Borrower, (ii) the ability of


 


13

















 


Borrower to perform, or of Lender to enforce, any of the Loan Documents
or (iii) the aggregate value of the Mortgaged Property.


 


“Maturity Date” means the earlier of (a) the
Original Maturity Date (i.e.  the
Payment Date in February, 2006 or if Borrower exercises the Extension
Option pursuant to Section 2.17, the First Extended Maturity Date, the
Second Extended Maturity Date or the Final Maturity Date, as applicable, or (b)
such earlier date on which the entire Loan is required to be paid in full, by
acceleration or otherwise under this Agreement or any of the other Loan
Documents.


 


“Maximum Rate” has the meaning set forth in Section
2.5(i) hereof.


 


“Member” means ARC Real Estate Holdings, LLC, a
Delaware limited liability company.


 


“Moody’s” means Moody’s Investors Services,
Inc.  and its successors.


 


“Money” means all of Borrower’s right, title
and interest, whether now owned or hereafter acquired, in, to and under (i) all
“money” as defined in the UCC and (ii) all moneys, cash, or other items of
legal tender generated from the use or operation of the Mortgaged Property.


 


“Monthly Statement” has the meaning provided in
Section 2.12(d).


 


“Mortgage” means, with respect to the Mortgaged
Property, a first priority Mortgage or Deed of Trust (as applicable),
Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as
of the Closing Date (and, if there are more than one, each and every one of
them), granted by Borrower to or for the benefit of Lender or Deed of Trust
Trustee for the benefit of Lender, respectively, with respect to the Mortgaged
Property as security for the Loan, as same may thereafter from time to time be
supplemented, amended, modified or extended by one or more agreements
supplemental thereto.


 


“Mortgaged Property” means, at any time,
individually or collectively, as applicable, the Land, the Improvements, the
Personalty, the Leases and the Rents, and all rights, titles, interests and
estates appurtenant thereto, encumbered by, and more particularly described in,
each of the Mortgages.


 


“Multiemployer Plan” means a multiemployer plan
defined as such in Section 3(37) of ERISA and which is covered by Title IV of
ERISA (i) to which contributions have been, or were required to have been made
by Borrower or any ERISA Affiliate within the past six years or (ii) with
respect to which Borrower could reasonably be expected to incur liability.


 


“Net Proceeds” means either (x) the purchase
price (at foreclosure or otherwise) actually received by Lender from a third
party purchaser with respect to any Mortgaged Property, as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default or (y) in the event that Lender (or its
nominee) is the purchaser at foreclosure of any Mortgaged Property, the higher
of (i) the amount of Lender’s credit bid or (ii) such amount as shall be
determined in accordance with applicable law, and in either case minus all
reasonable third party, out of pocket costs and expenses (including, without
limitation, all attorneys’ fees and disbursements and any brokerage fees, if
applicable) incurred by Lender (and its nominee, if applicable) in connection
with the exercise of such remedies; provided, however, that such
costs and expenses shall not be deducted to the extent such amounts previously
have been added to the Indebtedness in accordance with the terms of the Loan
Documents or applicable law.


 


14

















 


“Note” means one or more promissory notes made
by Borrower to Lender pursuant to this Agreement, as such note may be modified,
amended, supplemented, restated or extended, and any replacement notes
therefor.


 


“O&M Program” has the meaning set forth in Section
5.1(d)(iv) hereof.


 


“OFAC” has the meaning set forth in Section
4.1(v) hereof.


 


“Officer’s Certificate” means a certificate
delivered to Lender by Borrower which is signed by an authorized officer of
Borrower.


 


“Operating Budget” means, with respect to any
Fiscal Year, the operating budget for the Mortgaged Property reflecting
Borrower’s projections of Gross Revenues and Property Expenses for the
Mortgaged Property for such Fiscal Year and on an annual and monthly basis and
submitted by Borrower to Lender in accordance with the provisions of Section
5.1(r)(viii), which Operating Budget shall include, as a component thereof,
a Working Capital Budget.


 


“Operating Expense Account” has the meaning
provided in Section 2.13(c).


 


“Operating Expenses” means, for any period of
calculation, all expenditures incurred and required to be expensed under GAAP
during such period in connection with the ownership, operation, maintenance,
repair and/or leasing of the Mortgaged Property, including without limitation
(or duplication) Property Expenses. 
Notwithstanding the foregoing, Operating Expenses shall not include
(a) Capital Improvement Costs, (b) any extraordinary items (unless Lender
and Borrower approve of the inclusion of such items as Operating Expenses), (c)
depreciation, amortization and other non-cash charges or (d) any payments of
principal or interest on the Indebtedness or otherwise payable to the holder of
the Indebtedness.  Operating Expenses
shall be calculated on the accrual basis of accounting.


 


“Operating Revenues” means, for any period, all
regular ongoing income during such period from the operation of the Mortgaged
Property that, in accordance with GAAP, is included in annual financial
statements as revenue.  Notwithstanding
the foregoing, Operating Revenues shall not include (a) any Loss Proceeds
(other than business interruption proceeds or Condemnation Proceeds in
connection with a temporary Taking and, in either case, only to the extent
allocable to such period or other applicable reporting period), (b) any
proceeds resulting from the sale, exchange, transfer, financing or refinancing
of the Mortgaged Property, (c) any Rent attributable to a Lease more than
one month prior to the date on which the actual payment of Rent is required to
be made thereunder, (d) any interest income from any source, (e) any
proceeds paid to the Collection Account by the interest rate cap counterparty
in connection with the interest rate cap entered into pursuant hereto, or (f)
any other extraordinary items as reasonably determined by Lender.  Operating Revenues shall be calculated on
the accrual basis of accounting.


 


“Organizational Agreements” means, individually
or collectively, (i) the certificate of formation and operating agreement, (ii)
the certificate of limited partnership and partnership agreement, (iii) the certificate
of incorporation and by-laws or (iv) the trust agreement or other
organizational documents, as applicable of any Person, each as amended or
restated from time to time.


 


“Original Maturity Date” means the Payment Date
occurring in February, 2006.


 


“Origination Fee” means 1.0% of the Loan Amount
payable to Lender on the Closing Date.


 


15

















 


“Other Borrowings” means, with respect to
Borrower, without duplication (but not including the Indebtedness or any
interest rate protection agreement entered into pursuant hereto) (i) all
indebtedness of Borrower for borrowed money or for the deferred purchase price
of property or services, (ii) all indebtedness of Borrower evidenced by a note,
bond, debenture or similar instrument, (iii) the face amount of all letters of
credit issued for the account of Borrower and, without duplication, all
unreimbursed amounts drawn thereunder, and obligations evidenced by bankers’
acceptances, (iv) all indebtedness of Borrower secured by a Lien on any
property owned by Borrower (whether or not such indebtedness has been assumed),
(v) all Contingent Obligations of Borrower, (vi) liabilities and obligations
for the payment of money relating to a capitalized lease obligation or sale/leaseback
obligation, (vii) liabilities and obligations representing the balance deferred
and unpaid of the purchase price of any property or services, except those
incurred in the ordinary course of Borrower’s business that would constitute
ordinarily a trade payable to trade creditors, and (viii) all payment
obligations of Borrower under any interest rate protection agreement
(including, without limitation, any interest rate swaps, caps, floors, collars
or similar agreements) and similar agreements.


 


“Payment Date” has the meaning provided in Section
2.5(a).


 


“Payment Date Statement” has the meaning
provided in Section 2.12(d).


 


“Payment Intangibles” means all of Borrower’s
right, title and interest, whether now owned or hereafter acquired, in, to and
under all “payment intangibles” as defined in the UCC.


 


“PBGC” means the Pension Benefit Guaranty
Corporation established under ERISA, or any successor thereto.


 


“Permits” means all licenses, permits,
variances and certificates required by Legal Requirements to be obtained by
Borrower and used in connection with the ownership, operation, use or occupancy
of the Mortgaged Property (including, without limitation, certificates of
occupancy, building permits, business licenses, state health department
licenses, licenses to conduct business and all such other permits, licenses and
rights, obtained from any Governmental Authority or private Person concerning
ownership, operation, use or occupancy of the Mortgaged Property).


 


“Permitted Encumbrances” means, with respect to
the Mortgaged Property, collectively, (i) the Lien created by the related
Mortgages, or any other Loan Documents of record encumbering each Mortgaged
Property, (ii) all Liens and other matters disclosed on the Title Insurance
Policy concerning each Mortgaged Property, (iii) Liens, if any, for Impositions
imposed by any Governmental Authority not yet delinquent or being contested in
good faith and by appropriate proceedings in accordance with Section
5.1(b)(ii) hereof and the related Mortgages, (iv) mechanic’s or
materialmen’s Liens, if any, being contested in good faith and by appropriate
proceedings in accordance with Section 5.1(b)(ii) hereof and the related
Mortgages, provided that no foreclosure has been commenced by the lien
claimant, (v) rights of existing and future tenants and residents as tenants
only pursuant to Leases, (vi) Liens for public utilities and (vii) claims
against Homesites incurred by tenants or other occupants of the Mortgaged
Property which claims, to the extent they affect the Mortgaged Property, are
contested in good faith and by appropriate proceedings in accordance with Section
5.1(b)(ii) hereof, which Liens and encumbrances referred to in clauses
(i)-(vii) above do not materially and adversely affect (1) the ability of
Borrower to pay in full the Principal Indebtedness and interest thereon in a
timely manner or (2) the use of any Mortgaged Property for the use
currently being made thereof or the operation of any Mortgaged Property as
currently being operated.


 


“Permitted Investments” means any one or more
of the following obligations or securities acquired at a purchase price of not
greater than par:


 


16

















 


(i)            obligations of, or
obligations fully guaranteed as to payment of principal and interest by, the
United States or any agency or instrumentality thereof provided such
obligations are backed by the full faith and credit of the United States of
America;


 


(ii)           obligations of the
following United States of America government sponsored agencies, provided such
obligations are backed by the full faith and credit of the United States of
America: Federal Home Loan Mortgage Corp. 
(debt obligations), the Farm Credit System (consolidated systemwide bonds
and notes), the Federal Home Loan Banks (consolidated debt obligations), the
Federal National Mortgage Association (debt obligations), the Financing
Corp.  (debt obligations), and the
Resolution Funding Corp.  (debt
obligations);


 


(iii)          federal funds, unsecured
certificates of deposit, time deposits, bankers’ acceptances and repurchase
agreements with maturities of not more than 365 days of any bank, the
short-term obligations of which are rated in the highest short-term rating
category by the Rating Agencies;


 


(iv)          certificates of deposit,
time deposits, demand deposits or banker’s acceptances issued by any depository
institution or trust company incorporated under the laws of the United States
or of any state thereof and subject to supervision and examination by federal
and/or state banking authorities, the short-term obligations of which are rated
in the highest short-term rating category by the Rating Agencies, which
investments are fully insured by the Federal Deposit Insurance Corp.;


 


(v)           debt obligations with
maturities of not more than 365 days and rated by the Rating Agencies in its
highest long-term unsecured rating category;


 


(vi)          commercial paper
(including both non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one year
after the date of issuance thereof) with maturities of not more than 270 days
and that is rated by the Rating Agencies in their highest short-term unsecured
debt rating; and


 


(vii)         any other demand, money
market or time deposit, demand obligation or any other obligation, security or
investment, which Lender shall have approved in writing and for which Borrower
shall have delivered a Rating Confirmation;


 


provided, however, that (A)
the investments described in clauses (i) through (vii) above must have a
predetermined fixed dollar of principal due at maturity that cannot vary or
change, (B) if such investments have a variable rate of interest, such interest
rate must be tied to a single interest rate index plus a fixed spread (if any)
and must move proportionately with that index, (C) such investments must not be
subject to liquidation prior to their maturity or have an “r” highlighter
affixed to its rating by S&P, and (D) such investments must not be subject
to liquidation prior to their maturity; and provided,  further,
that, in the judgment of Lender, such instrument continues to qualify as a
“cash flow investment” pursuant to Code Section 860G(a)(6) earning a passive
return in the nature of interest and that no instrument or security shall be a
Permitted Investment if such instrument or security evidences (x) a right to
receive only interest payments or (y) the right to receive principal and
interest payments derived from an underlying investment at a yield to maturity
in excess of 120% of the yield to maturity at par of such underlying
investment.


 


“Permitted Transfer” means any conveyance,
assignment, sale or other disposition (and not a mortgaging, encumbrance,
pledging, hypothecation, or granting of a security interest) (directly or
indirectly) of not more than 49% of the voting and beneficial ownership
interests in any legal entity


 


17

















 


comprising Borrower or the General Partner or the Member following
which Affordable Residential Communities LP (i) owns (directly or indirectly)
51% or more of such voting and beneficial ownership interests in each legal
entity comprising Borrower and General Partner and (ii) controls the operations
and management of Borrower and General Partner; provided, that any such
Transfer referred to above which takes the form of


 


(x)                                   a
Transfer of the equity ownership interest of the General Partner in any legal
entity comprising Borrower which is a limited partnership, or


 


(y)                                 a
Transfer of the equity ownership interests in any legal entity comprising
Borrower or the General Partner or the Member to a transferee which
(collectively amongst itself and its Affiliates that own such equity ownership
interests) acquires (directly or indirectly) a greater than 49% ownership interest
in such legal entity comprising Borrower or the General Partner or the Member,
or which acquires control over the operations and management of such legal
entity comprising Borrower or the General Partner or the Member,


 


shall not be permitted unless, in addition to satisfaction of the
conditions set forth in clauses (i) and (ii) of this definition above, Borrower
delivers to Lender (1) a substantive non-consolidation opinion in form and
substance reasonably acceptable to Lender and the Rating Agencies, if required
by Lender or the Rating Agencies and (2) a Rating Confirmation.


 


“Person” means any individual, corporation,
limited liability company, partnership, joint venture, estate, trust,
unincorporated association, any federal, state, county or municipal government
or any bureau, department or agency thereof and any fiduciary acting in such
capacity on behalf of any of the foregoing.


 


“Personalty” means all right, title and
interest of Borrower in and to all Equipment, Inventory, Accounts, General Intangibles,
Instruments, Investment Property, Receivables, Pledged Accounts, Deposit
Accounts, Contracts and Intellectual Property and all other personal property
as defined in the relevant UCC, now owned or hereafter acquired by Borrower and
now or hereafter affixed to, placed upon, used in connection with, arising from
or otherwise related to the Mortgaged Property or which may be used in or
relating to the planning, development, financing or operation of such Mortgaged
Property, including, without limitation, furniture, furnishings, equipment,
machinery, money, insurance proceeds, accounts, contract rights, trademarks,
goodwill, chattel paper, documents, trade names, licenses and/or franchise
agreements, rights of Borrower under leases of fixtures or other personal
property or equipment, inventory, all refundable, returnable or reimbursable
fees, deposits or other funds or evidences of credit or indebtedness deposited
by or on behalf of Borrower with any governmental authorities, boards,
corporations, providers of utility services, public or private, including
specifically, but without limitation, all refundable, returnable or
reimbursable tap fees, utility deposits, commitment fees and development costs.


 


“Plan” means an employee benefit or other plan,
other than a Multiemployer Plan, that is covered by Title IV of ERISA or
Section 302 of ERISA or Section 412 of the Code, and (i) was established or
maintained by Borrower or any ERISA Affiliate during the five year period ended
prior to the date of this Agreement or to which Borrower or any ERISA Affiliate
makes, is obligated to make or has, within the five year period ended prior to
the date of this Agreement, been required to make contributions or (ii) with
respect to which Borrower could reasonably be expected to incur liability.


 


“Pledge Agreement” means, with respect to
Borrower, the Pledge Agreement from each of the members or partners, as
applicable, of each legal entity comprising Borrower and of the member of the
General Partner to Lender, dated as of the Closing Date, as same may thereafter
from time to time be supplemented, amended, modified or extended by one or more
agreements supplemental thereto.


 


18

















 


“Pledged Accounts” means the Local Collection
Account(s), the Collection Account, the Reserve Accounts, the Loss Proceeds
Account, the Security Deposit Account, the Master Lease Deposit Account, any
additional accounts now or hereafter maintained by or on behalf of Borrower
hereunder and any sub-accounts of any of the foregoing and any successor
accounts to any of the foregoing.


 


“Policies” has the meaning provided in Section
5.1(x)(iii).


 


“Pre-existing Condition” has the meaning set
forth in Section 5.1(x)(iii)(B) hereof.


 


“Prepaid Rent Account” has the meaning provided
in Section 2.13(d).


 


“Prepayment Fee” means (x) with respect to any
prepayment of the Principal Indebtedness made at any time on or prior to the
February 2005, Payment Date, the product of (i) 0.25%, (ii) the number of
Payment Dates remaining after the day on which such prepayment is made to and
including the Original Maturity Date and (iii) the amount of the Principal
Indebtedness prepaid and (y) with respect to any prepayment of the
Principal Indebtedness made at any time after the February, 2005 Payment Date
to but excluding the Original Maturity Date, the product of 1.00% and the
outstanding Principal Indebtedness prepaid; provided, that
notwithstanding the foregoing, no Prepayment Fee shall be due and payable (1)
if the source of funds for the prepayment is Loss Proceeds and (2) with respect
to any prepayment after the Payment Date immediately preceding the Original
Maturity Date, so long as such prepayment is accompanied by an amount
representing all accrued interest on the portion of the Loan being prepaid
through the end of the related Interest Accrual Period.  Commencing on the Original Maturity Date and
thereafter, no Prepayment Fee shall be due and payable.


 


“Principal Indebtedness” means the principal
amount of the Loan outstanding as adjusted by each increase (including advances
made by Lender to protect the Collateral), or decrease in such principal amount
of the Loan outstanding, whether as a result of prepayment or otherwise, from
time to time.


 


“Proceeds” shall have the meaning given in the
UCC and, in any event, shall include, without limitation, all of Borrower’s
right, title and interest in and to proceeds, product, offspring, rents,
profits or receipts, in whatever form, arising from the Collateral.


 


“Prohibited Person” has the meaning set forth
in Section 4.1(v) hereof.


 


“Property Condition Assessment” means a report
with respect to any Mortgaged Property prepared by an Engineer or another
Person acceptable to the Lender and delivered to Lender in connection with the
Loan and any amendments or supplements thereto delivered to Lender.


 


“Property Expenses” means, with respect to the
Mortgaged Property, the following costs and expenses but only, in the case of
costs and expenses in respect of goods and services, to the extent that they
(x) are paid to Persons who are generally in the business of providing such
goods and services, (y) are customary for the types of goods or services
provided in the geographical area in which such goods or services are provided
and (z) do not constitute Capital Improvement Costs:


 


(i)            Impositions;


 


(ii)           insurance premiums
for policies of insurance required to be maintained by Borrower pursuant to
this Agreement or the other Loan Documents or otherwise maintained by Borrower
or an Affiliate of Borrower on behalf of Borrower in the ordinary course of
business with respect to the Mortgaged Property;


 


19

















 


(iii)          the cost of all
electricity, oil, gas, water, steam, heat, ventilation, air conditioning and any
other energy, utility or similar item and overtime services with respect to the
Mortgaged Property;


 


(iv)          payments required
under service contracts for any services or items used at the Mortgaged
Property or otherwise used in the operation of the Mortgaged Property
(including, without limitation, service contracts for heating, ventilation and
air conditioning systems, elevators, landscape maintenance, pest extermination,
security, furniture, trash removal, answering service and credit checks);


 


(v)           wages, benefits,
payroll taxes, uniforms, the cost of cleaning supplies and all related expenses
for on-site personnel directly involved in the day-to-day operation of the
Mortgaged Property (including, without limitation, full time, part time, or
seasonal employees, allocated between a number of properties and general
repair, maintenance and security employees), whether hired by Borrower, Manager
or any other Person;


 


(vi)          costs required in
connection with the enforcement of any Lease (including, without limitation,
reasonable attorneys’ fees, charges for lock changes and storage and moving
expenses for furniture, fixtures and equipment);


 


(vii)         advertising and rent-up expenses
(including, without limitation, leasing services, tenant rent concessions,
promotions for existing and prospective tenants, banners and signs);


 


(viii)        out-of-pocket cleaning, maintenance
and repair expenses;


 


(ix)           any expense the
total cost of which is passed through to tenants pursuant to executed Leases;


 


(x)            legal, accounting,
auditing and other professional fees and expenses incurred in connection with
the ownership, leasing and operation of the Mortgaged Property (including,
without limitation, collection costs and expenses);


 


(xi)           permits, licenses
and registration fees and costs;


 


(xii)          any expense
necessary in order to prevent a breach under a Lease;


 


(xiii)         any expense necessary in order to
prevent or cure a violation of any Legal Requirement (including Environmental
Law), regulation, code or ordinance;


 


(xiv)        costs and expenses of any appraisals,
valuations, surveys, inspections, zoning reports, environmental assessments or
market studies;


 


(xv)         costs and expenses of security and
security systems provided to and/or installed and maintained with respect to
the Mortgaged Property;


 


(xvi)        costs of title, UCC, litigation and
other searches and costs of maintaining the Lien of the Mortgages thereon and
the security interest in any related Collateral;


 


(xvii)       fees
and expenses of property managers contracted with by Borrower to perform management,
administrative, payroll or other services in connection with the operation of
the


 


20

















 


Mortgaged Property (including, without limitation, the fees
and expenses owed to Manager under any Management Agreement which the Lender
has approved in accordance with this Agreement);


 


(xviii)      any other costs and expenses
contemplated by the Operating Budget and customarily incurred in connection
with operating properties similar in type and character to the Mortgaged
Property; and


 


(xix)         any other category of property
expense that is customary for a property of the type and size as the Mortgaged
Property and is reasonably approved by Lender.


 


“Proposed Terms” means, with respect to any
Refinancing Loan, to the extent applicable, the interest rate, amount, term,
application and financing fees, lock box requirements, recourse guarantees,
indemnity requirements and prepayment penalties and prohibitions, closing and
funding conditions, reserve requirements, closing date and any other
non-customary terms in a transaction of such type.


 


“Qualified Interest Rate Cap Provider” means an
interest rate cap counterparty either (x) whose long-term debt obligations
are rated by the Rating Agencies not lower than “AAA” (or the equivalent), or
(y) whose long-term debt or counterparty obligations are rated by the Rating
Agencies not lower than “AA-” (or the equivalent) and whose short-term debt
obligations are rated by the Rating Agencies not lower than “A-1+” (or the
equivalent).


 


“Quarterly Statement” has the meaning provided
in Section 2.12(e).


 


“Rating Agencies” means at least two of Fitch,
Moody’s and S&P (or, if a Secondary Market Transaction has occurred in
which Securities have been issued, each of the foregoing that rated such
Securities).


 


“Rating Criteria” with respect to any Person,
means that (i) the short-term unsecured debt obligations of such Person
are rated at least “A-1” by S&P, “P-1” by Moody’s and “F-1” by Fitch, if
deposits are held by such Person for a period of less than one month, or
(ii) the long-term unsecured debt obligations of such Person are rated at
least “AA-” by S&P, “Aa3” by Moody’s and “AA-” by Fitch, if deposits are
held by such Person for a period of one month or more.


 


“Rating Confirmation” with respect to any
transaction, matter or action in question, means: (i) if all or any portion of
the Loan, by itself or together with other loans, has been the subject of a
Secondary Market Transaction, the written confirmation of the Rating Agencies
that such transaction, matter or action shall not, in and of itself, result in
the downgrading, withdrawal or qualification of the then-current ratings
assigned to any of the Securities issued in connection with a Secondary Market
Transaction; and (ii) if any portion of the Loan has not been the subject of a
Secondary Market Transaction, Lender shall have determined in its reasonable
discretion (taking into consideration such factors as Lender may determine,
including the attributes of the loan pool in which any portion of the Loan
reasonably be expected to be securitized) that no rating for any Securities
that would be issued in connection with a Secondary Market Transaction
involving any of such portion of the Loan would be downgraded, qualified, or
withheld by reason of such transaction, matter or action.


 


“Real Estate Taxes Escrow Account” has the
meaning provided in Section 2.13(b).


 


“Receivables” means all of Borrower’s right,
title and interest, whether now owned or hereafter acquired, in, to and under
(i)  any Accounts, Chattel Paper,
Instruments, Payment Intangibles, Letter of Credit Rights, Documents, insurance
policies, drafts, bills of exchange, trade acceptances, notes


 


21

















 


or other indebtedness owing to Borrower from whatever source arising,
(ii) to the extent not otherwise included above, (a) all income, Rents, issues,
profits, revenues, deposits and other benefits from the Mortgaged Property and
(b) all receivables and other obligations now existing or hereafter arising, or
created out of the sale, lease, sublease, license, concession or other grant of
the right of the use and occupancy of property or rendering of services by
Borrower or any operator or manager of the Mortgaged Property or other
commercial space located at the Mortgaged Property or acquired from others
(including, without limiting the generality of the foregoing, from rental of
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease and
concession fees and rentals, wholesale and retail sales of merchandise, service
charges, vending machine sales and proceeds, if any, from business interruption
or other loss of income insurance, 
(iii) all of the books and records (whether in tangible, electronic or
other form) now or hereafter maintained by or on behalf of Borrower in
connection with the operation of the Mortgaged Property or in connection with
any of the foregoing and (iv) all Supporting Obligations and all liens and
security interests securing any of the foregoing and all other rights,
privileges and remedies relating to any of the foregoing.


 


“Refinancing Loan” has the meaning set forth in
Section 5.1(v).


 


“Release” means any active or passive release,
spill, emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, the movement of Hazardous Substances through
ambient air, soil, surface water, ground water, wetlands, land or subsurface
strata).


 


“Release Price” means, with respect to a
Capital Event of any individual Mortgaged Property, the sum of (i) 125% of the
initial Allocated Loan Amount of such Mortgaged Property and (ii) either
(a) if the Debt Service Coverage Ratio of the remaining Mortgaged Properties
following such Capital Event is less than 1.20x, the amount that when applied
to pay the Principal Indebtedness causes the Debt Service Coverage Ratio
following such Capital Event to equal 1.20x or (b) if the Debt Service Coverage
Ratio of the remaining Mortgaged Properties following such Capital Event is
equal to or greater than 1.20x, the amount that when applied to pay the
Principal Indebtedness causes the Debt Service Coverage Ratio following such
Capital Event to be no less than the Debt Service Coverage Ratio immediately
prior to such Capital Event.


 


“Remedial Work” has the meaning set forth in Section
5.1(d)(i).


 


“Rents” means all income, rents (including base
rent), issues, profits, revenues (including all oil and gas or other mineral
royalties and bonuses), deposits (other than utility and security deposits) and
other benefits from the Mortgaged Property.


 


“Replacement Reserve Account” has the meaning
set forth in Section 2.13(a).


 


“Replacement Reserve Deposit Amount” means an
amount equal to one-twelfth (1/12th) of the product of $50.00 and
the number of Homesites at the Mortgaged Property; provided, that,
notwithstanding the foregoing, in the event the Lender determines in its reasonable
discretion that an increase in such amount is necessary to maintain proper
operation of the Mortgaged Properties, then upon not less than thirty (30) days
prior written notice to the Borrower, the Lender may increase the
aforementioned amount based upon its reassessment of the amount necessary for
Capital Improvement Costs from time to time.


 


“Replacement Reserve Threshold Amount” means
the product of $50.00 (or such higher amount as the Lender shall reasonably
determine pursuant to the proviso to the definition of Replacement Reserve
Deposit Amount) and the number of Homesites at the Mortgaged Property.


 


22

















 


“Reserve Account(s)” means the Deferred
Maintenance Escrow Account, the Replacement Reserve Account, the Real Estate
Taxes Escrow Account, the Insurance Escrow Account, the Operating Expense
Account, Working Capital Reserve Account, the Debt Service Reserve Account and
the Prepaid Rent Account, collectively, and any successor accounts to any of the
foregoing.  “Restoration” has the
meaning set forth in Section 5.1(x)(iii)(B).


 


“S&P” shall mean Standard & Poor’s
Rating Services, a division of The McGraw-Hill Companies, Inc and its
successors.


 


“Second Extended Maturity Date” has the meaning
set forth in Section 2.17(a).


 


“Secondary Market Transaction” has the meaning
set forth in Section 5.1(w).


 


“Securities” means mortgage pass-through
certificates or other securities issued in a Secondary Market Transaction and
evidencing a beneficial interest in or secured in whole or in part by the Loan
in a rated or unrated public offering or private placement.


 


“Security Deposit Account” has the meaning set
forth in Section 2.12(a)(i).


 


“Side Agreement” means that certain letter
agreement, dated as of the Closing Date, executed by the Borrower, the
Guarantor and the Lender.


 


“Single Member” has the meaning set forth in Section
8.1(ee).


 


“Supporting Obligations” means all of
Borrower’s right, title and interest, whether now owned or hereafter acquired,
in, to and under (i) all “supporting obligations” as defined in the UCC and
(ii) any other guarantee, letter of credit, secondary obligation, right or
privilege that supports or pertains to any of the Mortgaged Property.


 


“Survey” means a certified ALTA/ACSM survey of
each Mortgaged Property prepared by a registered Independent surveyor,
containing the form of survey or certification provided to Borrower by Lender
and in form and content reasonably satisfactory to Lender and the company
issuing the Title Insurance Policy for each Mortgaged Property.


 


“Taking” means a taking or voluntary conveyance
during the term hereof of all or part of any Mortgaged Property, or any
interest therein or right accruing thereto or use thereof, as the result of, or
in settlement of, any condemnation or other eminent domain proceeding by any
Governmental Authority affecting the Mortgaged Property or any portion thereof
whether or not the same shall have actually been commenced.


 


“Tax Liabilities” has the meaning set forth in Section
2.10(a) hereof.


 


“Title Insurance Policy” means a mortgagee’s
title insurance policy or policies (i) issued by one or more title companies
reasonably satisfactory to Lender which policy or policies shall (unless Lender
otherwise requires or consents) be in form ALTA 1992, where available (with
waiver of arbitration provisions), naming Lender as the insured party, (ii)
insuring the Mortgages as being a first and prior lien upon the Mortgaged
Property, (iii) showing no encumbrances against any Mortgaged Property (whether
junior or superior to the Mortgages) which are not reasonably acceptable to
Lender other than Permitted Encumbrances, (iv) in an amount reasonably
satisfactory to Lender (it being understood and agreed that because multiple
Mortgaged Properties secure the Loan, a reasonable


 


23

















 


requirement shall be deemed to include requiring title insurance for a
Mortgaged Property in the amount of the Allocated Loan Amount for such
Mortgaged Property if a tie-in endorsement is available in the State where such
Mortgaged Property is located or 125% of the appraised value of a Mortgaged
Property if a tie-in endorsement is not available in the State where such
Mortgaged Property is located or such Mortgaged Property cannot be tied
together with other Mortgaged Properties for any reason), and (v) otherwise in
form and content reasonably acceptable to Lender.  Such Title Insurance Policy shall include the following
endorsements or affirmative coverages in form and substance reasonably
acceptable to Lender, to the extent available in the jurisdiction in which the
Land is located: variable rate endorsement; survey endorsement; comprehensive
endorsement; zoning (ALTA 3.1 with parking added) endorsement; first loss, last
dollar and tie-in endorsement; access coverage; separate tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Lender
shall reasonably require with respect to a particular Mortgaged Property in
order to provide insurance against specific risks identified by Lender in
connection with the Mortgaged Property.


 


“Transaction” means the transactions
contemplated by the Loan Documents.


 


“Transaction Costs” means all costs and
expenses paid or payable by Borrower relating to the Transaction (including,
without limitation, appraisal fees, legal fees and accounting fees and the
costs and expenses described in Section 9.23).


 


“Transfer” means the conveyance, assignment,
sale, mortgaging, encumbrance (other than a Permitted Encumbrance), pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any direct or indirect  (irrespective of the number of tiers of
ownership) legal or beneficial interest (a) in all or any portion of the
Mortgaged Property; or (b) any stock, partnership interests, membership
interests or other ownership interests in Borrower, the General Partner, if
any, or the Member or the constituent entities directly or indirectly
(irrespective of the number of tiers of ownership) owning any such stock,
partnership interests, membership interests or other ownership interests.  A Transfer shall also include, without
limitation to the foregoing, the following: an installment sales agreement
wherein Borrower agrees to sell the Mortgaged Property or any part thereof or
any interest therein for a price to be paid in installments; an agreement by
Borrower leasing all or a substantial part of the Mortgaged Property to one or
more Persons pursuant to a single or related transactions, or a sale,
assignment or other transfer of, or the grant of a security interest in, Borrower’s
right, title and interest in and to any Leases or any Rent; execution or
consent by Borrower of any instrument subjecting the Mortgaged Property to a
condominium regime or transferring ownership to a cooperative corporation; and
any change of control of Borrower, General Partner, if any, or the Member.


 


“Treasury Rate” means, on the date on which
such rate is calculated, the yield on the ten year “on the run” U.S.  Treasury issue (primary issue) with such
yield being based on the bid price for such issue as reasonably determined by
Lender.


 


“UCC” means with respect to any Collateral, the
Uniform Commercial Code as in effect from time to time in the State of New
York; provided, that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection or priority of the
security interest in any item or portion of the Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
New York, “UCC” shall mean the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection or priority.  Wherever this agreement refers to terms as
defined in the UCC, if such term is defined in more than one Article of the
UCC, the definition in Article 9 of the UCC shall control.


 


24

















 


“UCC Searches” has the meaning set forth in Section
3.1(v) hereof.


 


“Underwritten Net Cash Flow” means, as of any
date of calculation with respect to the Mortgaged Property, (i) the Operating
Revenues calculated based upon the base rent portion of the Rents during the
most recent three month period for which such information was furnished to
Lender pursuant to Section 5.1(r)(iv)(v) hereof, annualized, plus (ii)
any utility and other income during the most recent twelve month period for
which such information was furnished to Lender pursuant to Section 5.1(r)(v)
hereof, minus (iii) the Operating Expenses with respect to the Mortgaged
Property during the most recent twelve month period for which such information
was furnished to Lender pursuant to Section 5.1(r)(v) hereof, each as
determined by Lender and after Lender makes adjustments, if necessary, for


 


(1)           expenses for management
fees equal to the greater of actual management fees or 5.00% of Operating
Revenues for such period,


 


(2)           a minimum vacancy
allowance equal to 5.00%,


 


(3)           an annual minimum
capital expenditure reserve equal to the product of $50.00 multiplied by the
total number of Homesites at the Mortgaged Property,


 


(4)           exclusion of rental
income and expenses from manufactured homes owned by Borrower,


 


(5)           exclusion of any other
revenue items reasonably deemed nonrecurring by Lender, and


 


(6)           inclusion of increases
in future operating costs as determined by Lender, in its sole discretion, so
that, assuming current occupancy, the annualized underwritten Operating
Expenses fully reflect the operating costs expected to be incurred over the
next twelve month period.


 


“Use” means, with respect to any Hazardous
Substance, the generation, manufacture, processing, distribution, handling,
use, treatment, recycling or storage of such Hazardous Substance or
transportation of such Hazardous Substance in connection with or affecting
Borrower or the Mortgaged Property.


 


“Welfare Plan” means an employee welfare
benefit plan as defined in Section 3(1) of ERISA established or maintained by
Borrower or any ERISA Affiliate or with respect to which Borrower or any ERISA
Affiliate has an obligation to make contributions and covers any current or
former employee of Borrower or any ERISA Affiliate.


 


“Working Capital Budget” means, with respect to
any Fiscal Year, the component of the Operating Budget for such fiscal year
submitted by Borrower to Lender in accordance with the provisions of Section
5.1(r)(viii) which sets forth, for each calendar month or other applicable
time period, the amount of the working capital reserve budgeted for such time
period and changed thereto over the course of such budget period (such working
capital reserve amount for any given time period is herein referred to as the “Working
Capital Reserve Amount”).


 


“Working Capital Reserve Account” has the
meaning set forth in Section 2.13(c) hereof.


 


“Working Capital Reserve Amount” has the
meaning set forth in the definition of Working Capital Budget.


 


25

















 


ARTICLE II.

GENERAL TERMS


 


Section 2.1.            The
Loan.


 


(a)           Subject to the terms and conditions of this Agreement,
Lender shall lend to Borrower on the Closing Date the Loan Amount.  The proceeds of the Loan shall be used
solely for the purposes identified in Section 2.2 hereof.  Lender is hereby authorized to fund directly
from the proceeds of the Loan advanced at Closing (net of any deposits or
payments made by Borrower or its Affiliates prior to Closing) (i) the
Origination Fee, (ii) the deposits to the Deferred Maintenance Escrow
Account, the Real Estate Taxes Escrow Account, the Insurance Escrow Account and
the Replacement Reserve Account required to be funded from Loan proceeds
pursuant to Section 2.13, (iii) the out-of-pocket expenses incurred
by Lender in connection with the origination and funding of the Loan and
(iv) the reasonable fees and expenses of Lender’s and Borrower’s counsel.


 


(b)           The Loan shall constitute one general obligation of
Borrower to Lender and shall be secured by the security interest in and Liens
granted upon all of the Collateral, and by all other security interests and
Liens at any time or times hereafter granted by Borrower to Lender as security
for the Loan.


 


Section 2.2.            Use of Proceeds.


 


Proceeds of the Loan shall be used only for the
following purposes:  (a) to, with
respect to certain of the Mortgaged Property, finance a portion of the
acquisition cost of, and, with respect to other of the Mortgaged Property,
refinance existing mortgage debt at, such Mortgaged Property, (b) to pay to
Lender the Origination Fee, (c) to make the required deposits to the Deferred
Maintenance Escrow Account, the Real Estate Taxes Escrow Account, the Insurance
Escrow Account and the Replacement Reserve Account, (d) to pay Transaction
Costs (including the reasonable out-of-pocket expenses incurred by Lender in
connection with the origination and funding of the Loan) and (e) to pay
reasonable fees, expenses and disbursements of Lender’s and Borrower’s
counsel.  Any proceeds of the Loan in
excess of the amounts applied in accordance with Sections 2.1(a) and 2.2(a)-(e)
may be used by the Borrower for its general purposes (including to make a
distribution to the Member).


 


Section 2.3.            Security
for the Loan.


 


The Note and Borrower’s obligations hereunder and
under all other Loan Documents shall be secured by (a) Liens upon the Mortgaged
Property pursuant to the Mortgages, (b) the Contract Assignment, (c) the
Manager’s Subordination, (d) the Assignment of Rents and Leases, (e) the Pledge
Agreement, (f) the Collateral Assignment of Hedge and all other security
interests and Liens granted in this Agreement and in the other Loan Documents.


 


Section 2.4.            Borrower’s
Note.  Borrower’s obligation
to pay the principal of and interest on the Loan and all other amounts due
under the Loan Documents shall be evidenced initially by the Note, duly
executed and delivered by Borrower on the Closing Date.  The Note shall be payable as to principal,
interest and all other amounts due under the Loan Documents, as specified in
this Agreement, with a final maturity on the Maturity Date.  Lender shall have the right to have the Note
subdivided, by exchange for promissory notes of lesser denominations in the
form of the initial Note, upon written request to Borrower and, in such event,
Borrower shall promptly execute additional or replacement Notes, at the
Lender’s sole expense with respect to Borrower’s reasonable out-of-pocket costs
in the event and to the extent Borrower incurs costs in connection therewith
other than in connection with the execution of such additional or replacement
Notes.  At no time shall the aggregate
original principal amount of the Note (or of such replacement Notes) exceed the
Loan Amount.


 


26

















 


Section 2.5.            Principal
and Interest.


 


(a)           Borrower shall pay to Lender interest on the Principal
Indebtedness of the Loan from the Closing Date through the end of the Interest
Accrual Period following or during which the Loan is paid in full at the
interest rate provided in this Section 2.5.  Interest on the Loan shall accrue on the Principal Indebtedness
commencing on the Closing Date and shall be payable in advance on the Closing
Date with respect to the period from the Closing Date to and including February
29, 2004.  Thereafter, interest shall be
payable in arrears on the last day of each and every month thereafter until such
time as the Loan shall be repaid in full, unless, in any such case, such last
day is not a Business Day, in which event such interest shall be payable on the
first Business Day immediately prior to such date (such date for any particular
month, the “Payment Date”). 
Lender or its servicer shall calculate LIBOR on each Interest
Determination Date for the related Interest Accrual Period and promptly
communicate to Borrower such rate for such period.  The entire outstanding Principal Indebtedness of the Loan and the
Note, together with all accrued but unpaid interest thereon and all other
amounts due under the Loan Documents (including, without limitation, the Exit
Fee), shall be due and payable by Borrower to Lender on the Maturity Date.  Interest shall be computed on the basis of a
360 day year and the actual number of days elapsed during any month or other
accrual period.


 


(b)           For each Interest Accrual Period, the Principal
Indebtedness shall bear interest at a rate per annum equal to the sum of LIBOR
determined as of the Interest Determination Date for such Interest Accrual
Period plus 3.00%.


 


(c)           While an Event of Default has occurred and is
continuing, Borrower shall pay to Lender interest at the Default Rate on any
amount owing to Lender not paid when due until such amount is paid in full.


 


(d)           If any payment of principal, interest or other sums
shall not be made to Lender on the date the same is due hereunder or under any
of the other Loan Documents, then Borrower shall pay to Lender, in addition to
all sums otherwise due and payable, a late fee in an amount equal to five
percent (5.0%) of such principal, interest or other sums due hereunder (other
than the entire principal balance of the Loan due upon acceleration of the Loan
or upon Maturity, as to which the Default Administration Fee shall apply) or
under any other Loan Document (or, in the case of a partial payment, the unpaid
portion thereof), such late charge to be immediately due and payable without
demand by Lender.


 


(e)           Borrower hereby agrees to pay to Lender any amount
necessary to compensate Lender and any Funding Party for any losses or costs
(including, without limitation, the costs of breaking any “LIBOR” contract, if
applicable, or funding losses determined on the basis of Lender’s or such Funding
Party’s reinvestment rate and the interest rate on the Loan) (collectively, “Funding
Losses”) sustained by Lender or any Funding Party: (i) if the Note, or any
portion thereof, is repaid for any reason whatsoever on any date other than a
Payment Date (including, without limitation, from condemnation or insurance
proceeds); or (ii) as a consequence of (x) any increased cost of funds that
Lender or any Funding Party may sustain in maintaining the borrowing evidenced
hereby or (y) the reduction of any amounts received or receivable from
Borrower, in either case under clause (i) or (ii), due to the introduction of,
or any change in, any law or applicable regulation or treaty adopted after the
date hereof (including the administration or interpretation thereof), whether
or not having the force of law, or due to the compliance by Lender or the
Funding Party, as the case may be, with any directive, whether or not having
the force of law, or request from any central bank or domestic or foreign
governmental authority, agency or instrumentality having jurisdiction made as
of the date hereof.  Notwithstanding
anything in this paragraph to the contrary, Funding Losses shall not include
Tax Liabilities which are not payable by Borrower pursuant to Section 2.10.


 


(f)            If Lender or any Funding Party shall have determined
that the applicability of any law, rule, regulation or guideline adopted
pursuant to or arising out of the July 1988 report of the


 


27

















 


Basle Committee on Banking Regulations and Supervisory Practices
entitled “International Convergence of Capital Measurement and Capital
Standards”, or the adoption of any other law, rule, regulation or guideline
(including but not limited to any United States law, rule, regulation or
guideline) regarding capital adequacy, or any change becoming effective in any
of the foregoing or in the enforcement or interpretation or administration of
any of the foregoing by any court or any domestic or foreign governmental
authority, central bank or comparable agency charged with the enforcement or
interpretation or administration thereof, or compliance by Lender or its
holding company or a Funding Party or its holding company, as the case may be,
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency made
after the date hereof, has or would have the effect of reducing the rate of
return on the capital of Lender or its holding company, or of the Funding
Party’s or its holding company, as the case may be, then, upon demand by Lender
and provided that such payments are being demanded from and made by other
borrowers of similarly situated loans, Borrower shall pay to Lender, from time
to time, such additional amount or amounts as will compensate Lender or such
Funding Party for any such reduction suffered.


 


(g)           Any amount payable by Borrower under Sections 2.5(e)
or (f) shall be paid to Lender within ten (10) Business Days after receipt by
Borrower of a certificate signed by an officer of Lender setting forth the
amount due and the basis for the determination of such amount in reasonable
detail and the computations made by Lender to determine the amount due, which
statement shall be conclusive and binding upon Borrower, absent manifest
error.  Failure on the part of Lender to
demand payment from Borrower for any such amount attributable to any particular
period shall not constitute a waiver of Lender’s right to demand payment of
such amount for any subsequent or prior period; except that Borrower shall not
be liable to any Funding Party or to Lender in respect of any reduction
described in Sections 2.5(d) or (e) with respect to any period more than three
(3) months before Borrower receives the certificate required by the previous
sentence.  Lender shall use reasonable
efforts to deliver to Borrower prompt notice of any event described in Sections
2.5(e) or (f) above and of the amount to be paid as a result thereof, provided,
however, any failure by Lender to so notify Borrower shall not affect its
obligation to make the payments to be made under this Section as a result
thereof.  All amounts which may become
due and payable by Borrower in accordance with the provisions of this Section
shall constitute additional interest under the Loan and shall be secured by the
Mortgages and the other Loan Documents.


 


(h)           If Lender or any Funding Party requests compensation
for any losses or costs to be reimbursed pursuant to any one or more of the
provisions of Sections 2.5(e) or (f), then, upon request of Borrower, Lender or
such Funding Party shall use reasonable efforts in a manner consistent with
such institution’s practice in connection with loans similar in size and type
as the Loan to eliminate, mitigate or reduce amounts that would otherwise be
payable by Borrower under the foregoing provisions, provided that such action
would not be otherwise prejudicial to Lender or such Funding Party, including,
without limitation, by designating another of Lender’s or such Funding Party’s
offices, branches or affiliates as the lending office, branch or affiliate;
Borrower hereby agreeing to pay all reasonably incurred costs and expenses
incurred by Lender or any Funding Party in connection with any such action.


 


(i)            Notwithstanding any provision to the contrary
contained in this Agreement or the other Loan Documents, Borrower shall not be
required to pay, and Lender shall not be permitted to collect, any amount of
interest in excess of the  maximum
amount of interest permitted by law (“Excess Interest”).  If any Excess Interest is provided for or
determined by a court of competent jurisdiction to have been provided for in
this Agreement or in any of the other Loan Documents, then in such event:
(1) the provisions of this paragraph shall govern and control;
(2) Borrower shall not be obligated to pay any Excess Interest;
(3) any Excess Interest that Lender may have received hereunder shall be,
at Lender’s option, (a) applied as a credit against either or both of the
Principal Indebtedness of the Loan or accrued and unpaid interest thereunder
(not to exceed the maximum amount permitted by law),


 


28

















 


(b) refunded to the payor thereof, or (c) any combination of
the foregoing; (4) the interest rate(s) provided for herein shall be
automatically reduced to the maximum lawful rate allowed from time to time
under applicable law (the “Maximum Rate”), and this Agreement and the
other Loan Documents shall be deemed to have been and shall be, reformed and
modified to reflect such reduction; and (5) Borrower shall not have any
action against Lender for any damages arising out of the payment or collection
of any Excess Interest.  Notwithstanding
the foregoing, if for any period of time interest on any Indebtedness is
calculated at the Maximum Rate rather than the applicable rate under this
Agreement, and thereafter such applicable rate becomes less than the Maximum
Rate, the rate of interest payable on such Indebtedness shall, to the extent
permitted by law, remain at the Maximum Rate until Lender shall have received
or accrued the amount of interest which Lender would have received or accrued
during such period on Indebtedness had the rate of interest not been limited to
the Maximum Rate during such period.  If
the Default Rate shall be finally determined to be unlawful, then the Maximum
Rate shall be applicable during any time when the Default Rate would have been
applicable hereunder, provided however that if the Maximum Rate is greater than
the applicable interest rate, then the foregoing provisions of this paragraph
shall apply.


 


Section 2.6.            Voluntary
Prepayment.


 


(a)           Borrower may voluntarily prepay the Loan in whole or
in part on any Business Day; provided, however, that, any such
prepayment shall be accompanied by an amount representing (1) all accrued
interest on the portion of the Loan being prepaid, (2) with respect to any
prepayment made on a Business Day other than a Payment Date, all accrued
interest on the portion of the Loan being prepaid through the end of the
Interest Accrual Period during which the prepayment occurs and (3) all other
amounts then due under the Loan Documents (including, without limitation, the
Prepayment Fee, if any, and the Exit Fee).


 


(b)           In the event of any such voluntary prepayment,
Borrower shall give Lender written notice (or telephonic notice promptly
confirmed in writing) of its intent to prepay, which notice shall be given at
least fifteen (15) days’ prior to the date upon which prepayment is to be made
and shall specify the Payment Date on which such prepayment is to be made and
the amount of such prepayment (which shall not be less than $1,000,000).  If any such notice is given, the amount
specified in such notice shall be due and payable on the Payment Date specified
therein (unless such notice is revoked by Borrower prior to the date specified
therein in which event Borrower shall immediately reimburse Lender for any
reasonable out-of-pocket costs incurred in connection with the giving of such
notice and its revocation).


 


Section 2.7.            Mandatory
Prepayment; Capital Events; Certain Transfers.


 


(a)           Borrower may effect a Capital Event with respect to an
individual Mortgaged Property on any Business Day as provided in Section
2.7(c) below or as to all of the Mortgaged Property on the condition that
with respect to any Capital Event as to all of the Mortgaged Property the
Capital Event Proceeds (and, if necessary, any contributions from the
principals of Borrower necessary to make the payments required hereunder) are
deposited in the Collection Account and applied on the date of deposit in the
Collection Account to repay the Indebtedness in full (including (1) all accrued
interest on the Principal Indebtedness through the end of the Interest Accrual
Period during which such deposit occurs, (2) the Prepayment Fee, if any, and
the Exit Fee and (3) other amounts then due under the Loan Documents).


 


(b)           Intentionally Omitted.


 


29

















 


(c)           So long as no Event of Default shall have occurred and
be continuing, Borrower may effect a Capital Event with respect to one or more
individual Mortgaged Property(ies); provided, however, that (1)
any such Capital Event shall be a sale or transfer to an Independent third
party in an arm’s-length transaction or to an Affiliate of Borrower in
connection with a refinancing transaction, and (2) each Capital Event shall be
consummated in accordance with the following procedure:


 


(A)          Borrower shall have given the Lender
at least fifteen (15) Business Days’ prior written notice of the Capital Event,
the identity of the purchaser and the anticipated Capital Event Proceeds; and


 


(B)           Borrower shall make or cause to be
made the deposits to the Collection Account referred to in Sections 2.11(a)
and 2.12(a)(iii).


 


(d)           Upon payment or prepayment of the Loan in full,
Borrower shall pay to Lender, in addition to the amounts specified in Section
2.6, Section 2.7 and Section 2.12, as applicable, all other
amounts then due and payable to Lender pursuant to the Loan Documents.


 


Section 2.8.            Application
of Payments After Event of Default. 
After an Event of Default, Borrower irrevocably waives the right to
direct the application of any and all payments at any time hereafter received
by Lender from or on behalf of Borrower, and Borrower irrevocably agrees that
Lender shall have the continuing exclusive right to apply any and all such
payments and any and all proceeds and recoveries from the Pledged Accounts, the
Mortgaged Property or Borrower after the occurrence and during the continuance
of an Event of Default, in Lender’s sole discretion, to the Indebtedness and
other amounts then outstanding under this Agreement in such order and manner as
Lender may determine in its sole and absolute discretion, including, without limitation,
reasonable out-of-pocket costs and expenses of Lender reimbursable pursuant to
the terms of this Agreement arising as a result of such repayment, any accrued
and unpaid interest then payable with respect to the Loan or the portion
thereof being repaid, the Principal Indebtedness, any accrued and unpaid Exit
Fee or Prepayment Fee in respect of any such Principal Indebtedness or the
portion thereof being repaid, any other sums then due and payable to or for the
benefit of Lender pursuant to this Agreement or any other Loan Document(s), or
to Property Expenses and Capital Improvement Costs for the Mortgaged Property,
or to fund Reserve Accounts.


 


Section 2.9.            Method
and Place of Payment.  Except
as otherwise specifically provided herein, all payments and prepayments under
this Agreement and the Note shall be made to Lender not later than 12:00 p.m.,
Eastern time, on the date when due and shall be made in lawful money of the
United States of America by wire transfer in federal or other immediately available
funds to its account at such bank(s) as Lender may from time to time
designate.  Any funds received by Lender
after such time shall, for all purposes hereof, be deemed to have been paid on
the next succeeding Business Day. 
Lender shall notify Borrower in writing of any changes in the account to
which payments are to be made.  All
payments made by Borrower hereunder, or by Borrower under the other Loan
Documents, shall be made irrespective of, and without any deduction for, any
defenses, set-offs or counterclaims.


 


Section 2.10.          Taxes.


 


(a)           All payments made by or on behalf of Borrower under
this Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority (the “Tax Liabilities”), excluding net income
taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the
Lender as a result of a present or former connection between such Lender and
the


 


30

















 


jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein including being a
citizen or resident or national of, or carrying on a business or maintaining a
permanent establishment in such jurisdiction (other than any such connection
arising solely from such Lender’s having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement if, at the
time such Lender first became a party to this Agreement, the applicable
Governmental Authority would not have imposed such taxes but instead such taxes
are a result of a change in relevant tax law including, but not limited to a
change in the generally accepted interpretation of existing tax law).  If Borrower shall be required by law to
deduct any such Tax Liabilities (or amounts in estimation or reimbursement for
the same) from or in respect of any sum payable hereunder to Lender, then the
sum payable hereunder shall be increased (such increase, “additional amounts”)
as may be necessary so that, after making all required deductions, Lender receives
an amount equal to the sum it would have received had no such deductions been
made.


 


(b)           If Lender is not a “United States person” within the
meaning of Section 7701(a)(30) of the Code (a “Foreign Lender”)
Lender shall deliver to Borrower, prior to receipt of any payment subject to
withholding under the Code (or upon accepting an assignment of an interest
herein), two duly signed completed copies of either Internal Revenue Service (“IRS”)
Form W-8BEN or any successor thereto (relating to Foreign Lender and
entitling it to an exemption from, or reduction of, withholding tax on all
payments to be made to Foreign Lender by Borrower pursuant to this Agreement)
or IRS Form W-8ECI or any successor thereto (relating to all payments to
be made to Foreign Lender by Borrower pursuant to this Agreement) or such other
evidence satisfactory to Borrower and Borrower that Foreign Lender is entitled
to an exemption from, or reduction of, U.S. 
withholding tax, including any exemption pursuant to Section 881(c)
of the Code.  If the form W-8BEN or
W-8ECI provided by Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Tax
Liabilities reimbursable by Borrower to Lender under Section 2.10(a)
hereof, except to the extent that such Lender’s assignor (if any) was entitled,
at the time of assignment, to receive additional amounts from Borrower pursuant
to Section 2.10(a).  Thereafter and from
time to time, Foreign Lender shall (i) promptly submit to Borrower such
additional duly completed and signed copies of one of such forms (or such
successor forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may then be available under then current United
States laws and regulations to avoid, or such evidence as is satisfactory to
Borrower and Borrower of any available exemption from or reduction of, United
States withholding taxes in respect of all payments to be made to Foreign
Lender by Borrower pursuant to this Agreement, (ii) promptly notify
Borrower of any change in circumstances which would modify or render invalid
any claimed exemption or reduction, and (iii) take such steps as shall not
be materially disadvantageous to it, in the reasonable judgment of such Lender,
and as may be reasonably necessary (including the redesignation of its lending
office) to avoid any requirement of applicable laws that Borrower make any
deduction or withholding for taxes from amounts payable to such Foreign
Lender.  Notwithstanding any other
provision of this paragraph, a Foreign Lender shall not be required to deliver
any form pursuant to this paragraph that such Foreign Lender is not legally
able to deliver.


 


(c)           If a Lender transfers its rights and obligations under
this Agreement from its lending office to another lending office, withholding
tax (which shall be set forth in the IRS form or forms described in this
Section 2.10 provided by such Lender to Borrower upon such transfer, taking
into account the transfer) imposed on the Lender after the transfer in excess
of the rate imposed prior to such transfer shall be deemed to be for purposes
of this Agreement excluded from Tax Liabilities reimbursable by Borrower to
Lender for periods after the transfer. 
This Section 2.10(c) shall not apply with respect to a change in
lending office required for the particular right or obligation as a result of
any change in, or the adoption or phase-in of, any law, rule or regulation
applicable to such Lender and occurring after the date of this Agreement and
the applicable Lender is unable, using commercially reasonable efforts, to
change such lending office to another lending office that is subject to a lower
withholding tax rate.


 


31

















 


(d)           If any Lender voluntarily changes its residence or
place of business or takes any other similar action, and the effect of such
change or action, as of the date thereof, would be to increase the Tax
Liabilities of such Lender, the Borrower shall not be obligated to pay any
additional amounts in respect of such increase.


 


(e)           If and to the extent that a Foreign Lender sells a
participating interest to a participant which, pursuant to Section 9.9(a),
seeks to obtain the benefits of Section 2.10, then such Foreign Lender shall
promptly deliver to Borrower (i) two duly signed completed copies of the
forms or statements required to be provided by such Lender as set forth above,
to establish the portion of any such sums paid or payable with respect to which
such Lender acts for its own account that is not subject to U.S.  withholding tax, and (ii) two duly
signed completed copies of IRS Form W-8IMY (or any successor thereto),
together with any information such Lender chooses to transmit with such form,
and any other certificate or statement of exemption required under the Code, to
establish that such Lender is not acting for its own account with respect to a
portion of any such sums payable to such Lender.  Notwithstanding any other provision of this paragraph, a Foreign
Lender shall not be required to deliver any form pursuant to this paragraph
that such Foreign Lender is not legally able to deliver.


 


(f)            For any period with respect to which a Lender has
failed to comply with the requirements of Section 2.10(b), (e) or (h) (other
than to the extent such failure is due to a change in law, rule or regulation
occurring subsequent to the date on which a form originally was required to be
provided), Borrower shall not be required to pay additional amounts to the
Lender pursuant to this Section 2.10 with respect to Tax Liabilities imposed as
a result of such failure.


 


(g)           Borrower may, without reduction, withhold any Tax
Liabilities required to be deducted and withheld from any payment under any of
the Loan Documents with respect to which Borrower is not required to pay
additional amounts under this Section 2.10.


 


(h)           Upon Borrower’s request, if the Lender is a “United
States person” within the meaning of Section 7701(a)(30) of the Code,
Lender shall, if and to the extent required by law, execute and deliver to
Borrower an IRS Form W-9.


 


Section 2.11.          Release
of Collateral.


 


(a)           Notwithstanding any other provision of this Agreement
or any other Loan Document, upon the occurrence of a Capital Event with respect
to the Mortgaged Property as described in Section 2.7 hereof, Lender
shall, simultaneously with such Capital Event release of record the Lien of the
Mortgages and UCC-1 financing statements and any other Liens in favor of Lender
relating to the Mortgaged Property or the portion thereof affected by such
Capital Event; provided, however, that (i) Lender shall not
be required to release its Lien unless any Proceeds of such Capital Event are
paid to Lender in full satisfaction of the Indebtedness (including any
Prepayment Fees, Exit Fees and other amounts due Lender) or to the Collection
Account as required hereunder and (ii) with respect to a Capital Event
consummated in accordance with this Agreement which does not result in a full
satisfaction of the Indebtedness, if the related Mortgaged Property is located
in a state that imposes mortgage recording taxes, then Lender shall, in lieu of
such release, to the extent necessary to facilitate future savings of mortgage
tax, assign at Borrower’s expense, such Liens to the new lender(s), provided
that any such assignments shall be without recourse, representation, or
warranty of any kind, except that Lender shall represent and warrant (1) the
then outstanding amount of the Principal Indebtedness and (2) that such Liens
have not been previously assigned by Lender.


 


(b)           In the event Borrower satisfies the outstanding
Indebtedness in full, Lender shall withdraw and hold uninvested for Borrower in
an Eligible Account at a financial institution selected by


 


32

















 


Lender from the Business Day immediately preceding the date upon which
the release of funds is to be made to Borrower and release on the date on which
the outstanding Indebtedness is repaid in full any and all amounts then on
deposit in the Reserve Accounts and/or the Collection Account to Borrower.  Upon repayment of the Loan and all other
amounts due hereunder and under the Loan Documents in full in accordance with
the terms hereof and thereof, Lender shall, promptly after such payment,
release or cause to be released all Liens with respect to all Collateral
(including, without limitation, terminating the tenant direction letters
delivered pursuant to Section 2.12(a)) or, to the extent necessary to
facilitate future savings of mortgage tax in states that impose mortgage taxes,
assign at Borrower’s expense, such Liens to Borrower’s new lender(s), provided
that any such assignments shall be without recourse, representation, or
warranty of any kind, except that Lender shall represent and warrant (1) the
then outstanding amount of the Principal Indebtedness and (2) that such Liens
have not been previously assigned by Lender.


 


Section 2.12.          Central
Cash Management.


 


(a)           Local Collection Accounts; Collection Account;
Deposits to and Withdrawals from the Collection Account.


 


(i)  On or
before the Closing Date, Lender shall (1) establish on behalf of the Borrower
and maintain with the Collection Account Bank a collection account (the “Collection
Account”), which shall be an Eligible Account with a separate and unique
identification number in the name of Lender, as secured party, or, at Lender’s
option, in the name of Borrower for the benefit of Lender, as secured party,
and (2) cause the Collection Account Bank to deliver to Lender the Collection
Account Agreement in form and substance reasonably acceptable to Lender
acknowledging Lender’s security interest in and sole dominion and control over
the Collection Account.  On or before
the Closing Date, Borrower may (x) establish and maintain with one or more
financial institutions acceptable to Lender in its sole reasonable discretion
(individually each, and collectively, the “Local Collection Account Bank”),
one or more local collection accounts for the Mortgaged Property (individually
each, and collectively, the “Local Collection Account”) and one or more
accounts for security deposits (other than Master Lease Deposits) for the
Mortgaged Property (individually each, and collectively, the “Security
Deposit Account”), each of which shall be an Eligible Account with a
separate and unique identification number and entitled in the same name as the
Collection Account and (y) cause each Local Collection Account Bank to deliver
to Lender a Local Collection Account Agreement in form and substance reasonably
acceptable to Lender acknowledging Lender’s security interest in and sole
dominion and control over each Local Collection Account and Security Deposit
Account; provided that Borrower may deposit, hold and administer
security deposits (other than Master Lease Deposits) from that portion of the
Mortgaged Property, if any, located in North Carolina in a Security Deposit
Account maintained with Bank of America, N.A. 
or other financial institution with a North Carolina branch reasonably
acceptable to Lender, which, it is understood, may not execute a Local
Collection Account Agreement, although Borrower shall make commercially
reasonable efforts to obtain such financial institution’s execution and delivery
of a Local Collection Account Agreement. 
On the Closing Date, Borrower shall deposit $695,850.43 in the Security
Deposit Account.  On or before the
Closing Date, Lender shall establish on behalf of Borrower and maintain with
the Collection Account Bank a separate account for Master Lease Deposits (the
“Master Lease Deposit Account”), which shall be an Eligible Account and shall
have the same title as the Collection Account, for the benefit of Lender until
the Loan is paid in full.  On the
Closing Date Borrower shall deposit $63,252 in the Master Lease Deposit
Account, which shall be an estimate of Master Lease Deposits as of the Closing
Date.  At least five (5) Business Days
prior to the first Payment Date, Borrower will provide to Lender as part of the
Monthly Statement a certified list of Master Lease Deposits showing the amount
of, and the amount of the Master Lease Deposits deposited in the Master Lease
Deposit Account shall be adjusted according on the


 


33

















 


first Payment Date, by a transfer of
funds between the Collection Account and the Master Lease Deposit Account.  Subject to Section 2.12(a)(ii),
Borrower shall


 


(A)          deposit or cause the Manager to
deposit in the Security Deposit Account (or into the Master Lease Deposit
Account, with respect to Master Lease Deposits) not less than one time during
each calendar month all security deposits in the form of Money received from
the tenants, since the date of the previous deposit (or in the case of the initial
deposit, since the Closing Date),


 


(B)           deposit or cause the Manager to
deposit in the Collection Account or Local Collection Account, all Rents and
Money received from Accounts or under Leases and derived from the Mortgaged
Property and all Proceeds thereof, in each case on each Business Day following
the collection and receipt thereof during the first seven (7) Business Days of
each calendar month and not less than once during each calendar week of such
month commencing after such seventh (7th) day, and


 


(C)           sweep or cause to be swept by each
Local Collection Account Bank all Money on deposit in the Local Collection
Account in excess of $10,000 (which the Local Collection Account Bank shall be
entitled to use to offset any returned items) to the Collection Account on each
Business Day.


 


Borrower shall not have
any right to withdraw Money from the Local Collection Account, the Security
Deposit Account, the Master Lease Deposit Account or the Collection Account,
which shall be under the sole dominion and control, and the “control” within
the meaning of Sections 9-104 and 9-106 of the UCC, of Lender; provided,
that notwithstanding the foregoing, so long as an Event of Default has not
occurred and is not continuing (or if an Event of Default has occurred and is
continuing but Borrower is required to return the security deposit in
accordance with applicable Legal Requirements), Borrower may instruct the Local
Collection Account Bank to withdraw from the Security Deposit Account security
deposits (other than Master Lease Deposits) in order to satisfy Borrower’s
obligations to return the same to tenants entitled to them under and in
accordance with the Leases.  Any
disbursement of Master Lease Deposits shall in each case be subject to Lender’s
prior approval and direction, provided that Lender shall authorize, upon
Borrower’s request made not more frequently than on a monthly basis,
disbursements reflecting any reduction in Master Lease Deposits to which the
tenant under the applicable Master Homesite Lease Documentation is
entitled.  In the event of a Lease
default or other occurrence whereby Borrower, as landlord, shall become
entitled to retain any security deposits or apply the same to amounts owed
under the applicable Lease, any such security deposits so retained and/or
applied by Borrower shall, upon such retention or application, be transferred
from the Security Deposit Account to the Local Collection Account or the
Collection Account and treated in the same manner as Rents provided, that in
the event of a default under a Master Homesite Lease Agreement entitling the
landlord to retain Master Lease Deposits, the Master Lease Deposits shall not
be transferred to the Collection Account and treated as Rents but instead shall
continue to be held in the Master Lease Deposit Account as additional
collateral for the Indebtedness.  Any
such Rents, Money or Proceeds held by Borrower or the Manager prior to deposit
into the Local Collection Account shall be held in trust for the benefit of
Lender.  Borrower shall be responsible
for the payment of all costs and expenses in connection with establishing and
maintaining the Collection Account, the Local Collection Account, the Security
Deposit Account, the Master Lease Deposit Account and the Reserve Accounts
(including, without limitation, Collection Account Bank’s and Local Collection
Account Bank’s fees and charges) and shall reimburse Lender upon demand for any
such costs or expenses incurred by Lender.


 


34

















 


(ii)  In the
event that any Event of Default has occurred and is continuing,


 


(A)          upon request of Lender,
Borrower shall deliver to each tenant under a Lease an irrevocable direction
letter in a form approved by Lender requiring the tenant to pay all Rents and
other Money under Leases, and any Money received from Accounts or otherwise
derived from the Mortgaged Property and Proceeds thereof owed to Borrower
directly to the Collection Account or (if Lender elects) a Local Collection
Account and shall deliver an irrevocable direction letter in such form to each
tenant under a new Lease entered into thereafter prior to the commencement of
such Lease,


 


(B)           upon request of Lender,
all Rents and Money received from Accounts or under Leases and derived from the
Mortgaged Property and all Proceeds thereof shall be payable to Lender or as
otherwise directed by Lender,


 


(C)           if a tenant under a
Lease forwards any Rents, Money or Proceeds to Borrower or Manager rather than
directly to the Collection Account or applicable Local Collection Account,
Borrower shall (i) if the Lender has made the request referred to in Section
2.12(a)(ii)(A) above, deliver an additional irrevocable direction letter to
the tenant and make other commercially reasonable efforts to cause the tenant
to thereafter forward such Rents, Money or Proceeds directly to the Collection
Account or (if Lender elects) a Local Collection Account, and (ii) immediately
deposit or cause the Manager to deposit in the Collection Account any such
Rents, Money or Proceeds received by Borrower or Manager,


 


(D)          Borrower shall not have
any right to make or direct any withdrawals from the Collection Account or the
Reserve Account without the prior written consent of Lender (it being
understood and agreed that Borrower may continue to make withdrawals from the
Security Deposit Account as described above), and


 


(E)           any and all funds on
deposit in the Collection Account and the Reserve Accounts may be allocated by
Lender in its sole discretion for the payment of the Indebtedness pursuant to Section
2.8 of this Agreement or to the Operating Expense Account, the Working
Capital Reserve Account or the Debt Service Reserve Account.


 


(iii)  Borrower
shall deposit in the Collection Account: 
(a) as and when required by Sections 5.1(x) and (y), Loss
Proceeds received by Borrower and (b) simultaneously with the consummation of
any Capital Event, the Capital Event Proceeds resulting from such Capital Event
and, if the related Capital Event Proceeds are less than the related Release
Price, any Borrower Release Price Contribution necessary in connection with
such Capital Event in order to pay the Release Price for a Capital Event of an
individual Mortgaged Property or group of Mortgaged Properties.


 


(b)           Distribution of Cash. 
So long as an Event of Default has not occurred and is not continuing
(and thereafter at Lender’s sole option and discretion), Lender shall apply
funds on deposit in the Collection Account (to the extent not held in Reserve
Accounts constituting sub-accounts of the Collection Account, if any, and with
the exception of Capital Event Proceeds and Loss Proceeds, which shall be
applied as provided in Section 2.7 of this Agreement) on each Payment
Date, to the extent of the amounts set forth in the related Payment Date
Statement delivered by Lender or its servicer, as follows:


 


35

















 


(i) first, to the Real Estate Taxes Escrow
Account and the Insurance Escrow Account, in that order, in the respective
amounts required to be deposited therein as described in Section 2.13(b);


 


(ii) second, to the payment to Lender of (i)
the interest then due and payable on the Note with respect to the related
Interest Accrual Period, (ii) the Exit Fee, the Extension Fee and the
Prepayment Fee, if any, then due and payable and (iii) the Principal
Indebtedness in an amount equal to the sum of (1) if a Capital Event of an
individual Mortgaged Property(ies) occurred during the related Collection
Period, the related Release Price plus (2) any Loss Proceeds to which the Lender
is then entitled pursuant to this Agreement;


 


(iii) third, to the payment to Lender of any
expenses then due and payable to Lender or its servicer(s) pursuant to this
Agreement or the other Loan Documents;


 


(iv) fourth, to the Replacement Reserve Account
in the amount required to be deposited therein as described in Section
2.13(a);


 


(v) fifth, to the payment of any outstanding
indemnification payment to which an Indemnified Party is then entitled pursuant
to Sections 5.1(i) and 5.1(j), and any other amounts then due and
payable to Lender pursuant to this Agreement and the other Loan Documents which
are not paid from applications under clause (iii) above;


 


(vi) sixth, to the Prepaid Rent Account in the
amount required to be deposited therein as described in Section 2.13(d);


 


(vii) seventh, if no Event of Default exists,
to Borrower in an amount equal to remaining available funds, if any; provided,
that if any Event of Default exists, no disbursement shall be made under this
clause sixth; and


 


(viii) eighth, if any Event of Default exists,
then to the extent Lender has not made other application of such remaining
available funds in Lender’s discretion as provided hereunder, all remaining
available funds shall be allocated as determined by Lender in Lender’s sole and
absolute discretion (and re-allocated from time to time as Lender may elect)
and retained in the Debt Service Reserve Account, the Working Capital Reserve
Account and/or the Operating Expense Account or, at Lender’s option, in other
Lender-controlled accounts.


 


(c)           Permitted Investments. 
So long as no Event of Default has occurred and is continuing, Borrower
shall direct Lender in writing to invest and reinvest any balance in the
Collection Account, from time to time in Permitted Investments; provided,
however, that


 


(i)            the maturity of the
Permitted Investments on deposit therein shall be at the discretion of
Borrower, but in any event no later than the Business Day immediately preceding
the date on which such funds are required to be withdrawn therefrom pursuant to
Section 2.12(a) or 2.12(b) of this Agreement,


 


(ii)           after an Event of
Default has occurred and for so long as such Event of Default is continuing
Borrower shall not have any right to direct investment of the balance in the
Collection Account,


 


(iii)          all such Permitted
Investments shall be held in the name of Lender or its servicer and shall be
credited to the Collection Account, and


 


36

















 


(iv)          if no written investment
direction is provided to Lender by Borrower, Lender may at Lender’s option
invest any balance in the Collection Account in such Permitted Investments as
may be selected by Lender.


 


Lender shall have no liability for any loss in investments of funds in
the Collection Account that are invested in Permitted Investments and no such
loss shall affect Borrower’s obligation to fund, or liability for funding, the
Collection Account.  All interest paid
or other earnings on the Permitted Investments of funds deposited into the
Collection Account made hereunder shall be deposited into the Collection
Account.  Borrower shall include all
earnings on the Collection Account as income of Borrower for federal and
applicable state tax purposes.


 


(d)           Monthly and Payment Date Statements. 
With respect to each Collection Period, Lender or its servicer shall
prepare and deliver, or shall cause to be prepared and delivered, to Borrower
and Lender a statement no later than ten (10) Business Days after the end of
such Collection Period setting forth the aggregate deposits to and withdrawals
from the Collection Account and each Reserve Account and the opening and
closing balances in such accounts (collectively, the “Monthly Statement”).  With respect to each Payment Date and the
related Collection Period and Interest Accrual Period, Lender or its servicer
shall prepare and deliver, or shall cause to be prepared and delivered to
Borrower and Lender, a statement (each, a “Payment Date Statement”) no
later than the Business Day prior to such Payment Date with respect to each of
the items below, setting forth the following:


 


(i) the aggregate deposits to the Collection Account
during the related Collection Period for each type of deposit under this
Agreement and the opening and closing balances in the Collection Account;


 


(ii) the amount of interest then due and payable on
the Note with respect to the Interest Accrual Period (including the applicable
number of days and interest rate which were applied in determining such
amount);


 


(iii) the amount of the Exit Fee, the Extension Fee or
the Prepayment Fee, if any, then due and payable;


 


(iv) the amount of any expenses payable to Lender and
any outstanding indemnification payment to which an Indemnified Party is then
entitled under this Agreement;


 


(v) the following information with respect to the
Principal Indebtedness in a format reasonably acceptable to Lender:  (1) the Principal Indebtedness as of the
preceding Payment Date, (2) any principal payable to Lender pursuant to Sections
2.6, 2.7  or  2.12 on such Payment Date, and (3) the
Principal Indebtedness on the current Payment Date (taking into account such
payments); and


 


(vi)  the
amount withdrawn from or remitted to each account of the Reserve Account in
accordance with Sections 2.12 and 2.13 and the amount remitted to
Borrower.


 


(e)           Intentionally Omitted.


 


(f)            Loss Proceeds.  In the event
of a casualty or Taking with respect to the Mortgaged Property, unless pursuant
to Section 5.1(x) of this Agreement, the Loss Proceeds are to be made
available to Borrower for Restoration, all of Borrower’s interest in Loss
Proceeds shall be paid directly to the Collection Account.  If the Loss Proceeds are to be made
available for Restoration pursuant to this Agreement, such Loss Proceeds shall
be held by Lender in a segregated interest-bearing Eligible


 


37

















 


Account in the name of Lender and under the sole dominion and control
of Lender to be opened (if not previously opened and maintained by the
Collection Account Bank under the Collection Account Agreement by the Lender)
by Lender at a financial institution selected by Lender (the “Loss Proceeds
Account”).  Funds on deposit in the
Loss Proceeds Account shall be invested in Permitted Investments in the same
manner and subject to the same restrictions as set forth in Section 2.12(c)
with respect to the Collection Account (except that the maturity shall be not
later than as necessary to satisfy any schedule of distributions for
Restoration required or approved by Lender). 
If any Loss Proceeds are received by Borrower, such Loss Proceeds shall
be received in trust for Lender, shall be segregated from other funds of
Borrower, and shall be forthwith paid to Lender to the extent necessary to
comply with this Agreement.


 


Section 2.13.          Reserve
Accounts.


 


(a)           Deferred Maintenance Escrow Account and Replacement
Reserve Account.


 


(i)  On or
before the Closing Date, Lender shall establish on behalf of the Borrower and
maintain with the Collection Account Bank two separate accounts for deferred maintenance
and replacement reserves, each of which shall be an Eligible Account and shall
have the same title as the Collection Account, for the benefit of Lender until
the Loan is paid in full.  The two
accounts shall be designated the “Deferred Maintenance Escrow Account” (the “Deferred
Maintenance Escrow Account”) and the “Replacement Reserve Account” (the “Replacement
Reserve Account”).  On the Closing
Date, Lender shall deposit out of the Loan proceeds $1,356,293.75 in the
Deferred Maintenance Escrow Account and 28,366.67 in the Replacement Reserve
Account.  On each Payment Date,
commencing with the March 2004 Payment Date, Borrower shall deposit from the
Collection Account (or if the funds for such deposit are not available pursuant
to Section 2.12(b), shall make an additional deposit of Borrower’s funds
sourced from equity capital contributions) to the Replacement Reserve Account,
of an amount equal to the Replacement Reserve Deposit Amount until the amount
on deposit in the Replacement Reserve Account equals the Replacement Reserve
Threshold Amount for the initial time. 
During the period commencing on the March 2004 Payment Date when such
deposits are being made to the Replacement Reserve Account until the funds on
deposit therein equal the Replacement Reserve Threshold Amount for the initial
time, no withdrawals may be made from the Replacement Reserve Account.  After the amount on deposit in the
Replacement Reserve Account equals the Replacement Reserve Threshold Amount for
the initial time, the Borrower may request withdrawals from the Replacement
Reserve Account pursuant to the procedure set forth in Section 2.13(a)(iii)
below.  In the event following such
withdrawal, the amount on deposit in the Replacement Reserve Account shall be
less than the Replacement Reserve Threshold Amount then on each subsequent
Payment Date Borrower shall deposit from the Collection Account (or if the
funds for such deposit are not available pursuant to Section 2.12(b),
shall make an additional deposit of Borrower’s funds sourced from equity
capital contributions) to the Replacement Reserve Account, of an amount equal
to the Replacement Reserve Deposit Amount until the amount on the deposit in
the Replacement Reserve Account once again equals the Replacement Reserve Threshold
Amount (following which event the Borrower shall once again not be obligated to
make deposits to the Replacement Reserve Account).


 


(ii) Any and all Moneys remitted to the Deferred
Maintenance Escrow Account, together with any Permitted Investments in which
such Moneys are or will be invested or reinvested during the term of this
Agreement, shall be held in the Deferred Maintenance Escrow Account to be
withdrawn by Lender upon written request of Borrower made not more than once
each month in an amount not less than $10,000, and applied to pay directly or
reimburse Borrower for repairs set forth on Schedule 1 attached hereto
(the “Immediate Repairs”) upon satisfaction of the disbursement
conditions listed on Schedule 6 hereof.   Within the applicable time period(s) for


 


38

















 


completion set forth on Schedule 1,
Borrower shall complete such Immediate Repairs and shall provide to Lender such
documentation, and other evidence of compliance with law as Lender may reasonably
require.  The funds contained in the
Deferred Maintenance Escrow Account shall be utilized by Borrower solely for
performance of the Immediate Repairs in accordance with the Property Condition
Assessments and Environmental Reports, and shall not be used by Borrower for
purposes for which any other Reserve Account is established.  Upon written application of Borrower (which
may be done by electronic mail or e-mail), Borrower shall be entitled to obtain
disbursements by Lender from the Deferred Maintenance Escrow Account to pay
costs incurred by Borrower for such Immediate Repairs, provided that (a) no
Event of Default has occurred and is continuing, (b) Borrower shall provide to
Lender (including by electronic mail or e-mail) such documentation and certifications
as Lender may reasonably request to substantiate the requirement for and
entitlement to such disbursement, (c) Borrower shall provide to Lender
(including by electronic mail or e-mail) with all invoices, receipts, lien
waivers and other documentation of lawful and workmanlike progress or
completion, lien-free status, and availability of sufficient funds, all as may
be reasonably requested by Lender, and (d) Borrower shall provide Lender such
evidence as may be reasonably satisfactory to Lender that after payment of any
draw for Immediate Repairs, the funds remaining in the Deferred Maintenance
Escrow Account shall be sufficient to pay for the remainder of such Immediate
Repairs.   In the event Borrower completes
the repairs for which funds were reserved in the Deferred Maintenance Escrow
Account to the reasonable satisfaction of Lender, Lender shall disburse any and
all amounts then on deposit in the Deferred Maintenance Escrow Account to the
Collection Account.


 


(iii) Subject to the provisions of Section
2.13(a)(i), any and all Moneys remitted to the Replacement Reserve Account,
together with any Permitted Investments in which such Moneys are or will be
invested or reinvested during the term of this Agreement, shall be held in the
Replacement Reserve Account  to be
withdrawn by Lender upon written request of Borrower made not more than once
each month in an amount not less than $10,000, and applied to reimburse
Borrower for Capital Improvement Costs (other than those for Immediate Repairs)
reasonably approved by Lender for disbursements from the Replacement Reserve (“Approved
Capital Expenditures”) upon satisfaction of the disbursement conditions
listed on Schedule 6 hereof, provided that funds in the Replacement
Reserve Account shall not be used by Borrower for purposes for which any other
Reserve Account is established.


 


(b)           Real Estate Taxes Escrow Account and Insurance Escrow
Account.  On or before the Closing Date, Lender shall
on behalf of the Borrower establish and maintain with the Collection Account
Bank two separate accounts for Basic Carrying Costs, each of which shall be an
Eligible Account and shall have the same title as the Collection Account for
the benefit of Lender until the Loan is paid in full.  The two accounts shall be designated the “Real Estate Taxes
Escrow Account” (the “Real Estate Taxes Escrow Account”) and the
“Insurance Escrow Account” (the “Insurance Escrow Account”).  On the Closing Date, the Lender shall
deposit out of the Loan proceeds $669,937.46 in the Real Estate Taxes Escrow
Account and $68,793 in the Insurance Escrow Account (i.e.  the amount necessary to meet the first bill
with credit for existing monthly escrow payments made prior to the applicable
due date).  With respect to each Payment
Date, Borrower shall deposit from the Collection Account (or, if the funds for
such deposit are not available pursuant to Section 2.12(b), shall make
an additional deposit of Borrower’s funds sourced from equity capital
contributions),


 


(1)           an amount equal to
(1/12th) one-twelfth of the annual real estate taxes and any other
Impositions that if not paid in a timely manner will result in a Lien on a
Mortgaged Property in the Real Estate Taxes Escrow Account,


 


39

















 


(2)           an amount equal to
one-twelfth (1/12th) of the annual insurance premiums for policies
of insurance required to be maintained by Borrower with respect to the
Mortgaged Property pursuant to this Agreement, and any additional insurance
required under any of the other Loan Documents, in the Insurance Escrow
Account.


 


Any and all Moneys remitted to the Real Estate Taxes Escrow Account or
Insurance Escrow Account (which shall not bear interest for the benefit of
Borrower) shall be held in the Real Estate Taxes Escrow Account or Insurance
Escrow Account to be withdrawn from the Real Estate Taxes Escrow Account or
Insurance Escrow Account, as applicable, by Lender or its servicer upon written
request of Borrower delivered to Lender and its servicer together with
documentation and other evidence (including invoices and in the case of a
reimbursement of Borrower, evidence that the related costs have been paid) with
respect to the respective Basic Carrying Costs towards which such funds are to
be applied, and applied to pay directly (or reimburse Borrower, in the case of
insurance premiums only) for (x) any Impositions (in the case of the Real
Estate Taxes Escrow Account) or (y) any insurance premiums for policies of
insurance required to be maintained by Borrower with respect to the Mortgaged
Property pursuant to this Agreement, and any additional insurance required
under any of the other Loan Documents (in the case of the Insurance Escrow
Account).  Borrower shall provide Lender
or its servicer with bills and other documents necessary for payment of
Impositions and insurance premiums at least ten (10) Business Days prior to the
due dates therefor.  In the event the
amount on deposit in the Real Estate Taxes Escrow Account or the Insurance Escrow
Account exceeds the amount due for Impositions by more than one-twelfth (1/12th)
of the annual real estate taxes (in the case of the Real Estate Taxes Escrow
Account) or the amount due for insurance premiums (in the case of the Insurance
Escrow Account), respectively, Lender or its servicer shall in its sole
discretion credit such excess against future payment obligations to the Real
Estate Taxes Escrow Account or the Insurance Escrow Account, as applicable.


 


(c)           Operating Expense Account, Working Capital Reserve
Account and the Debt Service Reserve Account. 
On or before the Closing Date, Lender shall on behalf of the Borrower
establish and maintain with the Collection Account Bank three accounts for the
remittance of funds by Lender or its servicer in its sole discretion after an
Event of Default has occurred and is continuing, each of which shall be an
Eligible Account and shall have the same title as the Collection Account for
the benefit of Lender until the Loan is paid in full.  The three accounts shall be designated the “Operating Expense Account”
(the “Operating Expense Account”), the “Working Capital Reserve Account”
(the “Working Capital Reserve Account”) and the “Debt Service Reserve
Account” (the “Debt Service Reserve Account”).  On any Business Day after the occurrence and during the continuance
of an Event of Default, Lender or its servicer may in its sole discretion
deposit into the Operating Expense Account, the Working Capital Reserve Account
or the Debt Service Reserve Account any funds then on deposit in the Local
Collection Account or the Collection Account. 
Any and all Moneys remitted to the Operating Expense Account, the
Working Capital Reserve Account or the Debt Service Reserve Account shall,
until otherwise applied by Lender from time to time at Lender’s sole discretion
during the existence of any Event of Default, be held in the Operating Expense
Account, the Working Capital Reserve Account or the Debt Service Reserve
Account, as applicable, and applied, if Lender elects in its sole discretion to
make such funds available for such application,


 


(x)            with respect to the
Operating Expense Account only, to pay Property Expenses provided for in the
Operating Budget approved by Lender, or for other Property Expenses approved by
Lender,


 


(y)           with respect to the
Working Capital Reserve Account only, as a working capital reserve up to the
then applicable Working Capital Reserve Amount, as the same adjusts from time
to time under the then applicable Working Capital Budget, or in such greater or
lesser amount as Lender may determine from time to time, with disbursements
from time to time at


 


40

















 


Lender’s option from the Working Capital Reserve
Account to the Operating Expense Account as working capital needs arise which
may not be satisfied from the funds on hand in the Operating Expense Account,
all at the sole election of Lender, and


 


(z)            with respect to the
Debt Service Reserve Account only, applied to pay the Indebtedness at the sole
election of Lender;


 


provided, that (1) notwithstanding
the foregoing, Lender may at any time, in its sole discretion, elect to apply
the funds on deposit in the Operating Expense Account and/or the Working
Capital Reserve Account to pay the Indebtedness (including without limitation
any Prepayment Fee, Exit Fee and other amounts due Lender in connection with
such prepayment) while any Event of Default exists, and (2) in the event Lender
accepts in writing a proposed cure of the Event of Default which precipitated
the deposits to the Operating Expense Account, the Working Capital Reserve
Account and the Debt Service Reserve Account and no other Event of Default
exists, then the funds on deposit in the Operating Expense Account, the Working
Capital Reserve Account and the Debt Service Reserve Account shall be released
to Borrower.


 


(d)           Prepaid Rent Account. 
On or before the Closing Date, Lender shall on behalf of the Borrower
establish and maintain with the Collection Account Bank an account for the
remittance of prepaid Rent designated the Prepaid Rent Account (the “Prepaid
Rent Account”) which shall be an Eligible Account and shall have the same
title as Collection Account for the benefit of the Lenders until the Loan is
paid in full.  On the Closing Date, the
initial Lender shall deposit out of the Loan proceeds $0 in the Prepaid Rent
Account, which shall be an estimate of prepaid Rent held by Borrower.  At least five (5) Business Days prior to the
first Payment Date, Borrower will provide to Lender a certified prepaid rent
roll in the form attached as Schedule 9 showing the amount of prepaid Rent held
by Borrower, and the amount of the prepaid Rent deposited in the Prepaid Rent
Account shall be adjusted accordingly on the first Payment Date, by a transfer
of funds between the Collection Account and the Prepaid Rent Account.  On any Payment Date as of which the most
recent Monthly Statement indicates that the prepaid Rent exceeds $25,000,
Lender shall deposit or cause to be deposited in the Prepaid Rent Account
pursuant to clause sixth of Section 2.12(b) an amount equal to the
positive difference, if any, between the amount indicated in the Monthly
Statement and the amount then on deposit in the Prepaid Rent Account.  On any Payment Date as of which the most
recent Monthly Statement indicates that the prepaid Rent exceeds $25,000 but is
less than the amount then on deposit in the Prepaid Rent Account, the Lender
shall withdraw from the Prepaid Rent Account and transfer to the Collection
Account the positive difference between the amount on deposit in the Prepaid Rent
Account and such amount contained in the most recent Monthly Statement to be
applied together with the other collections from the Mortgaged Properties
pursuant to Section 2.12(b) on such Payment Date.  On any Payment Date as of which the most
recent Monthly Statement indicates that the prepaid Rent which was previously
in excess of $25,000 has been reduced below $25,000, the Lender shall withdraw
from the Prepaid Rent Account and transfer to the Collection Account the entire
amount of funds then on deposit in the Prepaid Rent Account to be applied
together with the other collections from the Mortgaged Properties pursuant to Section
2.12(b) on such Payment Date.  After
a release of a Mortgaged Property, all of the references above in this
paragraph to $25,000 shall be adjusted to equal one-twelfth (1/12th)
of the product of 3.75% and the Underwritten Net Cash Flow of the remaining
Mortgaged Property.


 


(e)           Investment of Funds. 
All or a portion of any Moneys in the Reserve Accounts (other than the
Real Estate Tax Escrow Account, the Insurance Escrow Account, the Operating
Expense Account, the Working Capital Reserve Account and the Debt Service
Reserve Account, none of which shall bear interest for the benefit of Borrower)
shall be invested and reinvested, so long as an Event of Default has not
occurred and is not continuing, by Lender in accordance with written
instructions delivered by Borrower, or after an Event of Default has occurred
and is continuing, by Lender, in one or


 


41

















 


more Permitted Investments.  If
no written investment direction is provided to Lender by Borrower, Lender may
at its option invest such Moneys in a Permitted Investment selected by Lender.  All interest paid or other earnings on the Permitted
Investments of funds deposited into the Reserve Accounts made hereunder shall
be deposited into the Reserve Accounts (other than with respect to the Real
Estate Taxes Escrow Account and the Insurance Escrow Account for which Lender
and its servicer shall not have any obligation to deposit such interest or
earnings into such accounts).  Lender
shall have no liability for any loss in investments of funds in any Reserve
Account that are invested in Permitted Investments and no such loss shall
affect Borrower’s obligation to fund, or liability for funding, the Reserve
Accounts.  Unless and until title to the
funds therein shall have vested in any Person other than Borrower, Borrower
shall include all such income or gain on any account of the Reserve Account as
income of Borrower for federal and applicable state tax purposes.


 


(f)            Event of Default.  After an
Event of Default has occurred and is continuing, Borrower shall not be
permitted to make any withdrawal(s) from any Pledged Accounts and Lender may liquidate
any Permitted Investments of the amount on deposit in such account, withdraw
and use such amount on deposit in the Pledged Accounts to make payments on
account of the Indebtedness or otherwise as provided in Section 2.8.  Without in any way limiting the foregoing or
Lender’s rights and remedies upon an Event of Default, and subject to Lender’s
direction otherwise from time to time, in whole or in part, in Lender’s sole
and absolute discretion, after and during the continuance of an Event of Default
Lender may direct the Collection Account Bank or the Local Collection Account
Bank to disburse to Lender or allocate all available funds on deposit in the
Pledged Accounts to: (a) any debt service or other Indebtedness due under this
Loan Agreement or the other Loan Documents; (b) any Reserve Account established
under this Loan Agreement; (c) otherwise as a reserve for Property Expenses,
Capital Improvement Costs, Impositions and other expenditures relating to the
use, management, operation or leasing of the Mortgaged Property; and/or (d) any
costs and expenses incurred by Lender in connection with such Event of Default,
or expended by Lender to protect or preserve the value of the Mortgaged
Property.


 


Section 2.14.          Additional
Provisions Relating to the Pledged Accounts.


 


(a)           Borrower covenants and agrees that:  (i) all securities or other property
underlying any financial assets credited to any Pledged Account shall be
registered in the name of Lender, indorsed to Lender or indorsed in blank or
credited to another securities account maintained in the name of Lender and in
no case will any financial asset credited to any Pledged Account be registered
in the name of Borrower, payable to the order of Borrower or specially indorsed
to Borrower except to the extent the foregoing have been specially indorsed to
Lender or in blank; and (ii) all Permitted Investments and all other
property delivered to Lender pursuant to this Agreement will be promptly
credited to one of the Pledged Accounts.


 


(b)           Borrower hereby agrees that each item of property
(whether investment property, financial asset, security, instrument, cash or
otherwise) credited to any Pledged Account shall be treated as a “financial
asset”  within the meaning of Section
8-102(a)(9) of the UCC.


 


(c)           Borrower acknowledges and agrees that the Collection
Account Bank and Local Collection Account Bank shall comply with all
“entitlement orders” (i.e.  an order
directing transfer or redemption of any financial asset relating to a Pledged
Account, and any “entitlement order” as defined in Section 8-102(a)(8) of the
UCC) and instructions (including any “instruction” within the meaning of
Section 9-104 of the UCC) originated by Lender without further action or
consent by Borrower, Manager or any other Person.


 


42

















 


(d)           Regardless of any provision in any other agreement,
for purposes of the UCC, with respect to each Pledged Account, New York shall
be deemed to be the bank’s jurisdiction (within the meaning of Section 9-304 of
the UCC) and the securities intermediary’s jurisdiction (within the meaning of
Section 8-110 of the UCC).  The Pledged
Accounts shall be governed by the laws of the State of New York.


 


(e)           Except for the claims and interest of Lender and of
Borrower in the Pledged Accounts, Borrower represents and warrants that it does
not know of any Lien on or claim to, or interest in, any Pledged Account or in
any “financial asset” (as defined in Section 8-102(a) of the UCC) credited
thereto.  If any Person asserts any
Lien, encumbrance or adverse claim (including any writ, garnishment, judgment,
warrant of attachment, execution or similar process) against the Pledged
Accounts or in any financial asset carried therein, Borrower will promptly
notify Lender thereof and shall indemnify, defend and hold Lender and each of
the Indemnified Parties harmless from and against any such Lien, encumbrance or
claim.


 


Section 2.15.          Security
Agreement.


 


(a)           Pledge of Pledged Accounts. 
To secure the full and punctual payment and performance of all of the
Indebtedness, Borrower hereby assigns, conveys, pledges and transfers to
Lender, as secured party, and grants Lender a first and continuing security
interest in and to, the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (collectively,
the “Account Collateral”):


 


(i)  all of
Borrower’s right, title and interest in the Pledged Accounts and all Money and
Permitted Investments, if any, from time to time deposited or held in the
Pledged Accounts or purchased with funds or assets on deposit in the Pledged
Accounts;


 


(ii) all of Borrower’s right, title and interest in
interest, dividends, Money, Instruments and other property from time to time
received, receivable or otherwise payable in respect of, or in exchange for,
any of the foregoing until such time as such items are disbursed from the
Pledged Accounts; and


 


(iii) to the extent not covered by clause (i)
or (ii) above, all Proceeds of any or all of the foregoing until such
time as such items are disbursed from the Pledged Accounts.


 


Lender and Collection Account Bank and Local
Collection Account Bank, each as agent for Lender, shall have with respect to
the foregoing collateral, in addition to the rights and remedies herein set
forth, all of the rights and remedies available to a secured party under the
UCC, as if such rights and remedies were fully set forth herein.


 


(b)           Covenants; Sole Dominion and Control. 
So long as any portion of the Indebtedness is outstanding, Borrower
shall not open any account other than the Local Collection Account for the
deposit of Rents or Money received from Accounts or under Leases and derived
from the Mortgaged Property and all Proceeds to pay amounts owing hereunder,
other than any account for amounts required by law to be segregated by
Borrower.  Borrower shall not have any
right to withdraw Money from the Pledged Accounts.  Borrower acknowledges and agrees that the Pledged Accounts are
and shall at all times continue to be subject to and under the sole dominion
and control, and the “control” within the meaning of Sections 9-104 and 9-106
of the UCC, of Lender.  Notwithstanding
anything set forth herein to the contrary, neither Borrower nor Manager nor any
other person or entity, through or under Borrower, shall have any control over
the use of, or any right to withdraw any amount from, any Pledged Accounts, and
Borrower  acknowledges that the
Collection Account Bank and the Local


 


43

















 


Collection Account Bank shall comply with all instructions originated
by Lender without further consent by Borrower. 
Borrower acknowledges and agrees that the Collection Account Bank and
Local Collection Account Bank shall comply with the instructions of Lender with
respect to the Pledged Accounts without the further consent of Borrower or
Manager.  The Account Collateral shall
be subject to such applicable laws, and such applicable regulations of the
Board of Governors of the Federal Reserve System and of any other banking
authority or Governmental Authority, as may now or hereafter be in effect, and
to the rules, regulations and procedures of the financial institution where the
Account Collateral is maintained relating to demand deposit accounts generally
from time to time in effect.


 


(c)           Financing Statements; Further Assurances. 
Borrower hereby irrevocably authorizes Lender at any time and from time
to time to file any financing statements or continuation statements, and
amendments to financing statements, in any jurisdictions and with any filing
offices as Lender may determine, in its sole discretion, are necessary or
advisable to perfect the security interests granted to Lender in connection
herewith.  Such financing statements may
describe the collateral in the same manner as described in any security
agreement or pledge agreement entered into by the parties in connection
herewith or may contain an indication or description of collateral that
describes such property in any other manner as Lender may determine, in its
sole discretion, is necessary, advisable or prudent to ensure the perfection of
the security interest in the collateral granted to Lender in connection
herewith, including, without limitation, describing such property as “all
assets” or “all personal property” of Borrower whether now owned or hereafter
acquired.  From time to time, at the
expense of Borrower, Borrower shall promptly execute and deliver all further
instruments, and take all further action, that Lender may reasonably request,
in order to continue the perfection and protection of the pledge and security
interest granted or purported to be granted hereby.


 


(d)           Transfers and Other Liens. 
Borrower shall not sell or otherwise dispose of any of the Account
Collateral other than pursuant to the terms of this Agreement and the other
Loan Documents, or create or permit to exist any Lien upon or with respect to
all or any of the Account Collateral, except for the Lien granted to Lender
under or as contemplated by this Agreement.


 


(e)           No Waiver.  Every right
and remedy granted to Lender under this Agreement or by law may be exercised by
Lender at any time and from time to time, and as often as Lender may deem it
expedient.  Any and all of Lender’s
rights with respect to the pledge of and security interest in the Account
Collateral granted hereunder shall continue unimpaired, and to the extent
permitted by law, Borrower shall be and remain obligated in accordance with the
terms hereof, notwithstanding (i) any proceeding of Borrower under the United
States Bankruptcy Code or any bankruptcy, insolvency or reorganization laws or
statutes of any state, (ii) the release or substitution of Account Collateral
at any time, or of any rights or interests therein or (iii) any delay,
extension of time, renewal, compromise or other indulgence granted by Lender in
the event of any Default with respect to the Account Collateral or otherwise
hereunder.  No delay or extension of
time by Lender in exercising any power of sale, option or other right or remedy
hereunder, and no notice or demand which may be given to or made upon Borrower
by Lender, shall constitute a waiver thereof, or limit, impair or prejudice
Lender’s right, without notice or demand, to take any action against Borrower
or to exercise any other power of sale, option or any other right or remedy.


 


(f)            Lender Appointed Attorney-In-Fact. 
Borrower hereby irrevocably constitutes and appoints Lender as
Borrower’s true and lawful attorney-in-fact, with full power of substitution,
at any time after the occurrence and during the continuation of an Event of
Default, to execute, acknowledge and deliver any instruments and to exercise
and enforce every right, power, remedy, option and privilege of Borrower with
respect to the Account Collateral, and do in the name, place and stead of
Borrower, all such acts, things and deeds for and on behalf of and in the name
of Borrower with respect to the Account Collateral, which Borrower could or
might do or which Lender may deem necessary or desirable to more


 


44

















 


fully vest in Lender the rights and remedies provided for herein with
respect to the Account Collateral and to accomplish the purposes of this
Agreement.  The foregoing powers of
attorney are irrevocable and coupled with an interest and shall terminate upon
repayment of the Indebtedness in full.


 


(g)           Continuing Security Interest; Termination. 
This Section 2.15 shall create a continuing pledge of and
security interest in the Account Collateral and shall remain in full force and
effect until payment in full by Borrower of the Indebtedness.  Upon payment in full by Borrower of the
Indebtedness, Lender shall return to Borrower such of the Account Collateral as
shall not have been applied pursuant to the terms hereof, and shall execute
such instruments and documents as may be reasonably requested by Borrower to
evidence such termination and the release of the pledge and lien hereof.


 


Section 2.16.          Mortgage
Recording Taxes.


 


The Lien to be created by the Mortgages is intended to
encumber the Mortgaged Property to the full extent of the Loan Amount; provided,
that, notwithstanding the foregoing, with respect to any Mortgaged Property
located in a state that imposes mortgage recording taxes where the imposition
of a lower amount would allow tax savings to the Borrower, the Lien to be
created by the related Mortgage is intended to encumber the Mortgaged Property
in an amount acceptable to the Lender which amount shall in no event be less
than 125% of the value of the Mortgaged Property as determined by the
Appraisals.  On the Closing Date,
Borrower shall have paid all state, county and municipal recording and all
other taxes imposed upon the execution and recordation of the Mortgages, if
any.


 


Section 2.17.          Extension
Option.


 


(a)           Borrower shall have the option (each, an “Extension
Option”), to extend the Maturity Date of the Note for up to three (3)
extension terms: (i) the first extension term from the Original Maturity Date
to the Payment Date in February, 2007 (the “First Extended Maturity Date”),
(ii) the second extension term from the First Extended Maturity Date to the
Payment Date in February, 2008 (the “Second Extended Maturity Date”),
and (iii) the third extension term from the Second Extended Maturity Date to
the Payment Date in February, 2009 (the “Final Maturity Date”), upon
satisfaction of each of the following conditions (the “Extension Conditions”):


 


(i)  Borrower
shall have given written notice (each, an “Extension Notice”) to Lender
not less than sixty (60) days prior to the Original Maturity Date, the First
Extended Maturity Date or the Second Extended Maturity Date, as applicable, of
its election to exercise the first, the second or the third Extension Option,
as the case may be;


 


(ii) no Default or Event of Default shall have
occurred and be continuing on the Original Maturity Date, the First Extended
Maturity Date or the Second Extended Maturity Date, as applicable or as of the
date of delivery of the Extension Notice with respect to the applicable
Extension Option;


 


(iii) Borrower shall have paid to the Lender on the
First Extended Maturity Date or the Second Extended Maturity Date, as
applicable, a fee (each, an “Extension Fee”) equal to the product of
0.25% and the Principal Indebtedness as of the First Extended Maturity Date or
the product of 0.375% and the Principal Indebtedness as of the Second Extended
Maturity Date, as applicable (taking into account any principal payments
projected to be made either on such date) (i.e.  no Extension Fee shall be due and payable on the Original
Maturity Date);


 


(iv) Borrower shall have purchased an interest rate
cap for the term of the extension (or renewed the existing interest rate cap
for such period) in each case from or with a Qualified


 


45

















 


Interest Rate Cap Counterparty, with
a notional amount equal to the outstanding Principal Indebtedness and a LIBOR
strike rate equal to 5.00% and pursuant to documentation acceptable to Lender
and delivered to Lender a fully executed Collateral Assignment of Hedge; and


 


(v) Lender shall have determined that Borrower is in
compliance with the Debt Service Coverage Test.


 


(b)           In the event Borrower has timely given the Extension
Notice to Lender, Lender shall be required to notify Borrower by not later than
the Payment Date prior to the Original Maturity Date, the First Extended
Maturity Date or the Second Extended Maturity Date, as applicable, of
Borrower’s compliance or non-compliance with the Debt Service Coverage Test.  Borrower may make a voluntary prepayment of
the Loan on the Original Maturity Date, the First Extended Maturity Date or the
Second Extended Maturity Date, as applicable, in order to be in compliance with
the Debt Service Coverage Test on any such date (including from equity capital
contributions from its principals).


 


(c)           Borrower may revoke any Extension Notice by written
notice (or telephonic notice promptly confirmed in writing) to Lender on or
prior to the tenth (10th) Business Day prior to the Original Maturity Date, the
First Extended Maturity Date or the Second Extended Maturity Date, as
applicable; provided, however, that Borrower shall pay the
reasonable out-of-pocket costs incurred by Lender and in connection with the
giving of any Extension Notice and its revocation.  If the term of the Loan is extended pursuant to the provisions of
this Section 2.17, then all the other terms and conditions of the Loan
Documents shall remain in full force and effect and unmodified.


 


ARTICLE III.

CONDITIONS PRECEDENT


 


Section 3.1.            Conditions
Precedent to Closing  The
obligation of the Lender to make the Loan is subject to the satisfaction by
Borrower (and Guarantor, where applicable) or waiver by Lender in writing of
the following conditions no later than the Closing Date:


 


(a)           Loan Agreement.  Borrower and
Lender shall have executed and delivered this Agreement.


 


(b)           Note.  Borrower
shall have executed and delivered to Lender the Note.


 


(c)           Environmental Indemnity Agreement; Pledge Agreement;
Guaranty of Non-Recourse Obligations; Interest Rate Cap. 
Borrower and Guarantor shall have executed and delivered the
Environmental Indemnity Agreement to Lender. 
Each of the members of Borrower shall have executed and delivered the
Pledge Agreement to Lender.  Guarantor
shall have executed and delivered the Guaranty of Non-Recourse
Obligations.  Borrower shall have
delivered to Lender the interest rate cap in a form acceptable to Lender from a
Qualified Interest Rate Cap Provider with a notional amount equal to the Loan
Amount and a LIBOR strike rate equal to 5.00% and the fully executed Collateral
Assignment of Hedge.


 


(d)           Opinions of Counsel. 
Lender shall have received from counsel to Borrower, the General
Partner, the Member and the Guarantor, legal opinions in form and substance
acceptable to Lender, with respect to corporate matters and with respect to
substantive non-consolidation of Affordable Residential Communities LP, the
Member and the Manager, on the one hand, and Borrower and General Partner, on
the other, in the event of the bankruptcy of Affordable Residential Communities
LP, the Member or the Manager.  Such
legal opinions shall be addressed to Lender and its successors and assigns,
dated the Closing Date, and in form and substance reasonably satisfactory to
Lender and its counsel.


 


46

















 


(e)           Organizational Documents. 
Lender shall have received with respect to each of Borrower, the Member,
the General Partner and the Guarantor its certificate of formation, certificate
of limited partnership or certificate of incorporation, as applicable, as
amended, modified or supplemented to the Closing Date, as filed with the
Secretary of State in the jurisdiction of organization and in effect on the
Closing Date and certified to be true, correct and complete by the appropriate
Secretary of State as of a date not more than thirty (30) days prior to the
Closing Date, together with a good standing certificate from such Secretary of
State dated not more than thirty (30) days prior to the Closing Date and, for
Borrower, the Member and the General Partner to the extent required by
applicable law, a good standing certificate from the Secretaries of State (or
the equivalent thereof) of each other State in which Borrower, the Member or
General Partner is required to be qualified to transact business, each dated
not more than thirty (30) days prior to the Closing Date.


 


(f)            Certified Resolutions, etc. 
Lender shall have received a certificate of each of Borrower, General
Partner, Member and the Guarantor dated the Closing Date, certifying (i) the
names and true signatures of its incumbent officers authorized to sign the Loan
Documents to which Borrower, the General Partner, the Member or the Guarantor
is a party, (ii) the Organizational Agreement of each of Borrower, the General
Partner, the Member and Guarantor, in each case as in effect on the Closing
Date, (iii) the resolutions of each of Borrower, the General Partner, the
Member and the Guarantor, approving and authorizing the execution, delivery and
performance of the Loan Documents to which it is a party, and (iv) that there
have been no changes in any Organizational Agreement since the date of
execution or preparation thereof.


 


(g)           Additional Matters.  Lender shall
have received such other certificates, opinions, documents and instruments
relating to the Loan as may have been reasonably requested by Lender.  All corporate and other organizational
proceedings, all other documents (including, without limitation, all documents
referred to herein and not appearing as exhibits hereto) and all legal matters
in connection with the Loan shall be reasonably satisfactory in form and
substance to Lender in its sole and absolute discretion.


 


(h)           Transaction Costs.  Borrower
shall have paid all Transaction Costs for which bills have been submitted in
accordance with the provisions of Section 8.23.


 


(i)            No Default or Event of Default. 
No event which would constitute either a Default or Event of Default
under this Agreement or the other Loan Documents shall have occurred and be
continuing on the Closing Date.


 


(j)            No Injunction.  No law or
regulation shall have been adopted, no order, judgment or decree of any
Governmental Authority shall have been issued, and no litigation shall be
pending or threatened, which in the good faith judgment of Lender would enjoin,
prohibit or restrain, or impose or result in the imposition of any material
adverse condition upon, the making or repayment of the Loan or the consummation
of the Transaction.


 


(k)           Representations and Warranties. 
The representations and warranties herein and in the other Loan
Documents shall be true and correct in all material respects on the Closing
Date.


 


(l)            Survey; Appraisal.  Lender shall
have received the Survey and the Appraisal with respect to each Mortgaged
Property, which shall be in form and substance satisfactory to Lender in its
sole and absolute discretion.


 


(m)          Property Condition Assessment. 
Lender shall have received the Property Condition Assessment with
respect to each Mortgaged Property prepared by the Engineer or another


 


47

















 


Person acceptable to the Lender, which Property Condition Assessment
shall be acceptable to Lender in its sole and absolute discretion.


 


(n)           Environmental Matters. 
Lender shall have received an Environmental Report prepared by an
Environmental Auditor with respect to the Mortgaged Property, which
Environmental Report shall be acceptable to Lender in its sole and absolute
discretion.


 


(o)           Financial Information. 
Lender shall have received financial information relating to the
Guarantor, Borrower and the Mortgaged Property satisfactory to Lender in its
sole and absolute discretion.  Such
information shall include, without limitation, the following, to the extent
reasonably available:


 


(i)  operating
statements for the current year (including actual to date information, an
annual budget and trailing twelve month data in hard copy and on diskette) and
for not less than the three preceding years;


 


(ii) a copy of the standard lease form, if any;


 


(iii) current property rent roll data on a tenant by
tenant basis in hard copy including the name of each tenant and the associated
Homesite, security deposit, amount due at the beginning of the month, charges
in the current month (including Homesite rent, water/sewer, gas/electric,
trash, mobile home rent, notes and other charges), payments made during the
month, amount due at the end of the month, total Homesites at the Mortgaged
Property and total occupied Homesites at the Mortgaged Property (with the
occupancy level expressed as a percentage);


 


(iv) the tax bills for 2003 and the historical tax
records for 2002;


 


(v) the most recent annual financial statements and
unaudited quarterly financial statements; and


 


(vi) such other financial information as is
customarily required by institutional lenders for loans similar in size and
type as the Loan.


 


The annual financial statements relating to the
Guarantor shall be either (x) audited by a “Big Four” accounting firm or
another firm of certified public accountants reasonably acceptable to Lender or
(y) prepared in accordance with agreed upon procedures reasonably acceptable to
Lender to be performed by a “Big Four” accounting firm or another firm of
certified public accountants reasonably acceptable to Lender to create similar
information.


 


(p)           Pro-Forma Financial Statement; Operating Budget. 
Lender shall have received (i) the initial pro-forma financial
statement and Operating Budget for the Mortgaged Property for the following
twelve months (including on an annual and monthly basis a break-down of
projected Gross Revenues, Property Expenses, Capital Improvement Costs,
replacement reserve costs and average occupancy level (expressed as a
percentage)) and (ii) a financial statement that forecasts projected revenues
and operating expenses for not less than three years (including the assumptions
used in such forecast).


 


(q)           Site Inspection.  Borrower
shall have provided to Lender the opportunity to perform, or cause to be
performed on its behalf, an on-site due diligence review of the Mortgaged
Property, which inspection is satisfactory to Lender in its sole discretion.


 


48

















 


(r)            Mortgaged Property Documents.


 


(i) Mortgages; Assignments of Rents and Leases.  Borrower shall have executed and delivered
to Lender the Mortgages and the Assignments of Rents and Leases with respect to
the Mortgaged Property and such Mortgages and Assignments of Rents and Leases
shall have been filed of record in the appropriate filing office in the
jurisdiction in which the Mortgaged Property is located or irrevocably
delivered to a title agent for such recordation.


 


(ii) Financing Statements.  Borrower shall have executed and delivered
to Lender all financing statements required by Lender pursuant hereto and such
financing statements shall have been filed of record in the appropriate filing
offices in each of the appropriate jurisdictions or irrevocably delivered to a
title agent for such recordation.


 


(iii) Management Agreement and Manager’s
Subordination.  Lender shall have
received the executed Management Agreement for the Mortgaged Property and the
Manager shall have executed and delivered the Manager’s Subordination to
Lender.


 


(iv) Contract Assignment.  With respect to the Mortgaged Property,
Borrower shall have executed and delivered to Lender a Contract Assignment with
respect to the Mortgaged Property.


 


(s)           Opinions of Counsel. 
Lender shall have received from counsel to Borrower reasonably
acceptable to Lender in each state in which any Mortgaged Property is located
its legal opinion in form and substance satisfactory to Lender, as to (i) the
enforceability of the Mortgages, Assignments of Rents and Leases and any other
Loan Documents governed by the law of such jurisdiction, (ii) perfection of
Liens and security interests and (iii) other matters referred to therein with
respect to each Mortgaged Property.  The
legal opinions will be addressed to Lender and its successors and assigns,
dated the Closing Date, and in form and substance reasonably satisfactory to
Lender and its counsel.


 


(t)            Insurance.  Lender shall
have received certificates of insurance demonstrating insurance coverage in
respect of each Mortgaged Property of types, in amounts, with insurers and
otherwise in compliance with the terms, provisions and conditions set forth in
this Agreement.  Such certificates shall
indicate that Lender is a named additional insured and shall contain a loss
payee endorsement in favor of Lender with respect to the property policies
required to be maintained under this Agreement.


 


(u)           Title Insurance Policy. 
Lender shall have received countersigned pro forma title policies or
marked binders constituting the unconditional commitment (in form and substance
reasonably satisfactory to Lender) to issue the Title Insurance Policy covering
the Mortgaged Property with an aggregate amount at least equal to the Loan
Amount.


 


(v)           Lien Search Reports. 
Lender shall have received satisfactory reports of UCC (collectively,
the “UCC Searches”), tax lien, judgment and litigation searches and
title updates conducted by the companies issuing the Title Insurance Policy
with respect to the Collateral, Guarantor, Borrower, the General Partner and
the Member, such searches to be conducted in each of the locations required by
Lender.


 


(w)          Consents, Licenses, Approvals, etc. 
Lender shall have received copies of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by Borrower, Member and Guarantor and the validity and
enforceability, of the Loan Documents, and such consents, licenses and
approvals shall be in full force and effect.


 


49

















 


(x)            Additional Real Estate Matters. 
Lender shall have received such other real estate related certificates
and documentation relating to the Mortgaged Property as Lender may have
reasonably requested.  Such
documentation shall include the following as requested by Lender and to the
extent reasonably available:


 


(i) certificates of occupancy issued by the
appropriate Governmental Authorities of the jurisdiction in which each
Mortgaged Property is located reflecting, and consistent with, the use of each
Mortgaged Property as of the Closing Date;


 


(ii) letters from the appropriate local Governmental
Authorities of the jurisdiction in which each Mortgaged Property is located,
certifying that each Mortgaged Property is in compliance with all applicable
zoning laws, rules and regulations, a zoning endorsement to the applicable
Title Insurance Policy with respect to each Mortgaged Property and/or an
acceptable zoning letter from Zoning Information Services Inc.;


 


(iii) copies of the Leases in effect at each Mortgaged
Property as Lender may request (in addition to the copies delivered above); and


 


(iv) a certified copy of the purchase and sale
agreement (with exhibits), if any, for the Mortgaged Property.


 


(y)           Closing Statement.  Lender and
Borrower shall have agreed upon a detailed closing statement in a form
reasonably acceptable to Lender, which includes a complete description of
Borrower’s sources and uses of funds on the Closing Date.


 


(z)            Loan-to-Value Ratio; Debt Service Coverage Test. 
Lender shall have determined that (i) the Loan Amount is not greater
than 80% of the aggregate value of the Mortgaged Property as set forth in the
Appraisals delivered on the Closing Date and (ii) the Debt Service Coverage
Test is satisfied as of the Closing Date.


 


(aa)         Origination Fee.  Lender shall
have received its Origination Fee, which may be retained by Lender from the
proceeds of the Loan.


 


Section 3.2.            Execution
and Delivery of Agreement.


 


The execution and delivery of this Agreement by each
party to this Agreement shall be deemed to constitute the satisfaction or
waiver of the conditions set forth in Section 3.1; provided,
that any such deemed satisfaction or waiver shall be solely for the purposes of
Section 3.1 and shall not be deemed or construed to constitute a waiver
of any other provision of this Agreement or of any provisions of any of the
other Loan Documents, including, without limitation, any undelivered items
undertaking or agreement or other post-closing agreement or undertaking entered
into by Borrower and/or Guarantor.


 


ARTICLE IV.

REPRESENTATIONS AND WARRANTIES


 


Section 4.1.            Representations
and Warranties as to Borrower


 


Borrower represents and warrants that, as of the
Closing Date:


 


(a)           Organization.  Borrower (i)
is a duly organized and validly existing limited liability company in good
standing under the laws of the State of Delaware or limited partnership in good
standing under the laws of the State of Delaware, (ii) has the requisite power
and authority to own its properties (including, without limitation, the
Mortgaged Property) and to carry on its business as now


 


50

















 


being conducted and is qualified to do business in the jurisdiction in
which the Mortgaged Property is located, and (iii) has the requisite power to
execute and deliver, and perform its obligations under, this Agreement, the
Note and all of the other Loan Documents to which it is a party.


 


(b)           Authorization; No Conflict; Consents and Approvals. 
The execution and delivery by Borrower of this Agreement, the Note and
each of the other Loan Documents, Borrower’s performance of its obligations
hereunder and under the other Loan Documents and the creation of the security
interests and liens provided for in this Agreement and the other Loan Documents
to which it is a party (i) have been duly authorized by all requisite action on
the part of Borrower, (ii) will not violate any provision of any Legal
Requirements, any order of any court or other Governmental Authority, the
Organizational Agreement or any indenture or agreement or other instrument to
which Borrower is a party or by which Borrower is bound, and (iii) will not be
in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, or result in the creation or imposition
of any Lien of any nature whatsoever upon the Mortgaged Property pursuant to,
any such indenture or agreement or material instrument other than the Loan
Documents.  Other than those obtained or
filed on or prior to the Closing Date, Borrower is not required to obtain any
consent, approval or authorization from, or to file any declaration or
statement with, any Governmental Authority or other agency in connection with
or as a condition to the execution, delivery or performance of this Agreement,
the Note or the other Loan Documents executed and delivered by Borrower.


 


(c)           Enforceability.  This
Agreement, the Note and each other Loan Document executed by Borrower in
connection with the Loan (including, without limitation, any Collateral
Security Instrument), is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, subject to
bankruptcy, insolvency, and other limitations on creditors’ rights generally
and to equitable principles.  This
Agreement, the Note and such other Loan Documents are not subject to any right
of rescission, set-off, counterclaim or defense by Borrower (including the
defense of usury), and Borrower has not asserted any right of rescission,
set-off, counterclaim or defense with respect thereto.


 


(d)           Litigation.  There are no
actions, suits or proceedings at law or in equity by or before any Governmental
Authority or other agency now pending and served or, to the best knowledge of
Borrower, threatened against Borrower, Guarantor or any Collateral, which
actions, suits or proceedings, if determined against Borrower, Guarantor or
such Collateral, are reasonably likely to result in a Material Adverse Effect.


 


(e)           Agreements.  Borrower is
not in default in the performance, observance or fulfillment of any of the
material obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which Borrower or any Collateral is
bound which default is reasonably likely to have a Material Adverse
Effect.  Neither Borrower nor Guarantor
is a party to any agreement or instrument or subject to any restriction which
restricts such Person’s ability to conduct its business in the ordinary course
or that is reasonably likely to have a Material Adverse Effect.


 


(f)            No Bankruptcy Filing. 
Neither Borrower nor Guarantor is contemplating either the filing of a
petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a material portion of its assets or property.  To the best knowledge of Borrower, no Person
is contemplating the filing of any such petition against Borrower.


 


(g)           Solvency.  Giving
effect to the transactions contemplated hereby, the fair market value of
Borrower’s assets exceeds and will, immediately following the making of the
Loan, exceed Borrower’s total liabilities (including, without limitation,
subordinated, unliquidated, disputed and contingent liabilities).  The fair market value of Borrower’s assets
is and will, immediately following the


 


51

















 


making of the Loan, be greater than Borrower’s probable liabilities
(including the maximum amount of its contingent liabilities on its debts as
such debts become absolute and matured). 
Borrower’s assets do not and, immediately following the making of the
Loan will not, constitute unreasonably small capital to carry out its business
as conducted or as proposed to be conducted. 
Borrower does not intend to, and does not believe that it will, incur
debts and liabilities (including, without limitation, contingent liabilities
and other commitments) beyond its ability to pay such debts as they mature
(taking into account the timing and amounts to be payable on or in respect of
obligations of Borrower).


 


(h)           Other Debt.  Borrower has
not borrowed or received other debt financing whether unsecured or secured by
the Mortgaged Property or any part thereof which is outstanding as of the
Closing Date.  As of the Closing Date,
Borrower has no Other Borrowings other than trade debt expressly permitted under
Article VIII of this Agreement.


 


(i)            Full and Accurate Disclosure. 
No statement of fact made by or on behalf of Borrower in this Agreement
or in any of the other Loan Documents contains any untrue statement of material
fact or omits to state any material fact necessary to make statements contained
herein or therein not misleading.  To
the best knowledge of Borrower, no financial statements or any other document,
certificate or written statement furnished to Lender by Borrower or Guarantor,
or by any third party on behalf of Borrower or Guarantor, for use in connection
with the Loan contains any untrue representation, warranty or statement of a
material fact, and none omits or will omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading.  To the best knowledge of Borrower, there is
no fact that has not been disclosed to Lender that is reasonably likely to
result in a Material Adverse Effect.


 


(j)            Financial Information. 
All financial statements and other data concerning Borrower, Guarantor
and the Mortgaged Property that has been delivered by or on behalf of Borrower
or Guarantor to Lender is true, complete and correct in all material respects
and, except as disclosed on Schedule 4 attached hereto, has been prepared in
accordance with GAAP.  Since the
delivery of such data, except as otherwise disclosed in writing to Lender,
there has been no change in the financial position of Borrower, Guarantor or
the Mortgaged Property, or in the results of operations of Borrower or
Guarantor, which change results or is reasonably likely to result in a Material
Adverse Effect.  Neither Borrower nor
Guarantor has incurred any obligation or liability, contingent or otherwise,
not reflected in such financial data, which is likely to have a Material Adverse
Effect upon its business operations or the Mortgaged Property.


 


(k)           Investment Company Act; Public Utility Holding Company
Act.  Borrower is not (i) an “investment company”
or a company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended, (ii) a “holding company” or a
“subsidiary company” of a “holding company” or an “affiliate” of either a
“holding company” or a “subsidiary company” within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or (iii) subject to any
other federal or state law or regulation which purports to restrict or regulate
its ability to borrow money in accordance with this Agreement.


 


(l)            Compliance.  Borrower is
in compliance with all applicable Legal Requirements, except for noncompliance
that is not reasonably likely to have a Material Adverse Effect.  Borrower is not in default or violation of
any order, writ, injunction, decree or demand of any Governmental Authority
except for defaults or violations which are not reasonably likely to have a
Material Adverse Effect.


 


(m)          Use of Proceeds; Margin Regulations. 
Borrower will use the proceeds of the Loan for the purposes described in
Section 2.2.  No part of the
proceeds of the Loan will be used for the purpose of purchasing or acquiring
any “margin stock” within the meaning of Regulation U of the Board


 


52

















 


of Governors of the Federal Reserve System or for any other purpose
which would be inconsistent with such Regulation U or any other Regulations of
such Board of Governors, or for any purposes prohibited by Legal Requirements.


 


(n)           Organizational Chart. 
The organizational chart set forth as Schedule 7 accurately sets
forth the direct and indirect ownership structure of Borrower.


 


(o)           No Defaults.  No Default
or Event of Default exists under or with respect to any Loan Document.


 


(p)           Plans and Welfare Plans. 
The assets of Borrower are not treated as “plan assets” under
regulations currently promulgated under ERISA. 
Neither Borrower nor any ERISA Affiliate sponsors, maintains,
contributes to or is required to contribute to any Plan or Multiemployer Plan
nor has the Borrower or any ERISA Affiliate sponsored, maintained, contributed
to or been required to contribute to any Plan or Multiemployer Plan within the
past six years.  There are no pending
issues or claims before the Internal Revenue Service, the United States
Department of Labor or any court of competent jurisdiction related to any Plan
or Welfare Plan.  No event has occurred,
and there exists no condition or set of circumstances, in connection with any
Plan or Welfare Plan under which Borrower or, to the best knowledge of
Borrower, any ERISA Affiliate, directly or indirectly (through an
indemnification agreement or otherwise), is reasonably likely to be subject to
any material risk of liability under Section 409 or 502(i) of ERISA or Section
4975 of the Code.  No Welfare Plan
provides or will provide benefits, including, without limitation, death or medical
benefits (whether or not insured) with respect to any current or former
employee of Borrower, or, to the best knowledge of Borrower, any ERISA
Affiliate beyond his or her retirement or other termination of service other
than (i) coverage mandated by applicable law, (ii) death or disability
benefits that have been fully provided for by fully paid up insurance or (iii)
severance benefits.


 


(q)           Additional Borrower UCC Information. 
Borrower’s organizational identification numbers are 20-0489134 (ARC
Communities 19 LLC), 20-0559224 (ARC19FLPP LLC) and 3750355 (ARC19TX LP)] and
the full legal name of Borrower is as set forth on the signature pages hereof
and Borrower has not done in the last five (5) years, and does not do, business
under any other name (including any trade-name or fictitious business name).


 


(r)            Not Foreign Person.  Borrower is
not a “foreign person” within the meaning of § 1445(f)(3) of the Code.


 


(s)           Labor Matters.  Borrower is
not a party to any collective bargaining agreements.


 


(t)            Pre-Closing Date Activities. 
Borrower has not conducted any business or other activity on or prior to
the Closing Date, other than in connection with the acquisition, management and
ownership of the Mortgaged Property.


 


(u)           No Bankruptcies or Criminal Proceedings Involving
Borrower or Related Parties.  No
bankruptcy, insolvency, reorganization or comparable proceedings have ever been
instituted by or against Borrower, any Affiliate of Borrower, any Guarantor or
any individual or entity owning, with his, her or its family members, 20% or
more of the direct, or indirect beneficial ownership interests in Borrower
(each such Guarantor, individual, or entity being herein referred to as a
“Principal”), and no such proceeding is now pending or contemplated.  None of Borrower, any Principal, or to
Borrower’s knowledge, any other individual or entity directly or indirectly
owning or controlling, or the family members of which own or
control, any direct or indirect beneficial ownership interest in Borrower or in
the Manager or asset manager for the Mortgaged Property, have been charged,
indicted or convicted, or


 


53

















 


are currently under the threat of charge, indictment or conviction, for
any felony or crime punishable by imprisonment.


 


(v)           No Prohibited Persons. 
Neither Borrower, Member, Guarantor nor any of their respective
officers, directors, shareholders, partners, members or Affiliates (including
the indirect holders of equity interests in Borrower) is or will be an entity
or person: (i) that is listed in the Annex to, or is otherwise subject to
the provisions of Executive Order 13224 issued on September 24, 2001 (“EO13224”);
(ii) whose name appears on the United States Treasury Department’s Office
of Foreign Assets Control (“OFAC”) most current list of “Specifically
Designated National and Blocked Persons” (which list may be published from time
to time in various mediums including, but not limited to, the OFAC website,
http:www.treas.gov/ofac/t11sdn.pdf)(the “OFAC List”); (iii) who
commits, threatens to commit or supports “terrorism”, as that term is defined
in EO 13224; or (iv) who is otherwise affiliated with any entity or person
listed above (any and all parties or persons described in clauses (i) through (iv)
above are herein referred to as a “Prohibited Person”).   To the best knowledge of the Borrower, no
tenant at the Property currently is identified on the OFAC List or otherwise
qualifies as a Prohibited Person and no tenant at the Property is owned by or
an Affiliate of a Prohibited Person. 
Borrower and Manager have implemented and will continue to follow
procedures to ensure that no tenant at the Property is a Prohibited Person or
owned by or an Affiliate of a Prohibited Person.


 


Section 4.2.            Representations
and Warranties as to the Mortgaged Property.  Borrower hereby represents and warrants to
Lender that, as to each Mortgaged Property and the Mortgages, as of the Closing
Date:


 


(a)           Title to the Mortgaged Property. 
Borrower owns good, marketable and insurable fee simple title to each
Mortgaged Property (other than Personalty), free and clear of all Liens, other
than the Permitted Encumbrances. 
Borrower owns the Personalty free and clear of any and all Liens, other
than Permitted Encumbrances.  There are
no outstanding options to purchase or rights of first refusal or restrictions
on transferability affecting any Mortgaged Property or any portion thereof or
interest therein.


 


(b)           Utilities and Public Access. 
Except as disclosed on Schedule 4, (i) each Mortgaged Property has
adequate rights of access to public ways and is served by public water,
electric, sewer, sanitary sewer and storm drain facilities; (ii) all public
utilities necessary to the continued use and enjoyment of each Mortgaged
Property as presently used and enjoyed are located in the public right-of-way
abutting the premises, and all such utilities are connected so as to serve each
Mortgaged Property without passing over other property except for land or
easement areas of or available to the utility company providing such utility
service; and (iii) all roads necessary for the full utilization of each
Mortgaged Property for its current purpose have been completed and dedicated to
public use and accepted by all Governmental Authorities or are the subject of
access easements for the benefit of each Mortgaged Property.


 


(c)           Condemnation.  No Taking
has been commenced or, to the best of Borrower’s knowledge, is contemplated
with respect to all or any portion of any Mortgaged Property or for the
relocation of roadways providing access to any Mortgaged Property.


 


(d)           Compliance.  Each
Mortgaged Property and the current use thereof is in compliance with all
applicable Legal Requirements (including, without limitation, building,
parking, subdivision, land use, health, fire, safety and zoning ordinances and
codes) and all applicable Insurance Requirements, except for noncompliance
which cannot reasonably be expected to result in a Material Adverse
Effect.  Each Mortgaged Property is
zoned for its current use, which zoning designation is unconditional, in full
force and effect, and is beyond all applicable appeal periods.   In the event that all or any part of the
Improvements located on any Mortgaged Property are destroyed or damaged, said


 


54

















 


Improvements can be legally reconstructed to their condition prior to
such damage or destruction, and thereafter exist for the same use without
violating any zoning or other ordinances applicable thereto and without the
necessity of obtaining any variances or special permits, other than customary
demolition, building and other construction related permits.  No legal proceedings are pending or, to the
knowledge of Borrower, threatened with respect to the zoning of the Mortgaged Property.  Neither the zoning nor any other right to
construct, use or operate the Mortgaged Property is in any way dependent upon
or  related to any real estate other
than the Mortgaged Property.  No tract
map, parcel map, condominium plan, condominium declaration, or plat of
subdivision will be recorded by Borrower with respect to the Mortgaged Property
without Lender’s prior written consent.


 


(e)           Environmental Compliance. 
Except for matters set forth in the Environmental Reports delivered to
Lender in connection with the Loan (true, correct and complete copies of which
have been provided to Lender by Borrower):


 


(i) Borrower and each Mortgaged Property is in full
compliance with all applicable Environmental Laws (which compliance includes,
but is not limited to, the possession by Borrower or the Manager of all
environmental, health and safety permits, licenses and other governmental
authorizations required in connection with the ownership and operation of the
Mortgaged Property under all Environmental Laws), except for noncompliance
which cannot reasonably be expected to result in a Material Adverse Effect.


 


(ii) There is no material Environmental Claim pending
or, to the actual knowledge of Borrower, threatened, and no penalties arising
under Environmental Laws have been assessed against Borrower, the Manager or
any Mortgaged Property, or, to the actual knowledge of Borrower, against any
Person whose liability for any Environmental Claim Borrower or the Manager has
or may have retained or assumed either contractually or by operation of law,
and no material investigation or review is pending or, to the actual knowledge
of Borrower, threatened by any Governmental Authority, citizens group, employee
or other Person with respect to any alleged failure by Borrower or the Manager
or any Mortgaged Property to have any environmental, health or safety permit,
license or other authorization required under, or to otherwise comply with, any
Environmental Law or with respect to any alleged liability of Borrower or the Manager
for any Use or Release of any Hazardous Substances.


 


(iii) There are no present and, to the best knowledge
of the Borrower, there have been no past material Releases of any Hazardous
Substances that are reasonably likely to form the basis of any Environmental
Claim against Borrower, the Manager, any Mortgaged Property or against any
Person whose liability for any Environmental Claim Borrower or the Manager has
or may have retained or assumed either contractually or by operation of law
(other than Hazardous Substances being used in amounts that are customary for
properties such as the Mortgaged Property and for purposes that are typical for
properties such as the Mortgaged Property and in all cases are utilized in
compliance with Environmental Law in all material respects).


 


(iv) Without limiting the generality of the foregoing,
to the best knowledge of the Borrower, there is not present at, on, in or under
any Mortgaged Property, any Hazardous Substances (including, without
limitation, PCB-containing equipment, asbestos or asbestos containing
materials, underground storage tanks or surface impoundments for Hazardous
Substances, lead in drinking water or lead based paint) (other than Hazardous
Substances being used in amounts that are customary for properties such as the
Mortgaged Property and for purposes that are typical for properties such as the
Mortgaged Property and in all cases are utilized in compliance with
Environmental Law in all material respects) or any fungus, mold,


 


55

















 


mildew or biological agent the
presence of which is reasonably likely to materially adversely affect the value
or utility of such Mortgaged Property.


 


(v) No liens are presently recorded with the
appropriate land records under or pursuant to any Environmental Law with
respect to the Mortgaged Property and no Governmental Authority has been taking
or, to the actual knowledge of Borrower, is in the process of taking any action
that could subject the Mortgaged Property to Liens under any Environmental Law.


 


(vi) There have been no environmental investigations,
studies, audits, reviews or other analyses conducted by or that are in the
possession of Borrower in relation to any Mortgaged Property which have not
been made available to Lender.


 


(f)            Mortgage and Other Liens. 
Each Mortgage creates a valid and enforceable first priority Lien on the
applicable Mortgaged Property described therein, as security for the repayment
of the Indebtedness, subject only to the Permitted Encumbrances applicable to
such Mortgaged Property.  This Agreement
creates a valid and enforceable first priority Lien on all Account
Collateral.  Each Collateral Security
Instrument establishes and creates a valid, subsisting and enforceable Lien on
and a security interest in, or claim to, the rights and property described
therein.  All property covered by any
Collateral Security Instrument in which a security interest can be perfected by
the filing of a financing statement is subject to a UCC financing statement
filed and/or recorded, as appropriate (or irrevocably delivered to an agent for
such recordation or filing) in all places necessary to perfect a valid first
priority Lien with respect to the rights and property that are the subject of
such Collateral Security Instrument to the extent governed by the UCC.


 


(g)           Assessments.  There are no
pending or, to the best knowledge of Borrower, proposed special or other
assessments for public improvements or otherwise affecting any Mortgaged
Property, nor are there any contemplated improvements to any Mortgaged Property
that may result in such special or other assessments.


 


(h)           No Joint Assessment; Separate Lots. 
Borrower has not suffered, permitted or initiated the joint assessment
of the Mortgaged Property (i) with any other real property constituting a
separate tax lot, and (ii) with any portion of the Mortgaged Property which may
be deemed to constitute personal property, or any other procedure whereby the
lien of any taxes which may be levied against such personal property shall be
assessed or levied or charged to the Mortgaged Property as a single lien.  The Mortgaged Property is comprised of one
or more parcels, each of which constitutes a separate tax lot and none of which
constitutes a portion of any other tax lot.


 


(i)            No Prior Assignment. 
Lender is the collateral assignee of Borrower’s interest under the
Leases.  There are no prior assignments
of the Leases or any portion of the Rent due and payable or to become due and
payable which are presently outstanding.


 


(j)            Permits; Certificate of Occupancy. 
Borrower has obtained all Permits necessary to the use and operation of
each Mortgaged Property, except where the failure to obtain such Permits is not
reasonably likely to result in a Material Adverse Effect.  The use being made of each Mortgaged
Property is in conformity with the certificate of occupancy and/or such Permits
for such Mortgaged Property and any other restrictions, covenants or conditions
affecting such Mortgaged Property, except for nonconformity which is not
reasonably likely to result in a Material Adverse Effect.


 


(k)           Flood Zone.  Except as
shown on the Survey, no Mortgaged Property or any portion thereof is located in
a flood hazard area as defined by the Federal Insurance Administration.


 


56

















 


(l)            Physical Condition.  Except as
set forth in the Property Condition Assessment, to the best knowledge of
Borrower, each Mortgaged Property is free of structural defects and all
Improvements, including the building systems contained therein are in good
working order subject to ordinary wear and tear.


 


(m)          Security Deposits.  Borrower and
the Manager are in compliance in all material respects with all Legal
Requirements relating to all security deposits with respect to each Mortgaged
Property.


 


(n)           Intellectual Property. 
All material Intellectual Property that Borrower owns or has pending, or
under which it is licensed, are in good standing and uncontested.  There is no right under any Intellectual
Property necessary to the business of Borrower as presently conducted or as
Borrower contemplates conducting its business. 
Borrower has not infringed, is not infringing, and has not received
notice of infringement with respect to asserted Intellectual Property of
others.  There is no infringement by
others of material Intellectual Property of Borrower.


 


(o)           No Encroachments.  Except as
shown on the Survey, to the best knowledge of Borrower, (i) all of the
Improvements which were included in determining the appraised value of each
Mortgaged Property lie wholly within the boundaries and building restriction
lines of each Mortgaged Property, (ii) no improvements on adjoining properties
encroach upon any Mortgaged Property, (iii) no Improvements encroach upon any
easements or other encumbrances affecting the Mortgaged Property, and (iv) all
of the Improvements comply with all material requirements of any applicable
zoning and subdivision laws and ordinances.


 


(p)           Management Agreement. 
The Management Agreement is in full force and effect.  There is no default, breach or violation
existing thereunder by Borrower or, to the best knowledge of  Borrower, any other party thereto and no
event (other than payments due but not yet delinquent) which, with the passage
of time or with notice and the expiration of any grace or cure period, would
constitute a default, breach or violation by Borrower or, to the best knowledge
of Borrower, any other party thereunder or entitle Borrower or, to the best
knowledge of Borrower, any other party thereto to terminate any such agreement.


 


(q)           Leases.  No Mortgaged
Property is subject to any Leases other than the Leases described in the rent
rolls delivered to Lender in connection with the making of the Loan.  No person has any possessory interest in any
Mortgaged Property or right to occupy the same except under and pursuant to the
provisions of the Leases.  The current
Leases are in full force and effect and, except as set forth on the rent rolls
delivered to Lender in connection with the making of the Loan or as disclosed
on Schedule 4, there are no monetary or other material defaults thereunder
by either party and no conditions which with the passage of time and/or notice
would constitute monetary or other material defaults thereunder.  Except as disclosed on Schedule 4,
no portion of the Mortgaged Property is leased to or occupied by any Affiliate
of Borrower.  Except as disclosed on Schedule 4,
all Leases at each Mortgaged Property consist solely of Leases of Homesites and
related common areas, and not of other portions of the Mortgaged Property.  Except as disclosed on Schedule 4,
Borrower does not own any manufactured homes or mobile homes, whether or not
located at the Mortgaged Property.  No
material termination payments or fees are due in the event Borrower cancels or
terminates any commercial Leases to which it is a party.


 


Section 4.3.            Survival
of Representations.  Borrower
agrees that (i) all of the representations and warranties of Borrower set forth
in Section 4.1 and 4.2 and in the other Loan Documents delivered on the Closing
Date are made as of the Closing Date, and (ii) all representations and
warranties made by Borrower shall survive the delivery of the Note and making
of the Loan and continue


 


57

















 


for so long as any amount remains owing to Lender under this Agreement,
the Note or any of the other Loan Documents; provided, however, that the
representations set forth in Section 4.2(e) shall survive for five (5) years
following repayment of the Indebtedness. 
All representations, warranties, covenants and agreements made in this
Agreement or in the other Loan Documents shall be deemed to have been relied
upon by Lender notwithstanding any investigation heretofore or hereafter made
by Lender or on Lender’s behalf.


 


ARTICLE V.

AFFIRMATIVE COVENANTS


 


Section 5.1.            Affirmative
Covenants .  Borrower
covenants and agrees that, from the date hereof and until payment in full of
the Indebtedness:


 


(a)           Existence; Compliance with Legal Requirements:
Insurance.  Borrower shall do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its
existence as a limited liability company, and any rights, licenses, Permits and
franchises necessary for the conduct of its business and will comply with all
Legal Requirements and Insurance Requirements applicable to it and to each
Mortgaged Property in all material respects. 
Borrower shall at all times maintain, preserve and protect all
franchises and trade names and preserve all the remainder of its property
necessary for the continued conduct of its business and keep the Mortgaged
Property in good repair, working order and condition, except for reasonable
wear and use (and except for casualty losses as to which other provisions
hereof shall govern), and from time to time make, or cause to be made, all
reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto.


 


(b)           Basic Carrying Costs and Other Claims; Contest.


 


(i) Subject to Borrower’s contest rights set forth in Section
5.1(b)(ii) below, Borrower will pay when due (A) all Basic Carrying Costs
with respect to Borrower and the Mortgaged Property; (B) all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of the
Mortgaged Property or its other properties or assets (hereinafter referred to
as the “Lien Claims”); and (C) all federal, state and local income
taxes, sales taxes, excise taxes and all other taxes and assessments of
Borrower on its business, income or assets; in each instance before any penalty
or fine is incurred with respect thereto. 
Borrower’s obligation to pay Basic Carrying Costs pursuant to this
Agreement shall include, to the extent permitted by applicable law, Impositions
resulting from future changes in law which impose upon Lender an obligation to
pay any property taxes on the Mortgaged Property or other Impositions.


 


(ii) Borrower shall not be required to pay, discharge
or remove any Imposition or Lien Claim so long as Borrower contests in good
faith such Imposition or Lien Claim or the validity, applicability or amount
thereof by an appropriate legal proceeding which operates to prevent the
collection of such amounts and the sale of the applicable Mortgaged Property or
any portion thereof, so long as:


 


(A) the Indebtedness shall not have
been accelerated, if an Event of Default shall have occurred and be continuing;


 


(B) prior to the date on which such
Imposition or Lien Claim would otherwise have become delinquent, Borrower shall
have given Lender prior written notice of its intent to contest said Imposition
or Lien Claim and deposited with Lender (or with a court of competent
jurisdiction or other appropriate body approved by Lender) such


 


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additional
amounts as are necessary to keep on deposit at all times, an amount equal to at
least one hundred twenty five percent (125%) (or such higher amount as may be
required by applicable law) of the total of (x) the balance of such Imposition
or Lien Claim then remaining unpaid, and (y) all interest, penalties, costs and
charges accrued or accumulated thereon, together with such other security as
may be required in the proceeding, or as may be required by Lender, to insure
the payment of any such Imposition or Lien Claim and all interest and penalties
thereon; provided, that notwithstanding the foregoing, with respect to
Impositions or Lien Claims in an amount not in excess of $100,000, Borrower
shall not be required to deposit such amounts with the Lender, so long as
Borrower demonstrates to the reasonable satisfaction of the Lender that
Borrower has otherwise reserved such funds or such funds are otherwise
available to the Borrower;


 


(C) no risk of sale, forfeiture or
loss of any interest in the Mortgaged Property or any part thereof arises, in
Lender’s judgment, during the pendency of such contest;


 


(D) such contest does not, in
Lender’s determination, have a Material Adverse Effect;


 


(E) such contest is based on bona fide,
material, and reasonable claims or defenses;


 


(F) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any other
instrument to which Borrower is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances; and


 


(G) Borrower shall have obtained such
endorsements to the Title Insurance Policy with respect to such Imposition or
Lien Claim as Lender may require (or escrowed with a title insurance company
funds sufficient to obtain such endorsements pursuant to escrow arrangements
reasonably satisfactory to Lender).


 


Any such contest shall be prosecuted
with due diligence, and Borrower shall promptly pay the amount of such
Imposition or Lien Claim as finally determined, together with all interest and
penalties payable in connection therewith. 
Lender shall have full power and authority, but no obligation, to apply
any amount deposited with Lender under this subsection to the payment of any
unpaid Imposition or Lien Claim to prevent the sale or forfeiture of the
Mortgaged Property for non-payment thereof, if Lender reasonably believes that
such sale or forfeiture is threatened. 
Any surplus retained by Lender after payment of the Imposition or Lien
Claim for which a deposit was made shall be promptly repaid to Borrower unless
an Event of Default shall have occurred, in which case said surplus may be
retained by Lender to be applied as Lender, in its sole and absolute
discretion, may elect.


 


(c)           Litigation.  Borrower
shall give prompt written notice to Lender of any material litigation or
governmental proceedings pending or threatened (in writing) against Borrower,
or the Mortgaged Property, other than personal injury litigation which is
covered by insurance, eviction matters with respect to tenants or occupants (in
which no counterclaims for material damages or liabilities are made against
Borrower), and matters related to enforcement of building or zoning codes (as
long as the Mortgaged Property is in material compliance with such building and
zoning codes).


 


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(d)           Environmental Remediation.


 


(i) If any investigation, site monitoring, cleanup,
removal, restoration or other remedial work of any kind or nature is required
pursuant to an order or directive of any Governmental Authority or under any
applicable Environmental Law, because of or in connection with the current or
future presence, suspected presence, Release or suspected Release of a
Hazardous Substance on, under or from any Mortgaged Property or any portion
thereof (collectively, the “Remedial Work”), Borrower shall promptly
commence and diligently prosecute to completion all such Remedial Work, and
shall conduct such Remedial Work in accordance with the National Contingency
Plan promulgated under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C.  § 9601 et
seq.  (“CERCLA”), if applicable,
and in accordance with other applicable Environmental Laws.  In all events, such Remedial Work shall be
commenced within such period of time as required under any applicable
Environmental Law.  If any fungus, mold,
mildew or other biological agent is present at any Mortgaged Property in a
manner or at a level that is reasonably likely to materially adversely affect
the value or utility of such Mortgaged Property or that poses a significant
health risk, the Borrower shall promptly commence and diligently prosecute to
completion the remediation of such condition to the reasonable satisfaction of
the Lender or its servicer.


 


(ii) If requested by Lender, all Remedial Work under clause
(i) above shall be performed by contractors, and, if the work is reasonably
anticipated to cost in excess of $75,000, under the supervision of a consulting
Engineer, each approved in advance by Lender which approval shall not be
unreasonably withheld or delayed. 
Borrower shall pay all costs and expenses reasonably incurred in
connection with such Remedial Work.  If
Borrower does not timely commence and diligently prosecute to completion the
Remedial Work, Lender may (but shall not be obligated to), upon 10 days prior
written notice to Borrower of its intention to do so, cause such Remedial Work
to be performed.  Borrower shall pay or
reimburse Lender on demand for all expenses (including reasonable attorneys’
fees and disbursements, but excluding internal overhead, administrative and
similar costs of Lender) reasonably relating to or incurred by Lender in
connection with monitoring, reviewing or performing any Remedial Work in
accordance herewith.


 


(iii) Borrower shall not commence any Remedial Work
under clause (i) above, nor enter into any settlement agreement, consent
decree or other compromise relating to any Hazardous Substances or
Environmental Laws without providing notice to Lender as provided in Section
5.1(f).  Notwithstanding the
foregoing, if the presence or threatened presence of Hazardous Substances on,
under, about or emanating from the Mortgaged Property poses an immediate threat
to the health, safety or welfare of any Person or the environment, or is of
such a nature that an immediate response is necessary or required under
applicable Environmental Law, Borrower may complete all necessary Remedial
Work.  In such events, Borrower shall
notify Lender as soon as practicable and, in any event, within three (3)
Business Days, of any action taken.


 


(iv) In the event the Environmental Report recommends
the development of an operation and maintenance program for any recognized
environmental condition at a Mortgaged Property (including, without limitation,
underground storage tanks asbestos and asbestos containing materials,
lead-based paints and lead in water supplies) (“O & M Program”),
Borrower shall develop an O & M Program, as approved by Lender, in Lender’s
sole discretion, and shall, during the term of the Loan, including any
extension or renewal thereof, comply in all respects with the terms and
conditions of the O & M Program.


 


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(e)           Environmental Matters: Inspection.


 


(i) Borrower shall not knowingly permit any Hazardous
Substances to be present on or under or to emanate from the Mortgaged Property,
or migrate from adjoining property onto or into the Mortgaged Property, except
under conditions permitted by applicable Environmental Laws and, in the event
that such Hazardous Substances are present on, under or emanate from the
Mortgaged Property, or migrate onto or into the Mortgaged Property, Borrower
shall cause the removal or remediation of such Hazardous Substances, in
accordance with this Agreement and as required by Environmental Laws
(including, where applicable, the National Contingency Plan promulgated
pursuant to the CERCLA), either on its own behalf or by causing a tenant or
other party legally responsible therefor to perform such removal and
remediation.  Borrower shall use
commercially reasonable efforts to prevent, and to seek the remediation of, any
migration of Hazardous Substances onto or into the Mortgaged Property from any
adjoining property.


 


(ii) Upon reasonable prior written notice, Lender
shall have the right, except as otherwise provided under Leases, at all
reasonable times during normal business hours to enter upon and inspect
environmental conditions with respect to all or any portion of any Mortgaged
Property, provided that such inspections shall not unreasonably
interfere with the operation or the tenants, residents or occupants of any
Mortgaged Property.  If Lender has
reasonable grounds to suspect that Remedial Work may be required, Lender shall
notify Borrower and, thereafter, may select a consulting Engineer to conduct
and prepare reports of such inspections (with notice to Borrower prior to the
commencement of such inspection). 
Borrower shall be given a reasonable opportunity to review any reports,
data and other documents or materials reviewed or prepared by the Engineer, and
to submit comments and suggested revisions or rebuttals to same.  The inspection rights granted to Lender in
this Section 5.1(e) shall be in addition to, and not in limitation of,
any other inspection rights granted to Lender in this Agreement, and shall
expressly include the right (if Lender reasonably suspects that Remedial Work
may be required) to conduct soil borings, establish ground water monitoring
wells and conduct other customary environmental tests, assessments and audits.


 


(iii) Borrower agrees to bear and shall pay or
reimburse Lender on demand for all sums advanced and reasonable expenses
incurred (including reasonable attorneys’ fees and disbursements, but excluding
internal overhead, administrative and similar costs of Lender) reasonably
relating to, or incurred by Lender in connection with, the inspections and
reports described in this Section 5.1(e)  (to the extent such inspections and reports
relate to any Mortgaged Property) in the following situations:


 


(x)            If
Lender has reasonable grounds to believe, at the time any such inspection is
ordered, that there exists an occurrence or condition that could lead to a
material Environmental Claim with respect to such Mortgaged Property;


 


(y)           If any
such inspection reveals an occurrence or condition that is reasonably likely to
lead to a material Environmental Claim with respect to such Mortgaged Property;
or


 


(z)            If an
Event of Default with respect to such Mortgaged Property exists at the time any
such inspection is ordered, and such Event of Default relates to any
representation, covenant or other obligation pertaining to Hazardous Substances,
Environmental Laws or any other environmental matter.


 


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(f)            Environmental Notices. 
Borrower shall promptly provide notice to Lender of:


 


(i) a material Environmental Claim asserted by any
Governmental Authority with respect to any Hazardous Substance on, in, under or
emanating from any Mortgaged Property;


 


(ii) any proceeding, investigation or inquiry
commenced or threatened in writing by any Governmental Authority, against
Borrower, any Affiliate of Borrower or with respect to any Mortgaged Property
concerning the presence, suspected presence, Release or threatened Release of
Hazardous Substances from or onto, in or under any property not owned by
Borrower (including, without limitation, proceedings under the CERCLA;


 


(iii) a material Environmental Claims asserted or
threatened against Borrower, against any other party occupying any Mortgaged
Property or any portion thereof which become known to Borrower or against any
Mortgaged Property;


 


(iv) the discovery by Borrower of a material
occurrence or condition giving rise to an obligation of the Borrower to the
Lender hereunder on any Mortgaged Property or on any real property adjoining or
in the vicinity of any Mortgaged Property;


 


(v) the commencement or completion of any Remedial
Work; and


 


(vi) any of the foregoing clauses (i) – (v) as to
which a tenant notifies Borrower under a Lease with respect to such tenant.


 


(g)           Copies of Notices.  Borrower
shall transmit to Lender copies of any citations, orders, notices or other
written communications received from any Person and any notices, reports or
other written communications submitted to any Governmental Authority with
respect to the matters described in Section 5.1(f).


 


(h)           Environmental Claims. 
Lender may join and participate in, as a party if Lender so determines,
any legal or administrative proceeding or action concerning the Mortgaged
Property or any portion thereof under any Environmental Law, if, in Lender’s
reasonable judgment, the interests of Lender shall not be adequately protected
by Borrower; provided, however, that Lender shall not participate
in day-to-day decision making with respect to environmental compliance.  Borrower shall pay or reimburse Lender on
demand for all reasonable sums advanced and reasonable expenses incurred
(including reasonable attorneys’ fees and disbursements, but excluding internal
overhead, administrative and similar costs of Lender) by Lender in connection
with any such action or proceeding.


 


(i)            Environmental Indemnification. 
Borrower shall indemnify, reimburse, defend, and hold harmless Lender,
and each of its respective parents, subsidiaries, Affiliates, shareholders,
directors, officers, employees, representatives, agents, successors, assigns
and attorneys (collectively, the “Indemnified Parties”) for, from, and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses (including, without limitation,
interest, penalties, reasonable attorneys’ fees, disbursements and expenses,
and reasonable consultants’ fees, disbursements and expenses (but excluding
internal overhead, administrative, lost opportunity and similar costs of
Lender)), asserted against, resulting to, imposed on, or incurred by any Indemnified
Party, directly or indirectly, in connection with any of the following (except
to the extent same are directly and solely caused by the gross negligence or
willful misconduct of any Indemnified Party):


 


(i) events, circumstances, or conditions which form
the reasonable basis for an Environmental Claim;


 


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(ii) any pollution or threat to human health or the
environment that is related in any way to Borrower’s or any previous owner’s or
operator’s management, use, control, ownership or operation of any Mortgaged
Property (including, without limitation, all on-site and off-site activities
involving Hazardous Substances), and whether occurring, existing or arising
prior to or from and after the date hereof, and whether or not the pollution or
threat to human health or the environment is described in the Environmental
Reports;


 


(iii) any Environmental Claim against any Person whose
liability for such Environmental Claim Borrower has or may have assumed or retained
either contractually or by operation of law; or


 


(iv) the breach of any representation, warranty or
covenant set forth in Section 4.2(e) and Sections 5.1(d) through 5.1(i),
inclusive.


 


The provisions of and undertakings and indemnification
set forth in this Section 5.1(i) shall survive the satisfaction and
payment of the Indebtedness and termination of this Agreement.


 


(j)            General Indemnity.


 


(i) Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
for, from and against any and all claims, suits, liabilities (including,
without limitation, strict liabilities), administrative and judicial actions
and proceedings, obligations, debts, damages, losses, costs, expenses, fines,
penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, and litigation costs, of whatever kind or nature and whether or not
incurred in connection with any judicial or administrative proceedings
(including, but not limited to, reasonable attorneys’ fees and other reasonable
costs of defense) (the “Losses”) imposed upon or incurred by or asserted
against any Indemnified Parties (except as to any Indemnified Party to the
extent same are directly and solely caused by the gross negligence or willful
misconduct of such Indemnified Party) and directly or indirectly arising out of
or in any way relating to any one or more of the following:


 


(A)          ownership of the Note or any of the
other Loan Documents or otherwise related to the Mortgaged Property or any
interest therein or receipt of any Rents or Accounts;


 


(B)           any untrue statement of any material
fact contained in any information concerning Borrower, the Mortgaged Property
or the Loan or the omission to state therein a material fact required to be stated
in such information or necessary in order to make the statements in such
information or in light of the circumstances under which they were made not
misleading;


 


(C)           any and all lawful action that may
be taken and is taken by the Lender in connection with the enforcement of the
provisions of this Agreement, the Note or any of the other Loan Documents,
whether or not suit is filed in connection with same, or in connection with
Borrower or any Affiliate of Borrower becoming a party to a voluntary or involuntary
federal or state bankruptcy, insolvency or similar proceeding;


 


(D)          any accident, injury to or death of
persons or loss of or damage to property occurring in, on or about any
Mortgaged Property or any part thereof or on the adjoining sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways;


 


63

















 


(E)           any use, nonuse or condition in, on
or about the Mortgaged Property or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;


 


(F)           any failure on the part of Borrower
to perform or be in compliance with any of the terms of this Agreement or any
of the other Loan Documents;


 


(G)           performance of any labor or services
or the furnishing of any materials or other property in respect of the
Mortgaged Property or any part thereof pursuant to provisions of this
Agreement;


 


(H)          the failure of Borrower to file
timely with the Internal Revenue Service an accurate Form 1099-B, Statement for
Recipients of Proceeds from Real Estate, Broker and Barter Exchange
Transactions, which may be required in connection with this Agreement;


 


(I)            any failure of the Mortgaged
Property to be in compliance with any Legal Requirement;


 


(J)            the enforcement by any Indemnified
Party of the provisions of this Section 5.1(j); and


 


(K)          any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the terms,
covenants, or agreements contained in any Lease.


 


Any amounts payable to an
Indemnified Party by reason of the application of this Section 5.1(j)(i)
shall become due and payable ten (10) days after written demand and shall bear
interest at the Default Rate from the tenth (10th) day after demand until paid.


 


(ii) Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
from and against any and all Losses imposed upon or incurred by or asserted
against any of the Indemnified Parties and directly or indirectly arising out
of or in any way relating to any tax on the making and/or recording of this
Agreement, the Note or any of the other Loan Documents.


 


(iii) Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
from and against any and all Losses (including, without limitation, reasonable
attorneys’ fees and costs) that the Indemnified Parties may incur, directly or
indirectly, as a result of a default under Borrower’s covenants with respect to
ERISA and employee benefits plans contained herein, including, without
limitation, any costs or expenses incurred in the investigation, defense, and
settlement of Losses incurred in correcting any prohibited transaction or in
the sale of a prohibited loan, and in obtaining any individual prohibited
transaction exemption under ERISA that may be required, in the Lender’s
reasonable discretion).


 


(iv) Promptly after receipt by an Indemnified Party
under this Section 5.1(j) of notice of the making of any claim or the
commencement of any action, such Indemnified Party shall, if a claim in respect
thereof is to be made by such Indemnified Party against Borrower under this Section
5.1(j), notify Borrower in writing, but the omission so to notify Borrower
will not relieve Borrower from any liability which it may have to any
Indemnified Party under this Section 5.1(j) 


 


64

















 


or otherwise.  In case any such claim is made or action is
brought against any Indemnified Party and such Indemnified Party seeks or
intends to seek indemnity from Borrower, Borrower will be entitled to
participate in, and, to the extent that it may wish, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party; and, upon
receipt of notice from Borrower to such Indemnified Party of its election so to
assume the defense of such claim or action and only upon approval by the
Indemnified Party of such counsel (such approval not to be unreasonably
withheld or delayed), Borrower will not be liable to such Indemnified Party
under this Section 5.1(j)  for any legal or other expenses subsequently incurred
by such Indemnified Party in connection with the defense thereof.  Notwithstanding the preceding sentence, each
Indemnified Party will be entitled to employ counsel separate from such counsel
for Borrower and from any other party in such action if such Indemnified Party
reasonably determines that a conflict of interest exists which makes
representation by counsel chosen by Borrower not advisable.  In such event, Borrower shall pay the
reasonable fees and disbursements of such separate counsel.  Borrower shall not, without the prior
written consent of an Indemnified Party, which consent shall not be
unreasonably withheld or delayed, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Indemnified Party is an actual or potential party to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising out
of such claim, action, suit or proceeding. 
Each Indemnified Party shall not enter into a settlement of or consent
to the entry of any judgment with respect to any action, claim, suit or
proceeding as to which an Indemnified Party would be entitled to indemnification
hereunder without the prior written consent of Borrower, which consent shall
not be unreasonably withheld or delayed.


 


The provisions of and undertakings and indemnification
set forth in this Section 5.1(j)  shall survive the satisfaction and payment
of the Indebtedness and termination of this Agreement.


 


(k)           Access to Mortgaged Property. 
Borrower shall permit agents, representatives and employees of Lender to
inspect each Mortgaged Property or any part thereof at such reasonable times as
may be requested by Lender upon reasonable advance written notice (except
during an Event of Default), subject, however, to the rights of Borrower and of
the tenants of the Mortgaged Property.


 


(l)            Notice of Default.  Borrower
shall promptly advise Lender in writing of any change in Borrower’s condition,
financial or otherwise, that is reasonably likely to have a Material Adverse
Effect, or of the occurrence of any Default or Event of Default.


 


(m)          Cooperate in Legal Proceedings. 
Except with respect to any claim by Borrower, the General Partner, the
Member or the Guarantor against Lender, Borrower shall reasonably cooperate
with Lender with respect to any proceedings before any Governmental Authority
that are reasonably likely to in any way materially affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, shall not prohibit Lender, at its election, from
participating in any such proceedings.


 


(n)           Perform Loan Documents. 
Borrower shall observe, perform and satisfy all the terms, provisions,
covenants and conditions required to be observed, performed or satisfied by it,
and shall pay when due all costs, fees and expenses required to be paid by it,
under the Loan Documents.


 


(o)           Insurance Benefits.  Borrower
shall reasonably cooperate with Lender in obtaining for Lender the benefits of
any Insurance Proceeds lawfully or equitably payable to Borrower or Lender in
connection with any Mortgaged Property. 
Lender shall be reimbursed for any expenses


 


65

















 


reasonably incurred in connection therewith (including reasonable
attorneys’ fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) out of such Insurance Proceeds, all
as more specifically provided in this Agreement.


 


(p)           Further Assurances.  Borrower
shall, at Borrower’s sole cost and expense:


 


(i) upon Lender’s reasonable request therefor given
from time to time, pay for (a) reports of UCC, tax lien, judgment and
litigation searches with respect to Borrower, and (b) searches of title to
the Mortgaged Property, each such search to be conducted by search firms
designated by Lender in each of the locations designated by Lender;


 


(ii) furnish to Lender all instruments, documents,
certificates, title and other insurance reports and agreements, and each and
every other document, certificate, agreement and instrument required to be
furnished pursuant to the terms of the Loan Documents;


 


(iii) execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings, and do such other
acts necessary, to evidence, preserve and/or protect the Collateral at any time
securing or intended to secure the Note, as Lender may reasonably require (including,
without limitation, tenant estoppel certificates, an amended or replacement
Mortgages, UCC financing statements or Collateral Security Instruments); and


 


(iv) do and execute all and such further lawful and
reasonable acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Agreement and the other Loan
Documents, as Lender shall reasonably require from time to time.


 


(q)           Management of Mortgaged Property.


 


(i) Each Mortgaged Property shall be managed at all
times by the current Manager or another manager reasonably satisfactory to
Lender, pursuant to a Management Agreement. 
Any such Manager may be an Affiliate of Borrower, provided that:  (a) the terms and conditions of such
Manager’s engagement are at arm’s length, reasonable, competitive and customary
in the applicable marketplace; and (b) Lender has approved such Manager and
such terms, which approval shall not be unreasonably withheld or delayed.  The Management Agreement, dated as of the
date hereof, between the Borrower and the Manager is deemed approved by Lender
in all respects.  Borrower shall cause
the Manager of the Mortgaged Property to agree that such Manager’s Management
Agreement is subject and subordinate in all respects to the Indebtedness and to
the Lien of the Mortgages.  A Management
Agreement may be terminated or assigned (1) by Borrower at any time in
accordance with the provisions of such Management Agreement so long as a
successor or assignee Manager as specified below shall have been appointed and
approved and such successor Manager has (i) entered into (or assumed) a
Management Agreement in form and substance approved by Lender, which approval
shall not be unreasonably denied, conditioned or delayed, and (ii) has executed
and delivered a Manager’s Subordination to Lender, and (2) by Lender upon
thirty (30) days’ prior written notice to Borrower and the Manager (a) upon the
occurrence and continuation of an Event of Default or (b) if the Manager
commits any act which would permit termination under the Management Agreement
(subject to any applicable notice, grace and cure periods provided in the
Management Agreement) or (c) if a change of majority control occurs with
respect to the Manager.  Notwithstanding
the foregoing, any successor manager selected hereunder by Lender or Borrower
to manage the Mortgaged Property shall be a reputable management company having
substantial experience in the management of real property of a similar type,
size and quality in the state in which the Mortgaged Property is located.  Borrower may from time to time appoint a
successor manager to


 


66

















 


manage the Mortgaged Property with
Lender’s prior written consent, such consent not to be unreasonably
withheld.  Borrower acknowledges and
agrees that any consent or approval requested of Lender under this Section  may be conditioned by Lender, at Lender’s
discretion, upon Borrower first obtaining a Rating Confirmation with respect to
such change in management, and Lender shall not be deemed to be acting
unreasonably in requiring such a Rating Confirmation.  Borrower further covenants and agrees that any manager of
Mortgaged Property shall at all times while any Indebtedness is outstanding
maintain worker’s compensation insurance as required by Governmental
Authorities.


 


(ii) Borrower further covenants and agrees that each
Mortgaged Property shall be operated pursuant to the Management Agreement and
that Borrower shall:  (w) promptly
perform and/or observe all of the material covenants and agreements required to
be performed and observed by it under the Management Agreement and do all
things reasonably necessary to preserve and to keep unimpaired its material
rights thereunder; (x) promptly notify Lender of any material default under the
Management Agreement of which it is aware; (y) promptly deliver to Lender a
copy of each financial statement, business plan, capital expenditures plan,
notice and report received by it under the Management Agreement, including, but
not limited to, financial statements; and (z) promptly enforce the performance
and observance of the covenants and agreements required to be performed and/or
observed by the Manager under the Management Agreement.


 


(r)            Financial Reporting.


 


(i) Borrower shall keep and maintain or shall cause to
be kept and maintained on a Fiscal Year basis in accordance with GAAP
consistently applied, books, records and accounts reflecting in reasonable
detail all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Mortgaged Property and
ownership of the Mortgaged Property and in connection with any services,
equipment or furnishings provided in connection with the operation of the
Mortgaged Property, whether such income or expense may be realized by Borrower
or by any other Person whatsoever. 
Lender shall have the right from time to time at all times during normal
business hours upon reasonable prior written notice to Borrower to examine such
books, records and accounts at the office of Borrower or other Person
maintaining such books, records and accounts and to make such copies or
extracts thereof as Lender shall desire. 
During the continuation of an Event of Default (including, without
limitation, an Event of Default resulting from the failure of Borrower to
deliver any of the financial information required to be delivered pursuant to
this Section 5.1(r)), Borrower shall pay any reasonable costs and
expenses incurred by Lender to examine Borrower’s accounting records, as Lender
shall reasonably determine to be necessary or appropriate in the protection of
Lender’s interest.


 


(ii) Borrower shall furnish to Lender annually, within
ninety (90) days following the end of each Fiscal Year, a complete copy of Borrower’s
and Guarantor’s financial statements, each audited by a “Big Four” accounting
firm or such other Independent certified public accountant acceptable to Lender
in accordance with GAAP consistently applied covering Borrower’s and
Guarantor’s respective financial position and results of operations, for such
Fiscal Year and containing a statement of revenues and expenses, a statement of
assets and liabilities and a statement of Borrower’s or Guarantor’s (as
applicable) equity, all of which shall be in form and substance reasonably
acceptable to Lender.  Any audit
requirements of the Borrower pursuant to this Agreement may be satisfied by
delivery of the audited consolidated financial statements of the Guarantor, provided
that such financial statements of the Guarantor contain (i) a separate income
and expense statement for the Borrower and (ii) a separate balance sheet,
including a statement of Borrower’s equity. 
Lender shall have the right from time to time to review and


 


67

















 


consult with respect to the auditing
procedures used in the preparation of such annual financial statements.  Together with Borrower’s and Guarantors’
annual financial statements, Borrower shall furnish, and cause Guarantor to
furnish, to Lender an Officer’s Certificate certifying as of the date thereof
(x) that the annual financial statements present fairly in all material
respects the results of operations and financial condition of Borrower or
Guarantor, as applicable, all in accordance with GAAP consistently applied, and
(y) whether there exists an Event of Default or Default, and if such Event of
Default or Default exists, the nature thereof, the period of time it has
existed and the action then being taken to remedy same.


 


(iii) Borrower shall furnish to Lender, within
forty-five (45) days following the end of each Fiscal Year quarter true,
complete and correct quarterly unaudited financial statements (including
statements of cash flow) prepared in accordance with GAAP with respect to
Borrower and Guarantor for the portion of the Fiscal Year then ended.


 


(iv) No later than thirty (30) days following the end
of each of the months of December, March, June, and September, beginning with
the month ending at March 31, 2004, Borrower shall prepare and deliver to
Lender and its servicer a statement (each a “Quarterly Statement”) in
substantially the form of Schedule 8 hereto, setting forth with respect
to the Mortgaged Property,


 


(A)          a rent roll dated as of the last day
of such quarter identifying the name of each tenant and the associated
Homesite, security deposit, amount due at the beginning of the month, charges
in the current month (including Homesite rent, water/sewer, gas/electric,
trash, mobile home rent, notes amount and other charges), payments made during
the month, amount due at the end of the month, total Homesites at the Mortgaged
Property and total occupied Homesites at the Mortgaged Property, with the
occupancy level expressed as a percentage;


 


(B)           quarterly and year-to-date operating
statements, each of which shall include an itemization of budgeted and actual
(not pro forma) capital expenditures during the applicable period, and which
shall be prepared for each individual Mortgaged Property and, on a consolidated
basis, for all the Mortgaged Property; and


 


(C)           a quarterly and year-to-date
comparison of the budgeted income and expenses with the actual income and
expenses for such quarter and year to date, together with if requested by
Lender, a detailed explanation of any variances between budgeted and actual
amounts that are in excess of five percent (5%) for each line item therein.


 


(v) Within thirty (30) days after the end of each
calendar month (and as to rent rolls requested by Lender on an interim basis,
within thirty (30) days after Lender’s request therefor), Borrower shall
provide to Lender and its servicer a statement (each a “Monthly Statement”)
in substantially the form of Schedule 9 hereto, setting forth with
respect to the Mortgaged Property


 


(A) 
a certified rent roll, for each individual Mortgaged Property containing
the information referred to in Section 5.1(r)(iv)(A),


 


(B) 
a certification of all prepaid Rent that has been collected for each
individual Mortgaged Property more than one (1) month in advance of its due
date,


 


(C) 
monthly operating financial statements for the last twelve (12) months,
including a comparison on a year-to-date basis to budget and prior year, for
each individual Mortgaged Property and, on a consolidated basis, for Borrower,
and


 


68

















 


(D) 
a monthly occupancy report which includes data quantifying the total
number of Homesites, beginning occupancy, monthly move-in and move-out data for
residents, Master Lease Deposits, rentals and change of occupancy, ending
monthly occupancy, ending monthly occupancy percentage, budgeted occupancy
percentage, total rentals, rentals as a percentage of Homesites, total occupied
rentals, rental occupancy percentage, total repossessions and repossessions as
a percentage of total Homesites.


 


(vi) Borrower shall furnish to Lender, within fifteen
(15) Business Days after request, such further information with respect to the
operation of the Mortgaged Property and the financial affairs of Borrower as
may be reasonably requested by Lender, including all business plans prepared
for Borrower.


 


(vii) Borrower shall furnish to Lender, within fifteen
(15) Business Days after request, such further information regarding any Plan
or Multiemployer Plan and any reports or other information required to be filed
under ERISA as may be reasonably requested by Lender in writing.


 


(viii) At least thirty (30) days prior to the end of
each of Borrower’s Fiscal Years, Borrower shall submit or cause to be submitted
to Lender for its approval, such approval not to be unreasonably withheld or
delayed, an Operating Budget for Property Expenses, Capital Improvement Costs,
Leasing Commissions, and replacement reserve costs for the next Fiscal Year for
the Mortgaged Property.  Such Operating
Budget may allow for a ten percent (10%) line item variance.  Until so approved by Lender for the
subsequent Fiscal Year in accordance with the procedure set forth in Section
5.1(r)(ix) below, the Operating Budget approved by Lender for the preceding
Fiscal Year shall remain in effect for purposes of Section 2.12; provided,
that for so long as such prior Operating Budget remains in effect, amounts set
forth in the prior Operating Budget with respect to Property Expenses shall be
deemed increased with respect to actual increases in Basic Carrying Costs and
non-discretionary utility expenditures and shall be deemed increased by three
percent (3%) with regard to discretionary items.  Promptly following the occurrence and during the continuance of
an Event of Default, the Borrower shall submit or cause to be submitted to
Lender a Working Capital Budget for the remainder of the Fiscal Year during
which such Event of Default occurs and by not later than the end of each of
Borrower’s Fiscal Years with respect to the subsequent Fiscal Year.


 


(ix) Borrower shall submit any proposed Operating
Budget in writing sent by recognized overnight delivery service or by
registered or certified mail (and simultaneously shall contact the Lender by
telephone and by electronic mail) in accordance with the terms of this
Agreement (the “First Notice”), requesting Lender’s approval of such
Operating Budget.  Lender shall use
reasonable efforts to deliver to Borrower its written approval or disapproval
of the proposed Operating Budget within ten (10) Business Days after Lender
shall have received the First Notice. 
Unless Lender shall have approved the Operating Budget contained in the
First Notice, Lender’s approval shall be deemed to be withheld.  If Borrower does not receive Lender’s
response at the end of such ten (10) Business Days period, Borrower may
resubmit its written request to Lender (the “Second Notice”).  The Second Notice shall make reference to
the First Notice and shall bear the following legend in capital letters:


 


“LENDER’S
FAILURE TO RESPOND TO THIS REQUEST FOR APPROVAL WITHIN TEN (10) BUSINESS DAYS
FOLLOWING RECEIPT SHALL BE DEEMED TO CONSTITUTE LENDER’S CONSENT TO THE
OPERATING BUDGET DESCRIBED HEREIN.”


 


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If Lender does not
approve or disapprove the proposed Operating Budget within ten (10) Business
Days after Lender shall have received Borrower’s Second Notice, Lender shall be
deemed to have approved the proposed Operating Budget.


 


(x) Together with the financial statements, rent
rolls, operating statements and other documents and information provided to
Lender by or on behalf of Borrower under this Section, Borrower also shall
deliver to Lender a certification in form and substance reasonably satisfactory
to Lender, executed on behalf of Borrower by its chief executive officer or
chief financial officer (or by the individual Guarantor if the Guarantor is an
individual) stating that, to such officer’s or individual’s knowledge, such
financial statements, rent rolls, operating statements and other documents and
information are true and complete in all material respects.


 


(xi)           For purposes of this Section 5.1(r), all of the
financial reporting requirements may be satisfied by the Borrower posting the
required deliveries on a secure website reasonably satisfactory to the Lender
and sending to the Lender and its servicer each month an electronic mail
communication notifying the Lender and its servicer of the linkage to such
website; provided that notwithstanding the foregoing, in the event the
Lender includes the Loan in a Secondary Market Transaction in which Securities
are issued or otherwise changes the identity of its servicer to a Person other
than the initial servicer identified to the Borrower as of the Closing Date,
then the Lender may require that such deliveries be made to Lender and its
servicer in hard copy and on diskette or through electronic mail (including
Microsoft Excel format), in form and substance reasonably acceptable to Lender.


 


(s)           Operation of Mortgaged Property. 
Borrower shall cause the operation of each Mortgaged Property to be
conducted at all times in a manner consistent with at least the level of
operation of such Mortgaged Property as of the Closing Date, including, without
limitation, the following:


 


(i) to maintain or cause to be maintained the standard
of each Mortgaged Property at all times at a level not lower than that
maintained by prudent managers of similar facilities or land in the region
where the Mortgaged Property is located;


 


(ii) to operate or cause to be operated each Mortgaged
Property in a prudent manner in compliance in all material respects with
applicable Legal Requirements and Insurance Requirements relating thereto and
maintain or cause to be maintained all material licenses, Permits and any other
agreements necessary for the continued use and operation of each Mortgaged
Property; and


 


(iii) to maintain or cause to be maintained sufficient
Inventory and Equipment of types and quantities at each Mortgaged Property to
enable Borrower to operate each Mortgaged Property and to comply in all
material respects with all Leases affecting each Mortgaged Property.


 


(t)            Material Agreements. 
Except for Leases and any Management Agreement complying with the Loan
Documents, Borrower shall not enter into or become obligated under any material
agreement pertaining to the Mortgaged Property, including without limitation
brokerage agreements, unless the same may be terminated without cause and
without payment of a penalty or premium, on not more than thirty (30) days’
prior written notice.  Borrower will
(A) comply with the requirements of all present and future applicable
laws, rules, regulations and orders of any governmental authority in all
jurisdictions in which it is now doing business or may hereafter be doing
business, (B) maintain all material licenses and permits now held or
hereafter acquired by Borrower, and


 


70

















 


(C) perform, observe, comply and fulfill all of its obligations,
covenants and conditions contained in any material agreement pertaining to the
Mortgaged Property.


 


(u)           ERISA.  Borrower
shall deliver to Lender as soon as possible, and in any event within ten days
after Borrower knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred or
exists, an Officer’s Certificate setting forth details respecting such event or
condition and the action, if any, that Borrower or its ERISA Affiliate proposes
to take with respect thereto (and a copy of any report or notice required to be
filed with or given to PBGC by Borrower or an ERISA Affiliate with respect to
such event or condition):


 


(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan,
as to which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the occurrence
of such event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA, including, without limitation,
the failure to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with Section 412(d) of
the Code); and any request for a waiver under Section 412(d) of the Code for
any Plan;


 


(ii) the distribution under Section 4041(c) of ERISA
of a notice of intent to terminate any Plan or any action taken by Borrower or
an ERISA Affiliate to terminate any Plan;


 


(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by Borrower or any ERISA Affiliate of
Borrower of a notice from a Multiemployer Plan that such action has been taken
by PBGC with respect to such Multiemployer Plan;


 


(iv) the complete or partial withdrawal from a
Multiemployer Plan by Borrower or any ERISA Affiliate of Borrower that results
in material liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a purchaser default)
or the receipt by Borrower or any ERISA Affiliate of Borrower of notice from a
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;


 


(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against Borrower or any ERISA Affiliate of Borrower to
enforce Section 515 of ERISA, which proceeding is not dismissed within thirty
(30) days;


 


(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of tax-exempt status of the trust of which such Plan is a
part if Borrower or an ERISA Affiliate of Borrower fails to timely provide
security to the Plan in accordance with the provisions of said Sections; and


 


(vii) the imposition of a lien or a security interest
in connection with a Plan.


 


(v)           Refinancing Loan.  If Borrower
or any other Person in which Borrower or its members or partners have a direct
or indirect beneficial ownership interest proposes to obtain a first mortgage
loan to be secured by the Mortgaged Properties from any Person (other than the
initial Lender) and to cause the proceeds of such loan to be used to pay or
prepay the Loan in whole or in part (including, without limitation, on the
Maturity Date or otherwise pursuant to Section 2.6(a) or 2.7(a))
(any such


 


71

















 


transaction, a “Refinancing Loan”), Borrower shall provide to
the initial Lender in writing the Proposed Terms (including by delivering to
the initial Lender actual copies of all current term sheets which have been
obtained, except Borrower may redact or withhold the name of the proposed
lender on such Refinancing Loan to the extent Borrower or such Person is
subject to a confidentiality agreement). 
The initial Lender shall have five (5) Business Days from its receipt in
writing of such proposal to offer to Borrower a Refinancing Loan on terms
specified by the initial Lender in writing (the “Lender’s Terms”).  If prior to the expiration of such five (5)
Business Day period, the initial Lender shall offer to Borrower or such
Affiliate a transaction with the same material terms as the Proposed Terms
provided to the initial Lender and the same material conditions precedent to
closing as those set forth in the Commitment, Borrower or such Affiliate shall
accept, and enter into, the transaction offered by the initial Lender and shall
not accept, or enter into, such Refinancing Loan.  If the initial Lender declines to offer a transaction on the same
terms as the Proposed Terms and Borrower or such Affiliate subsequently either
proposes to obtain a Refinancing Loan with material business terms at closing
economically less favorable to Borrower or such Affiliate than those previously
disclosed to Lender, then Borrower or such Affiliate shall provide the initial
Lender with a further opportunity to make the Refinancing Loan on the modified
terms in accordance with the timing provisions set forth above.


 


(w)          Secondary Market Transaction. 
Borrower acknowledges that Lender and its successors and assigns may (i)
sell the Loan to one or more investors as a whole loan, (ii) participate the
Loan to one or more investors, (iii) deposit the Loan with a trust, which trust
may sell certificates to investors evidencing an ownership interest in the
trust assets, or (iv) otherwise sell the Loan or interests therein to investors
(the transactions referred to in clauses (i) through (iv) above
are hereinafter each referred to as a “Secondary Market Transaction”).  Borrower shall cooperate with Lender in
attempting to effect or effecting any such Secondary Market Transaction and
shall cooperate in attempting to implement or implementing all requirements
imposed by any Rating Agency involved in any Secondary Market Transaction,
including but not limited to,


 


(i) providing Lender an estoppel certificate and such
information, legal opinions and documents (including updated non-consolidation
opinions) relating to Borrower, the Guarantor, the Member, the Mortgaged Property
and any tenants of the Mortgaged Property as Lender or the Rating Agencies or
other Interested Parties (as defined below), may reasonably request in
connection with such Secondary Market Transaction, including, without
limitation, updated financial information, appraisals, market studies,
environmental reviews (Phase I’s and, if appropriate, Phase II’s),
Mortgaged Property condition reports and other due diligence investigations
together with appropriate verification of such updated information and reports
through letters of auditors and consultants, as of the closing date of the
Secondary Market Transaction,


 


(ii) amending the Loan Documents and Organizational
Agreement of Borrower, updating and/or restating officer’s certificates, title
insurance and other closing items, and providing updated representations and
warranties in Loan Documents and such additional representations and warranties
as may be required by Lender or the Rating Agencies, provided such amendment or
update (1) shall not change any of the financial terms of the Loan or result in
a material increase in the Borrower’s obligations or a material decrease in the
Borrower’s rights and (2) with respect to any amendment of an Organizational
Agreement, must have been required by the Rating Agencies,


 


(iii) participating in bank, investors and Rating
Agencies’ meetings if requested by Lender,


 


72

















 


(iv) upon Lender’s request, amending the Loan
Documents (and updating and/or restating officer’s certificates, title
insurance and other closing items in connection therewith) to divide the Loan
into a first and a second mortgage loan, or into a one or more loans secured by
mortgages and by ownership interests in Borrower in whatever proportion Lender determines,  which separated loans may have different
interest rates and amortization schedules (but with aggregated financial terms
which are equivalent to that of the Loan prior to such separation, including,
so long as an Event of Default has not occurred and is not continuing, a
ratable allocation of prepayments among the Loan components) and thereafter to
engage in separate Secondary Market Transactions with respect to all or any
part of the indebtedness and loan documentation, and


 


(v) reviewing the offering documents relating to any
Secondary Market Transaction to ensure that all information concerning
Borrower, the Guarantor, the Mortgaged Property, and the Loan is correct, and
certifying to the accuracy thereof.


 


Lender shall be permitted to share all such
information with the investment banking firms, Rating Agencies, accounting
firms, law firms and other third-party advisory firms and trustees, purchasers,
transferees, assignees, trustees, servicers and actual or potential investors
involved with the Loan and the Loan Documents or the applicable Secondary
Market Transaction (collectively, “Interested Parties”).  Lender and all of the aforesaid Interested
Parties shall be entitled to rely on the information supplied by, or on behalf
of, Borrower.  Lender may publicize the
existence of the Loan in connection with its marketing for a Secondary Market
Transaction or otherwise as part of its business development.  Borrower shall provide such
reasonable access to the Mortgaged Property and personnel of the Manager and of
Borrower’s constituent members and the business and operations of all of the
foregoing as Lender or other Interested Parties may request in connection with
any such Secondary Market Transaction. 
Borrower understands that any such information may be incorporated into
any offering circular, prospectus, prospectus supplement, private placement
memorandum or other offering documents for any Secondary Market
Transaction.  Without limiting the
foregoing, Borrower and Guarantor shall provide in connection with each of
(i) a preliminary and a final private placement memorandum or (ii) a
preliminary and final prospectus or prospectus supplement, as applicable (the
documents referred to in the foregoing clauses (i) and (ii), collectively, the
“Disclosure Documents”), an agreement certifying that Borrower and
Guarantor have examined such Disclosure Documents specified by Lender and that
each such Disclosure Document, as it relates to Borrower, Guarantor, any
Affiliates, the Mortgaged Property and Manager, does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in the light of the circumstances under
which they were made, not misleading (a “Disclosure Certificate”).  Borrower and Guarantor shall indemnify,
defend, protect and hold harmless Lender, its Affiliates, directors, employees,
agents and each Person, if any, who controls Lender or any such Affiliate
within the meaning of Section 15 of the Securities Act of 1933 or Section 20
of the Securities Exchange Act of 1934, and any other placement agent or
underwriter with respect to any Securitization or Secondary Market Transaction
from and against any losses, claims, damages, liabilities, costs and expenses
(including, without limitation, reasonable attorneys’ fees and disbursements)
that arise out of or are based upon any untrue statement of any material fact
contained in any Disclosure Certificate or other information or documents
furnished by Borrower, Guarantor or their Affiliates or in any representation
or warranty of any Borrower contained herein or in the other Loan Documents or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated in such information or necessary
in order to make the statements in such information not materially
misleading.  In any Secondary Market
Transaction, Lender may transfer its obligations under this Loan Agreement and
under the other Loan Documents (or may transfer the portion thereof
corresponding to the transferred portion of the Indebtedness), and thereafter
Lender shall be relieved of any obligations hereunder and under the other Loan
Documents arising after the date of said transfer with respect to the
transferred interest.  Each transferee
investor shall become a “Lender” hereunder. 
The holders from time


 


73

















 


to time of the Loan and/or any other interest of the
“Lender” under this Loan Agreement and the other Loan Documents may from time
to time enter into one or more co-lender or similar agreements in their
discretion.  Borrower acknowledges and
agrees that such agreements, as the same may from time to time be amended,
modified or restated, may govern the exercise of the powers and discretionary
authority of the Lender hereunder and under the other Loan Documents, but
Borrower shall be entitled to rely upon any actions taken by Lender or the
designated servicer(s) or agent(s) for Lender, whether or not within the scope
of its power and authority under such other agreements.  Lender shall be responsible for the payment
of (1) all out-of-pocket expenses incurred by the Lender in connection with any
Secondary Market Transaction, (2) one-half of the initial $20,000 of the
reasonable out-of-pocket expenses incurred by the Borrower in connection with
its compliance with this Section 5.1(w) (i.e.  up to $10,000) and (3) all reasonable out-of-pocket expenses
incurred by Borrower in connection with its compliance with this Section
5.1(w) in excess of $40,000 (i.e. 
Borrower shall be solely responsible for the payment of such reasonable
out-of-pocket expenses between $20,000 and $40,000).


 


(x)            Insurance.


 


(i) Borrower, at its sole cost and expense, shall keep
the Improvements and Equipment insured (including, but not limited to, any
period of renovation, alteration and/or construction) during the term of the
Loan with the coverage and in the amounts required under this Agreement for the
mutual benefit of Borrower and Lender against loss or damage by fire,
lightning, wind and such other perils as are customarily included in a standard
“all-risk” or “special cause of loss” form and against loss or damage by other
risks and hazards covered by a standard extended coverage insurance policy
(including, without limitation, fire, lightning, hail, hurricane, windstorm,
tidal wave, explosion, acts of terrorism certified under the Terrorism Risk
Insurance Act of 2002, riot and civil commotion, vandalism, malicious mischief,
strike, water damage, sprinkler leakage, collapse, burglary, theft, mold and
microbial matter coverage arising as a result of covered perils under the
standard “all risk” policy and such other coverages as may be reasonably
required by Lender on the special form (formerly known as an all risk
form)).  Such insurance shall be in an
amount (i) equal to at least the greater of then full replacement cost of the
Improvements and Equipment (exclusive of the cost of foundations and footings),
without deduction for physical depreciation and the outstanding Principal
Indebtedness, and (ii) such that the insurer would not deem Borrower a
co-insurer under said policies.  The
policies of insurance carried in accordance with this Section 5.1(x)
shall be paid not less than ten (10) days in advance of the due date
thereof and shall contain the “Replacement Cost Endorsement” with a waiver of
depreciation.  If terrorism coverage is
excluded on an “all-risk” basis, then Borrower shall obtain coverage for
terrorism and similar acts in the stand alone terrorism market.  Notwithstanding the foregoing, the terrorism
coverage may exclude non-certified Terrorism Risk Insurance Act of 2002
coverage (i.e.  the actions of domestic
actors).


 


(ii) Borrower, at its sole cost and expense, for the
mutual benefit of Borrower and Lender, shall also obtain and maintain or cause
to be obtained and maintained during the entire term of the Loan the following
policies of insurance:


 


(A)          flood insurance, if any part of the
Mortgaged Property is located in an area identified by the Federal Emergency
Management Agency as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance
Reform Act of 1994 (and any amendment or successor act thereto) in an amount at
least equal to the maximum limit of coverage available with respect to the
Improvements and Equipment under said Act;


 


74

















 


(B)           Comprehensive General Liability
insurance, including a broad form comprehensive general liability endorsement
and coverage for broad form property damage, contractual damages, personal
injuries (including death resulting therefrom) and a liquor liability endorsement
if liquor is sold on the Mortgaged Property, containing minimum limits of
liability of $1 million for both injury to or death of a person and for
property damage per occurrence and $3 million in the aggregate for the
Mortgaged Property, and such other liability insurance reasonably requested by
Lender; in addition, at least $25 million excess and/or umbrella liability
insurance shall be obtained and maintained for any and all claims, including
all legal liability imposed upon Borrower and all court costs and attorneys’
fees incurred in connection with the ownership, operation and maintenance of
the Mortgaged Property;


 


(C)           business interruption insurance
(including rental value) in an annual aggregate amount equal to the estimated
income from the Leases of each Mortgaged Property (including, without
limitation, the loss of all Rents and additional Rents payable by all of the
lessees under the Leases (whether or not such Leases are terminable in the
event of a fire or casualty)), such insurance to cover losses for a period of
twelve (12) months after the date of the fire or casualty in question, plus an
extended period of indemnity commencing at the time repairs are completed for a
period of not less than 30 days and to be increased or decreased, as applicable,
from time to time during the term of the Loan if, and when, the gross revenues
from the Leases of the Mortgaged Property materially increase or decrease, as
applicable (including, without limitation, increases from new Leases and
renewal Leases entered into in accordance with the terms of this Agreement), to
reflect all increased Rent and increased additional Rent payable by all of the
lessees under such renewal Leases and all Rent and additional Rent payable by
all of the lessees under such new Leases;


 


(D)          all risk physical loss and damage
coverage with respect to heating and air conditioning equipment, located in,
on, or about the Improvements, except the coverage required under this clause
(ii)(D) shall not be required to be maintained as a separate policy and may be
included as part of the coverages provided under clause (i);


 


(E)           worker’s compensation insurance
coverage (in amounts not less than the statutory minimums for all persons
employed by Borrower or its tenants at the Mortgaged Property and in compliance
with all other requirements of applicable local, state and federal law) and
“Employers Liability” insurance in amounts not less than required by statute;


 


(F)           during any period of repair or
restoration, builder’s “all risk” insurance in an amount equal to not less than
the full insurable value of the Mortgaged Property against such risks
(including, without limitation, fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may request, in form and substance acceptable
to Lender;


 


(G)           if reasonably required by Lender
with respect to any zoning matter that is reasonably likely to materially
adversely affect the value of any Mortgaged Property, ordinance or law coverage
to compensate for the cost of demolition, increased cost of construction, and
loss to any undamaged portions of the Improvements, if (a) the Lender’s title
insurance policy does not contain a zoning endorsement (ALTA 3.1 with parking
added) or (b) the current use of the Mortgaged Property or the Improvements
themselves are or become “nonconforming” pursuant to the applicable zoning


 


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regulations, unless full
rebuildability following casualty is otherwise permitted under such zoning
regulations notwithstanding such nonconformity;


 


(H)          if required by Lender as a result of
any Mortgaged Property being located in an area with a high degree of seismic
activity, earthquake damage insurance in an amount and form acceptable to
Lender;


 


(I)            such other insurance as may from
time to time be reasonably required by Lender in order to protect its interests
with respect to the Loan and the Mortgaged Property and to conform such
requirements to then current standards for a Secondary Market Transaction.


 


(iii) All policies of insurance (the “Policies”)
required pursuant to this Section 5.1(x):


 


(A) shall be issued by an insurer approved by Lender
which has a claims paying ability rating of not less than “AA” (or the
equivalent) by Rating Agencies satisfactory to Lender (one of which shall be
S&P) and A:XIII or better as to claims paying ability by AM Best, provided,
that notwithstanding the foregoing, (1) in the event American Modern Insurance
shall be the insurer providing the standard all-risk insurance policy, then
such insurer shall not be required to satisfy such claims paying ability rating
by the Rating Agencies, so long as the Borrower delivers to the Lender evidence
reasonably satisfactory to the Lender that the insurer has purchased
reinsurance with respect to not less than 70% of such policy from a reinsurer
with a claims paying ability rating by the Rating Agencies of not less than “A”
(or the equivalent) by Rating Agencies satisfactory to the Lender (one of which
shall be S&P) and shall only be required to maintain a claims paying
ability rating by AM Best of A:VIII or better and (2) the insurer providing the
worker’s compensation insurance coverage shall only be required to maintain a
claims paying ability rating of not less than “A” (or the equivalent) by Rating
Agencies satisfactory to the Lender (one of which shall be S&P),


 


(B) shall name Lender as an additional insured and
contain a standard noncontributory mortgagee clause and a Lender’s Loss Payable
Endorsement, or their equivalents, naming Lender (and/or such other party as
may be designated by Lender) as the party to which all payments made by such
insurance company shall be paid,


 


(C) shall be maintained throughout the term of the
Loan without cost to Lender,


 


(D) shall contain such provisions as Lender deems
reasonably necessary or desirable to protect its interest (including, without
limitation, endorsements providing that neither Borrower, Lender nor any other
party shall be a co-insurer under said Policies and that Lender shall receive
at least thirty (30) days prior written notice of any modification, reduction
or cancellation),


 


(E) shall contain a waiver of subrogation against
Lender,


 


(F) shall be for a term of not less than one year,


 


(G) shall provide for claims to be made on an
occurrence basis,


 


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(H) shall contain an agreed value clause updated
annually (if the amount of coverage under such policy is based upon the
replacement cost of the Mortgaged Property),


 


(I) shall designate Lender as “mortgagee and loss
payee” (except general public liability and excess liability, as to which
Lender shall be named as additional insured),


 


(J) shall be issued by an insurer licensed in the
state in which the Mortgaged Property is located,


 


(K) shall provide that Lender may, but shall not be
obligated to, make premium payments to prevent any cancellation, endorsement,
alteration or reissuance, and such payments shall be accepted by the insurer to
prevent same, and


 


(L) shall be reasonably satisfactory in form and
substance to Lender and reasonably approved by Lender as to amounts, form, risk
coverage, deductibles, loss payees and insureds to the extent not otherwise
specified in this Section 5.1(x). 
All property damage insurance policies (except for flood and earthquake
policies) must automatically reinstate after each loss.


 


Copies of said Policies, certified as true and correct
by Borrower, or insurance certificates thereof, shall be delivered to
Lender.  Not later than ten (10) days
prior to the expiration date of each of the Policies, Borrower shall deliver to
Lender satisfactory evidence of the renewal of each Policy.  The insurance coverage required under this Section
5.1(x) may be effected under a blanket policy or policies covering the
Mortgaged Property and other property and assets not constituting a part of the
Collateral; provided that any such blanket policy shall provide at least
the same amount and form of protection as would a separate policy insuring the
Mortgaged Property individually, which amount shall not be less than the amount
required pursuant to this Section 5.1(x) and which shall in any case
comply in all other respects with the requirements of this Section 5.1(x).  Upon demand therefor, Borrower shall
reimburse Lender for all of Lender’s or its designee’s reasonable costs and
expenses incurred in obtaining any or all of the Policies or otherwise causing
the compliance with the terms and provisions of this Section 5.1(x),
including (without limitation) obtaining updated flood hazard certificates and
replacement of any so-called “forced placed” insurance coverages to the extent
Borrower was required to obtain and maintain any such Policy or Policies
hereunder and failed to do so.  Borrower
shall pay the premiums for such Policies (the “Insurance Premiums”) as
the same become due and payable and shall furnish to Lender evidence of the
renewal of each of the Policies with receipts for the payment of the Insurance
Premiums or other evidence of such payment reasonably satisfactory to Lender (provided,
however, that Borrower is not required to furnish such evidence of payment to
Lender in the event that such Insurance Premiums have been paid by
Lender).  If Borrower does not furnish
such evidence and receipts at least ten (10) days prior to the expiration
of any expiring Policy, then Lender may procure, but shall not be obligated to
procure, such insurance and pay the Insurance Premiums therefor, and Borrower
agrees to reimburse Lender for the cost of such Insurance Premiums promptly on
demand.  Within thirty (30) days
after request by Lender, Borrower shall obtain such increases in the amounts of
coverage required hereunder as may be reasonably requested by Lender, based on
then industry-standard amounts of coverage then being obtained by prudent
owners of properties similar to the Mortgaged Property in the same applicable
market region as the Mortgaged Property. 
Borrower shall give Lender prompt written notice if Borrower receives
from any insurer any written notification or threat of any actions or
proceedings regarding the non-compliance or non-conformity of the Mortgaged
Property with any insurance requirements.


 


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(iii) If the Mortgaged Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty, Borrower shall give
prompt notice thereof to Lender.


 


(A) In case of loss covered by Policies, Lender may
either (a) jointly with a Borrower settle and adjust any claim and agree with
the insurance company or companies on the amount to be paid on the loss or (b)
allow Borrower to agree with the insurance company or companies on the amount
to be paid upon the loss; provided, that Borrower may settle and adjust
losses without participation by Lender aggregating not in excess of 1% of the
Principal Indebtedness, agree with the insurance company or companies on the
amount to be paid upon the loss and collect and receipt for any such Insurance
Proceeds; provided, further, that if (x) at the time of the
settlement of such claim an Event of Default has occurred and is continuing or
(y) Lender and Borrower are unable to agree upon a joint settlement or (z)
Lender disapproves of Borrower’s proposed settlement with the insurance
company, then Lender shall settle and adjust such claim without the consent of
Borrower, and for such purpose is hereby irrevocably appointed as Borrower’s
attorney-in-fact, coupled with an interest. 
In any such case Lender shall and is hereby authorized to collect and receipt
for any such Insurance Proceeds subject to and to the extent provided for in
this Agreement.  The reasonable
out-of-pocket expenses incurred by Lender in the adjustment and collection of
Insurance Proceeds shall become part of the Indebtedness and be secured by the
Mortgages and shall be reimbursed by Borrower to Lender upon demand therefor.


 


(B) In the event of any insured damage to or
destruction of the Mortgaged Property or any part thereof (herein called an “Insured
Casualty”) where


 


(1) the
aggregate amount of the loss, as reasonably determined by an Independent
insurance adjuster, is less than ten percent (10%) of the Allocated Loan Amount
of the affected Mortgaged Property,


 


(2) in the
reasonable judgment of Lender, the Mortgaged Property can be restored, replaced
and/or rebuilt (collectively, the “Restoration”) by not later than the
first to occur of (a) twelve (12) months after the date of casualty and (b) the
expiration of the business interruption insurance and, in any case, not later
than six (6) months prior to the Maturity Date to an economic unit
substantially in the condition it was in immediately prior to the Insured
Casualty and in compliance with all zoning, building and other applicable Legal
Requirements (the “Pre-Existing Condition”) not less materially valuable
(including an assessment of the impact of the termination of any Leases due to
such Insured Casualty) and not less useful than the same was prior to the
Insured Casualty,


 


(3) Lender
reasonably determines that the rental income of the Mortgaged Property, after
the Restoration thereof to the Pre-Existing Condition, will be sufficient to
meet all Operating Expenses, payments for reserves and payments of principal
and interest under the Loan and satisfy the Debt Service Coverage Test, and


 


(4) tenant
leases requiring payment of annual rent equal to at least seventy-five percent
(75%) of the gross revenues from the Mortgaged Property during the twelve (12)
month period immediately preceding the date of such fire or other casualty
remain in full force and effect during and after the Restoration of the
Mortgaged Property (subject to the rent abatement provisions thereof


 


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applicable as a result of the casualty, so long as such abatement will
end, and full rental payments shall resume, upon substantial completion of the
Restoration),


 


or if Lender otherwise
elects to allow a Borrower to restore the Mortgaged Property, then, if no Event
of Default shall have occurred and be continuing, the Insurance Proceeds (after
reimbursement of any reasonable out-of-pocket expenses incurred by Lender in
connection with the collection of any applicable Insurance Proceeds) shall be
made available to reimburse Borrower for the cost of restoring, repairing,
replacing or rebuilding the Mortgaged Property or part thereof subject to the
Insured Casualty, as provided for below. 
Borrower hereby covenants and agrees to commence and diligently to
prosecute such Restoration of the affected Mortgaged Property as nearly as
possible to the Pre-Existing Condition. 
Borrower shall pay all out-of-pocket costs (and if required by Lender,
Borrower shall deposit the total thereof with Lender in advance) of such
Restoration in excess of the Insurance Proceeds made available pursuant to the
terms hereof.


 


(C) Except as provided above, the Insurance Proceeds
collected upon any Insured Casualty shall, at the option of Lender in its sole
discretion, be applied to the payment of the Indebtedness or applied to the
cost of Restoration of the affected Mortgaged Property or part thereof subject
to the Insured Casualty, in the manner set forth below.


 


(D) Regardless of whether Insurance Proceeds, if any,
are sufficient or are made available to Borrower for the Restoration of any
portion of the affected Mortgaged Property, Borrower covenants to complete such
restoration of the affected Mortgaged Property to be of at least comparable
value as prior to such damage or destruction, all to be effected in accordance
with Legal Requirements and plans and specifications approved in advance by
Lender, such approval not to be unreasonably withheld or delayed.


 


(E) In the event Borrower is entitled to reimbursement
out of Insurance Proceeds, such proceeds shall be held by Lender in the Loss
Proceeds Account and disbursed from time to time as the Restoration progresses
upon Lender being furnished with (1) evidence reasonably satisfactory to
it (which evidence may include inspection(s) of the work performed) that the
Restoration covered by the disbursement has been completed in accordance with
plans and specifications approved by Lender, (2) evidence reasonably
satisfactory to it of the estimated cost of completion of the Restoration,
(3) funds, or, at Lender’s option, assurances reasonably satisfactory to
Lender that such funds are available and sufficient in addition to the
Insurance Proceeds to complete the proposed Restoration, and (4) such
architect’s certificates, waivers of lien, contractor’s sworn statements, title
insurance endorsements, bonds and other evidences of cost, payment and
performance of the foregoing Restoration as Lender may reasonably require and
approve.  Lender may, in any event,
require that all plans and specifications for such Restoration be submitted to
and reasonably approved by Lender prior to commencement of work.  Lender may retain a construction consultant
to inspect such work and review Borrower’s request for payments and Borrower
shall, on demand by Lender, reimburse Lender for the reasonable fees and
disbursements of such consultant.  No
payment made prior to the final completion of the Restoration shall exceed
ninety percent (90%) of the hard construction costs value of the work performed
from time to time (except for restoration work on a trade by trade basis or on
an hourly basis for professional services in which event, payment may be made
in full upon the completion of such work). 
Any funds other than Insurance Proceeds shall be disbursed prior to
disbursement of such proceeds; and,


 


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at all times, the undisbursed
balance of such Insurance Proceeds remaining in the Loss Proceeds Account,
together with funds deposited therein to pay the costs of the Restoration by or
on behalf of Borrower, shall be at least sufficient in the reasonable judgment
of Lender to pay for the cost of completion of the Restoration free and clear
of all liens or claims for lien, except for Permitted Encumbrances.  Any surplus which may remain out of
Insurance Proceeds held by Lender after payment of such costs of restoration,
repair, replacement or rebuilding shall, at the option of Lender in its sole
discretion, be applied to the payment of the Indebtedness or be paid to
Borrower so long as no Event of Default has occurred and is continuing.


 


(F)
Borrower shall not carry separate insurance, concurrent in kind or form or
contributing in the event of loss, with any insurance required under this
Agreement that would be considered “co-insurance” or adversely affect the
ability to collect under a policy of insurance required hereunder.


 


(y)           Condemnation.


 


(i) Borrower shall promptly give Lender written notice
of the actual or threatened commencement of any proceeding for a Taking and
shall deliver to Lender copies of any and all papers served in connection with
such proceedings.  Lender is hereby
irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest,
with exclusive power to collect, receive and retain any Condemnation Proceeds
for said Taking.  With respect to any
compromise or settlement in connection with such proceeding, Lender shall
jointly with Borrower compromise and reach settlement unless at the time of
such Taking an Event of Default has occurred and is continuing and the
Indebtedness has been accelerated, in which event Lender shall compromise and
reach settlement without the consent of Borrower.  Notwithstanding the foregoing provisions of this Section
5.1(y), Borrower is authorized to negotiate, compromise and settle, without
participation by Lender, Condemnation Proceeds of up to 1% of the Principal
Indebtedness in connection with any Taking. 
Notwithstanding any Taking, Borrower shall continue to pay the
Indebtedness at the time and in the manner provided for in this Agreement and
the other Loan Documents and the Indebtedness shall not be reduced except in
accordance herewith.


 


(ii) Borrower shall cause the Condemnation Proceeds to
be paid directly to Lender.  Lender may,
in its sole discretion, apply any such Condemnation Proceeds to the reduction
or discharge of the Indebtedness (whether or not then due and payable).


 


(iii) With respect to a Taking in part, which shall
mean any Taking which does not render the affected Mortgaged Property
physically or economically unsuitable in the reasonable judgment of Lender for
the use to which it was devoted prior to the Taking, Borrower shall cause the
Condemnation Proceeds to be paid to Lender as described above, and if Lender
does not elect to apply the same to the Indebtedness as provided in Section
5.1(y)(ii) above, Lender shall deposit such Condemnation Proceeds in the
Loss Proceeds Account and the same shall be made available for application to
the cost of Restoration of the affected Mortgaged Property and disbursed from
time to time as the Restoration progresses upon Lender being furnished with
(1) evidence reasonably satisfactory to it (which evidence may include
inspection(s) of the work performed) that the Restoration covered by the
disbursement has been completed in accordance with plans and specifications
approved by Lender, (2) evidence reasonably satisfactory to it of the estimated
cost of completion of the Restoration, (3) funds, or, at Lender’s option,
assurances satisfactory to Lender that such funds are available and sufficient
in addition to the Condemnation Proceeds to complete the proposed Restoration,
and (4) such architect’s certificates, waivers of lien, contractor’s sworn
statements, title insurance endorsements, bonds and other evidences of


 


80

















 


cost, payment and performance of the
foregoing repair, restoration, replacement or rebuilding as Lender may
reasonably require and approve.


 


(iv) Regardless of whether Condemnation Proceeds are
made available for such purpose, Borrower hereby covenants to complete the
Restoration of the affected Mortgaged Property as nearly as possible to the
Pre-Existing Condition and to be of at least comparable value and, to the
extent commercially practicable, of substantially the same character as prior
to the Taking, all to be effected in accordance with applicable law and plans
and specifications reasonably approved in advance by Lender.  Borrower shall pay all costs (and if
required by Lender, Borrower shall deposit the total thereof with Lender in
advance) of such Restoration in excess of the Condemnation Proceeds made
available pursuant to the terms hereof. 
Lender may, in any event, require that all plans and specifications for
such Restoration be submitted to and reasonably approved by Lender prior to
commencement of work.  Lender may retain
a construction consultant to inspect such work and review any request by
Borrower for payments and Borrower shall, on demand by Lender, reimburse Lender
for the reasonable fees and disbursements of such consultant.  No payment made prior to the final
completion of the Restoration shall exceed ninety percent (90%) of the hard
construction costs value of the construction work performed from time to time
(except for restoration work on a trade by trade basis or on an hourly basis
for professional services in which event, payment may be made in full upon the
completion of such work); funds other than Condemnation Proceeds shall be
disbursed prior to disbursement of such proceeds; and at all times, the
undisbursed balance of such proceeds remaining in the hands of Lender, together
with funds deposited for that purpose or irrevocably committed to the repayment
of Lender by or on behalf of Borrower for that purpose, shall be at least
sufficient in the reasonable judgment of Lender to pay for the cost of
completion of the restoration, repair, replacement or rebuilding, free and
clear of all liens or claims for lien. 
Any surplus which may remain out of Condemnation Proceeds held by Lender
after payment of such costs of restoration, repair, replacement or rebuilding
shall, at the option of Lender in its sole discretion, be applied to the
payment of the Indebtedness or be paid to Borrower so long as no Event of
Default has occurred and is continuing.


 


(v) If the affected Mortgaged Property is sold,
through foreclosure or otherwise, prior to the receipt by Lender of any such
Condemnation Proceeds to which it is entitled hereunder, Lender shall have the
right, whether or not a deficiency judgment on the Note shall have been sought,
recovered or denied, to have reserved in any foreclosure decree a right to
receive said award or payment, or a portion thereof sufficient to pay the
Indebtedness.  In no case shall any such
application reduce or postpone any payments otherwise required pursuant to this
Agreement, other than the final payment on the Note.


 


(z)            Leases and Rents.


 


(i) Borrower absolutely and unconditionally assigns to
Lender, Borrower’s right, title and interest in all current and future Leases
and Rents as collateral for the Loan, it being intended by Borrower that this
assignment constitutes a present, absolute assignment and not an assignment for
additional security only.  Such
assignment to Lender shall not be construed to bind Lender to the performance
of any of the covenants, conditions or provisions contained in any such Lease
or otherwise impose any obligation upon Lender.  Borrower shall execute and deliver to Lender such additional
instruments, in form and substance reasonably satisfactory to Lender, as may
hereafter be reasonably requested in writing by Lender to further evidence and
confirm such assignment.  Nevertheless,
subject to the terms of this Section 5.1(z), Lender grants to Borrower a
license to lease, maintain, operate and manage the Mortgaged Property and to
collect, use and apply the Rents in accordance with the terms hereof and
otherwise act as the landlord under the


 


81

















 


Leases, which license shall be deemed
automatically revoked upon the occurrence and during the continuance of an
Event of Default under this Agreement. 
Any portion of the Rents held by Borrower shall be held in trust for the
benefit of Lender for use in the payment of the Indebtedness.  Upon the occurrence of an Event of Default
and during the continuance thereof, the license granted to Borrower herein shall
automatically be revoked, and Lender shall immediately be entitled to
possession of all Rents, whether or not Lender enters upon or takes control of
the Mortgaged Property.  Lender is
hereby granted and assigned by Borrower the right, at its option, upon
revocation of the license granted herein, to enter upon the Mortgaged Property
in person, by agent or by court-appointed receiver to collect the Rents.  Any Rents collected after the revocation of
the license shall be applied toward payment of the Indebtedness as set forth in
Section 2.8 hereof.


 


(ii) All Leases entered into by Borrower shall provide
for rental rates comparable to then-existing local market rates and terms and
conditions commercially reasonable and consistent with then-prevailing local
market terms and conditions for similar type properties, and in no event shall
Borrower, absent Lender’s prior written consent, which consent shall not be
unreasonably withheld or delayed, enter into any Leases (a) other than leases
of Homesites to owners and occupants of residential manufactured homes or
mobile homes having lease terms not in excess of two years, and (b) with any
Affiliates of Borrower, except as indicated in Schedule 4 attached
hereto.  Borrower shall furnish Lender
with (1) detailed term sheets in advance in the case of any Leases,
modifications, amendments or renewals for which Lender’s consent is required
and (2) in the case of any other Leases, executed copies of such Leases upon
written request.  All renewals or
amendments or modifications of Leases that do not satisfy the requirements of
the first sentence of this Section 5.1(z)(ii) shall be subject to the
prior approval of Lender, which approval shall not be unreasonably withheld or
delayed.  All Leases entered into after
the Closing Date with new tenants (i.e. 
not renewals of existing tenants as of the Closing Date) shall be
written on the standard lease form for new tenants previously approved by
Lender which form as of the Closing Date is set forth on Schedule 10 attached
hereto; provided that notwithstanding the foregoing, the Borrower may
modify any standard lease form without such approval to the extent necessary to
conform such form to any applicable Legal Requirements (and, upon reasonable
request of the Lender, the Borrower shall notify the Lender in writing with
respect to any such modification).  The
Borrower shall not materially change the standard lease form without Lender’s
prior written consent, which consent shall not be unreasonably withheld or
delayed, or except as necessary to comply with applicable Legal
Requirements.  Borrower,


 


(A)          shall observe and perform all of the
material obligations imposed upon the lessor under the Leases and shall not do
or permit to be done anything to materially impair the value of the Leases as
security for the Indebtedness;


 


(B)           shall not execute any other
assignment of lessor’s interest in any of the Leases or Rents;


 


(C)           shall enforce all of the material
terms, covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed and shall effect a termination or
diminution of the obligations of tenants under leases, only in a manner that a
prudent owner of a similar property to the Mortgaged Property would enforce
such terms covenants and conditions or effect such termination or diminution in
the ordinary course of business;


 


(D)          except as otherwise set forth in the
Monthly Statement submitted to Lender, shall not collect any of the Rents more
than one (1) month in advance; and


 


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(E)           shall not convey or transfer or
suffer or permit a conveyance or transfer of the Mortgaged Property or of any
interest therein so as to effect a merger of the estates and rights of, or a
termination or diminution of the obligations of, lessees thereunder.


 


(iii) Borrower shall deposit security deposits of
lessees which are turned over to or for the benefit of Borrower or otherwise
collected by or on behalf of Borrower, into the Security Deposit Account and
shall not commingle such funds with any other funds of Borrower.  Any bond or other instrument which Borrower
is permitted to hold in lieu of cash security deposits under any applicable
Legal Requirements shall be maintained in full force and effect unless replaced
by cash deposits as hereinabove described, shall, if permitted pursuant to
Legal Requirements, name Lender as payee or mortgagee thereunder (or at
Lender’s option, be fully assignable to Lender) and shall, in all respects,
comply with any applicable Legal Requirements and otherwise be reasonably
satisfactory to Lender.  Borrower shall,
upon request, provide Lender with evidence reasonably satisfactory to Lender of
Borrower’s compliance with the foregoing. 
Upon the occurrence and during the continuance of any Event of Default,
Borrower shall, upon Lender’s request, if permitted by any applicable Legal
Requirements, turn over to Lender the security deposits (and any interest
theretofore earned thereon) with respect to all or any portion of the Mortgaged
Property, to be held by Lender subject to the terms of the Leases.


 


(aa)         Maintenance of Mortgaged Property. 
Borrower shall cause the Mortgaged Property to be maintained in a good
and safe condition and repair, subject to wear and tear and damage caused by
casualty or condemnation.  The
Improvements and the Equipment shall not be removed, demolished or altered
(except for (1) normal replacement of the Equipment, (2) Improvements
contemplated in an approved Operating Budget or pursuant to Leases in effect from
time to time, (3) removals, demolition or alterations that do not cost
more than 1% of the Principal Indebtedness or (4) an emergency which the
Borrower shall have notified the Lender of in writing, including the action
taken to remediate) without the consent of Lender which consent shall not be
unreasonably withheld or delayed. 
Except with respect to an Insured Casualty which shall be governed by
the terms and conditions provided herein, Borrower shall, or shall cause any
tenants obligated under their respective Leases to, promptly repair, replace or
rebuild any part of the Mortgaged Property that becomes damaged, worn or
dilapidated.  Borrower shall complete
and pay for any structure at any time in the process of construction or repair
on the Land.  Borrower shall not
initiate, join in, or consent to any change in any private restrictive
covenant, zoning law or other public or private restriction, limiting or
defining the uses which may be made of any Mortgaged Property or any part
thereof without the written consent of Lender which consent shall not be
unreasonably withheld or delayed.  If
under applicable zoning provisions the use of all or any portion of the
Mortgaged Property is or shall become a nonconforming use, Borrower will not
cause or permit such nonconforming use to be discontinued or abandoned if such
discontinuance of abandonment would cause such nonconforming use to no longer
be permitted without the express written consent of Lender which consent shall
not be unreasonably withheld or delayed. 
Borrower shall not (i) change the use of any of the Land or Improvements
in any material respect, (ii) permit or suffer to occur any waste on or to
any Mortgaged Property or to any portion thereof or (iii) take any steps
whatsoever to convert any Mortgaged Property, or any portion thereof, to a
condominium or cooperative form of management.


 


(bb)         Qualified Interest Rate Cap Provider.


 


(i)  In
connection with the exercise of an Extension Option, Borrower shall provide to
Lender (1) the material terms of any interest rate cap agreement which Borrower
proposes entering into pursuant to this Agreement with a counterparty other
than an Affiliate of Lender and (2) until the close of business on the
Business Day on which such material terms are received the opportunity to offer
to Borrower an interest rate cap agreement on the same or better terms as the


 


83

















 


terms offered to Borrower by such
other counterparty.  In the event that
Lender or any of its Affiliates shall offer to Borrower an interest rate cap
agreement with the same or better terms as the terms offered to Borrower by
such third party counterparty, Borrower shall enter into such interest rate cap
agreement with Lender or its Affiliate, as the case may be.


 


(ii)  If the
rating of a Qualified Interest Rate Cap Provider that has provided an interest
rate cap which Borrower pledges to Lender pursuant to the Collateral Assignment
of Hedge falls below the rating criteria specified in the definition of a Qualified
Interest Rate Cap Provider, then within ten (10) Business Days following
written request from Lender, Borrower shall deliver or cause the original rate
cap provider to deliver to Lender a replacement interest rate cap satisfying
all of the criteria set forth in Section 3.1(c) (if such ratings
downgrade occurs prior to the Original Maturity Date) or 2.17 (if such
ratings downgrade occurs prior to the Original Maturity Date), as applicable.


 


(cc)         Prohibited Persons.  Borrower
covenants and agrees to deliver (from time to time) to Lender any certification
or other evidence as may be requested by Lender in its sole and absolute
discretion, confirming that: (i) neither Borrower, Member, General
Partner, Guarantor nor their respective officers, directors, partners, members
or majority-owned Affiliates is a Prohibited Person; and (ii) neither
Borrower, Member, General Partner, Guarantor nor their respective officers,
directors, partners, members or majority-owned Affiliates has engaged in any
business, transaction or dealings with a Person known to Borrower to be a
Prohibited Person, including, but not limited to, the making or receiving of
any contribution of funds, goods, or services, to or for the benefit of a
Person known to Borrower to be a Prohibited Person.


 


(dd)         Laundry Leases.  Certain
laundry facilities at certain of the Mortgaged Properties have been leased to
laundry operators under laundry room or laundry facility leases (the “Laundry
Leases”).  Borrower covenants and
agrees that is shall, within sixty (60) days after the date hereof (or such
longer time as Lender may determine to provide to Borrower at Lender’s sole
option) provide copies of such Laundry Leases to Lender and, if such Laundry
Leases are not by their terms subordinate to the applicable Mortgages, Borrower
shall, within sixty (60) days after the date hereof (or such longer time as
Lender may determine to provide to Borrower at Lender’s sole option) either
provide executed subordination agreements subordinating the Laundry Leases to
the applicable Mortgages or demonstrate to Lender’s reasonable satisfaction
that the Laundry Leases may be terminated by the landlord thereunder at a cost
per Laundry Lease of not more than $10,000.


 


ARTICLE VI.

NEGATIVE COVENANTS


 


Section 6.1.            Negative
Covenants.  Borrower
covenants and agrees that, until payment in full of the Indebtedness, it will
not do, directly or indirectly, any of the following unless Lender consents
thereto in writing:


 


(a)           Liens on the Mortgaged Property. 
Incur, create, assume, become or be liable in any manner with respect
to, or permit to exist, except as permitted by Section 5.1(b) above, any
Lien with respect to any Mortgaged Property or any portion thereof, except: (i)
Liens in favor of Lender and (ii) the Permitted Encumbrances.


 


(b)           Ownership and Transfer. 
Except as expressly permitted by or pursuant to this Agreement or the
other Loan Documents, own any property of any kind other than the Mortgaged
Property, or Transfer any Mortgaged Property or any portion thereof.


 


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(c)           Other Borrowings.  Incur,
create, assume, become or be liable in any manner with respect to Other
Borrowings.


 


(d)           Dissolution; Merger or Consolidation. 
Dissolve, terminate, liquidate, merge with or consolidate into another
Person.


 


(e)           Change In Business.  Make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the
continuance of its present business.


 


(f)            Debt Cancellation.  Cancel or
otherwise forgive or release any material claim or debt owed to Borrower by any
Person, except for adequate consideration or in the ordinary course of
Borrower’s business.


 


(g)           Affiliate Transactions. 
Except for fees payable to Manager under the Management Agreement, (i)
pay any management, consulting, director or similar fees to any Affiliate of
Borrower or to any director or manager (other than any customary fees of the
Independent Director/Manager), officer or employee of Borrower, (ii) directly
or indirectly enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Borrower or with any director, officer or
employee of any Affiliate of Borrower, except transactions in the ordinary
course of and pursuant to the reasonable requirements of the business of
Borrower and upon fair and reasonable terms which are no less favorable to
Borrower than would be obtained in a comparable arm’s length transaction with a
Person that is not an Affiliate of Borrower, or (iii) make any payment or
permit any payment to be made to any Affiliate of Borrower when or as to any
time when any Event of Default shall exist.


 


(h)           Creation of Easements. 
Except as expressly permitted by or pursuant to the Mortgages or this
Agreement, create, or permit any Mortgaged Property or any part thereof to
become subject to, any easement, license or restrictive covenant, other than a
Permitted Encumbrance, provided, that the consent of Lender shall not be
unreasonably withheld or delayed to the extent that any such easement, license
or restrictive covenant is reasonably necessary for the continued use,
enjoyment, access to or operation of the applicable Mortgaged Property.


 


(i)            Misapplication of Funds. 
Distribute any Rents or Moneys received from Accounts in violation of
the provisions of Section 2.12, or fail to pledge any security deposit
to Lender, or misappropriate any security deposit or portion thereof.


 


(j)            Certain Restrictions. 
Amend, modify or waive any of its rights under the Master Homesite Lease
Agreement.


 


(k)           Assignment of Licenses and Permits. 
Assign or transfer any of its interest in any Permits pertaining to any
Mortgaged Property, or assign, transfer or remove or permit any other Person to
assign, transfer or remove any records pertaining to any Mortgaged Property.


 


(l)            Place of Organization. 
Change its jurisdiction of organization, creation or formation, as
applicable, without giving Lender at least fifteen (15) days’ prior written
notice thereof and promptly providing Lender such information as Lender may
reasonably request in connection therewith.


 


(m)          Leases.  Enter into,
amend or cancel Leases, except as permitted by this Agreement.


 


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(n)           Management Agreement. 
Except in accordance with this Agreement, (i) terminate or cancel
the Management Agreement, (ii) consent to either the reduction of the term of
or the assignment of the Management Agreement, (iii) increase or consent to the
increase of the amount of any charges under the Management Agreement, or (iv)
otherwise modify, change, supplement, alter or amend, or waive or release any
of its rights and remedies under, the Management Agreement in any material
respect.


 


(o)           Plans and Welfare Plans. 
Knowingly engage in or permit any transaction in connection with which
Borrower or any ERISA Affiliate could be subject to either a material civil
penalty or tax assessed pursuant to Section 502(i) or 502(1) of ERISA or
Section 4975 of the Code, permit any Welfare Plan to provide benefits,
including without limitation, medical benefits (whether or not insured), with
respect to any current or former employee of Borrower beyond his or her
retirement or other termination of service other than (i) coverage mandated by
applicable law, (ii) death or disability benefits that have been fully provided
for by paid up insurance or otherwise or (iii) severance benefits (unless such
coverage is provided after notification of and with the reasonable approval of
Lender or pursuant to an employment or severance agreement entered into in the
ordinary course of business consistent with past practice), permit the assets
of Borrower to become “plan assets”, whether by operation of law or under
regulations promulgated under ERISA or adopt, amend (except as may be required
by applicable law) or materially increase the amount of any benefit or amount
payable under, or permit any ERISA Affiliate to adopt, amend (except as may be
required by applicable law) or materially increase the amount of any benefit or
amount payable under, any Plan or Welfare Plan, except for normal increases in
the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits expense to Borrower
or any ERISA Affiliate.


 


(p)           Transfer of Ownership Interests. 
Permit any Transfer of a direct or indirect ownership interest or voting
right in Borrower (other than a Permitted Transfer).


 


(q)           Equipment and Inventory. 
Except pursuant to the Management Agreement, permit any Equipment owned
by Borrower to be removed at any time from any Mortgaged Property unless the
removed item is consumed or sold in the usual and customary course of business,
removed temporarily for maintenance and repair or, if removed permanently,
replaced by an article of equivalent suitability and not materially less value,
owned by Borrower free and clear of any Lien (other than Permitted
Encumbrances).


 


(r)            Management Fees.  Pay Borrower
or any Affiliate of Borrower any management fees with respect to the Mortgaged
Property except for management fees paid to Manager under the Management
Agreement.


 


(s)           Prohibited Persons.  With respect
to Borrower, Member, General Partner, Guarantor and any of their respective
officers, directors, partners, members or majority-owned Affiliates:
(i) conduct any business, or engage in any transaction or dealing, with
any Person known to Borrower to be a Prohibited Person, including, but not limited
to, the making or receiving of any contribution of funds, goods, or services,
to or for the benefit of a Prohibited Person; or (ii) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in EO13224.


 


(t)            Modification of Interest Rate Cap Agreement. 
Amend, modify, cancel or terminate any interest rate cap entered into by
Borrower pursuant to this Agreement or permit same to be amended, modified,
cancelled or terminated.


 


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ARTICLE VII.

EVENT OF DEFAULT


 


Section 7.1.            Event of Default.  The occurrence of one or more of the
following events shall be an “Event of Default” hereunder:


 


(a)           if on any Payment Date Borrower fails to pay any
accrued and unpaid interest on the Loan or scheduled deposits into the Reserve
Accounts when due and payable in accordance with the provisions hereof, or any
Release Price then due and payable in accordance with the provisions hereof;


 


(b)           if Borrower fails (1) to pay the outstanding
Indebtedness on the Maturity Date or (2) to deposit into the Collection
Account, the amount required pursuant to Sections 2.7(a)(i);


 


(c)           if Borrower fails to pay or deposit any other amount
payable or required to be deposited pursuant to this Agreement or any other
Loan Document when due and payable in accordance with the provisions hereof or
thereof, as the case may be, and such failure continues for ten (10) days after
Lender delivers written notice thereof to Borrower (other than the failure of
the Lender to transfer available funds from the Collection Account to a Reserve
Account pursuant to Section 2.12(b));


 


(d)           if any representation or warranty made herein or in
any other Loan Document, or in any report, certificate, financial statement or
other Instrument, agreement or document furnished by Borrower, General Partner,
Member or Guarantor in connection with this Agreement, the Note or any other
Loan Document shall be false or materially misleading as of the date such
representation or warranty was made (or if such representation or warranty
relates to an earlier date, then as of such earlier date);


 


(e)           if Borrower or the General Partner or the Guarantor
makes an assignment for the benefit of creditors;


 


(f)            if a receiver, liquidator or trustee shall be
appointed for Borrower or the General Partner or the Guarantor or if Borrower
or the General Partner or the Guarantor shall be adjudicated a bankrupt or
insolvent, or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state law, shall
be filed by or against, consented to, or acquiesced in by, Borrower or the
General Partner or the Guarantor, or if any proceeding for the dissolution or
liquidation of Borrower or the General Partner or the Guarantor shall be
instituted; provided, however, that if such appointment,
adjudication, petition or proceeding was involuntary and not consented to by
Borrower or the General Partner or the Guarantor, upon the same not being
discharged, stayed or dismissed within ninety (90) days, or if Borrower or the
General Partner or the Guarantor shall generally not be paying its debts as
they become due;


 


(g)           if Borrower attempts to delegate its obligations or
assign its rights under this Agreement, any of the other Loan Documents or any
interest herein or therein, or if any Transfer of any Mortgaged Property or any
interest therein occurs, or any direct or indirect Transfer of any direct or indirect
ownership interest in Borrower occurs, other than in accordance with or as
permitted under this Agreement;


 


(h)           if any breach or failure to perform any of the
covenants in Article VI hereof shall occur, which breach or failure to perform,
in the case of Section 6.1(o) or (q) only, shall remain uncured
for a period of thirty (30) days after the occurrence of such breach or failure
to perform or if any material breach or failure to perform any of the covenants
in Article VIII hereof shall occur;


 


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(i)            if an Event of Default as defined or described in the
Note or any other Loan Document occurs, whether as to Borrower or the Mortgaged
Property or any portion thereof;


 


(j)            if any of the assumptions made with respect to
Borrower and its Affiliates in that certain substantive non-consolidation
opinion letter dated as of February 18, 2004 delivered by Holme Roberts &
Owen LLP in connection with the Loan is not true and correct in all respects;


 


(k)           if Borrower fails to maintain any insurance required
to be maintained pursuant to Section 5.1(x) hereof; and


 


(l)            if Borrower shall fail to perform any of the terms,
covenants or conditions of this Agreement, the Note, the Mortgages or the other
Loan Documents, other than as specifically otherwise referred to above in this
definition of “Event of Default,” for ten (10) days after notice to Borrower
from Lender or its successors or assigns, in the case of any Default which can
be cured by the payment of a sum of money, or for thirty (30) days after notice
from Lender or its successors or assigns, in the case of any other Default
(unless a longer notice period is otherwise provided herein or in such other
Loan Document); provided, however, that if such non-monetary Default
is susceptible of cure but cannot reasonably be cured within such thirty (30)
day period and such Borrower shall have commenced to cure such Default within
such thirty (30) day period and thereafter diligently and expeditiously
proceeds to cure the same, such thirty (30) day period shall be extended for an
additional thirty (30) days;


 


then, upon the occurrence of any such Event of Default
and at any time thereafter, Lender or its successors or assigns, may, in
addition to any other rights or remedies available to it pursuant to this
Agreement and the other Loan Documents, or at law or in equity, take such
action, without further notice or demand, as Lender or its successors or
assigns, deems advisable to protect and enforce its rights against Borrower and
in and to all or any portion of the Collateral and may enforce or avail itself
of any or all rights or remedies provided in the Loan Documents against
Borrower and/or the Collateral (including, without limitation, all rights or
remedies available at law or in equity). 
In addition to and without limiting the foregoing, upon the occurrence
of any Event of Default described in any of Sections 7.1(e), (f), or (g),
the unpaid principal amount of and accrued interest and fees on the Loan and
all other Indebtedness shall automatically become immediately due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other requirements of any kind, all of which are hereby
expressly waived by Borrower.  Upon and
at any time after the occurrence of any other Event of Default, at the option
of Lender, which may be exercised without notice or demand to anyone, all or
any portion of the Loan and other Indebtedness shall immediately become due and
payable.


 


Section 7.2.            Remedies.


 


(a)           Upon the occurrence of an Event of Default, all or any
one or more of the rights, powers, other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents executed by or
with respect to Borrower, or at law or in equity may be exercised by Lender at
any time and from time to time, whether or not all or any portion of the
Indebtedness shall be declared due and payable, and whether or not Lender shall
have commenced any foreclosure proceeding or other action for the enforcement
of its rights and remedies under any of the Loan Documents with respect to all
or any portion of the Collateral.  Any
such actions taken by Lender shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such
time and in such order as Lender may determine in its sole discretion, to the
fullest extent permitted by law, without impairing or otherwise affecting the
other rights and remedies of Lender permitted by law, equity or contract or as
set forth herein or in the other Loan Documents.


 


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(b)           In the event of the foreclosure or other action by
Lender to enforce Lender’s remedies in connection with all or any portion of
the Collateral, Lender shall apply all Net Proceeds received to repay the
Indebtedness in accordance with Section 2.8, the Indebtedness shall be
reduced to the extent of such Net Proceeds and the remaining portion of the
Indebtedness shall remain outstanding and secured by the Loan Documents, it
being understood and agreed by Borrower that Borrower is liable for the
repayment of all the Indebtedness; provided, however, that the
Note shall be deemed to have been accelerated only to the extent of the Net
Proceeds actually received by Lender with respect to the Collateral and applied
in reduction of the Indebtedness evidenced by the Note in accordance with the
provisions of this Agreement, after payment by Borrower of all Transaction
Costs and costs of enforcement.


 


(c)           Upon and during the continuation of an Event of
Default, Lender shall have the right, but not the obligation, with respect to
any and all bankruptcy proceedings that are now or hereafter commenced in
connection with the Mortgaged Property, to (i) vote to accept or reject any
plans of reorganization, (ii) vote in any election of a trustee, (iii) elect
the treatment of secured claims as specified in Section 1111(b) of the
Bankruptcy Code, and (iv) make any other decisions requested of holders of
claims or interests that Borrower would have had the right to do in such
bankruptcy proceedings in the absence of an Event of Default.


 


Section 7.3.            Remedies
Cumulative.  The rights,
powers and remedies of Lender under this Agreement shall be cumulative and not exclusive
of any other right, power or remedy which Lender may have against Borrower
pursuant to this Agreement or the other Loan Documents executed by or with
respect to Borrower, or existing at law or in equity or otherwise.  Lender’s rights, powers and remedies may be
pursued singly, concurrently or otherwise, at such time and in such order as
Lender may determine in Lender’s sole discretion.  No delay or omission to exercise any remedy, right or power
accruing upon an Event of Default shall impair any such remedy, right or power
or shall be construed as a waiver thereof, but any such remedy, right or power
may be exercised from time to time and as often as may be deemed
expedient.  A waiver of any Default or
Event of Default shall not be construed to be a waiver of any subsequent
Default or Event of Default or to impair any remedy, right or power consequent
thereon.  Notwithstanding any other
provision of this Agreement, Lender reserves the right to seek a deficiency
judgment or preserve a deficiency claim, in connection with the foreclosure of
any Mortgage on the Mortgaged Property, to the extent necessary to foreclose on
other parts of the Collateral.


 


Section 7.4.            Default
Administration Fee.  At any
time after the occurrence of an Event of Default and the acceleration of the
Indebtedness, as reimbursement and compensation for the additional internal
expenditures, administrative expenses, fees and other costs associated with
actions to be taken in connection with such Event of Default, and regardless of
whether Lender shall have commenced the exercise of any remedies pursuant to Section
7.2, the Default Administration Fee shall be payable by Borrower to Lender
upon demand.


 


Section 7.5.            Curative
Advances.  If any Event of
Default occurs and is not cured by Borrower after notice from Lender, then
Lender may expend such sums as either shall reasonably deem appropriate to cure
or attempt to cure such Event of Default. 
Borrower shall immediately repay all such sums so advanced, which sums
shall immediately become part of the Indebtedness, bear interest at the Default
Rate from the date advanced until the date repaid, and be secured by all
Collateral.


 


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ARTICLE VIII.

SINGLE-PURPOSE, BANKRUPTCY-REMOTE REPRESENTATIONS,

WARRANTIES AND COVENANTS


 


Section 8.1.            Applicable
to Borrower.  Borrower hereby
acknowledges that, as a condition of Lender’s agreements and performance of its
obligations hereunder, Lender is relying on the status of Borrower as a legal
entity separate and apart from any Affiliate or other entity and has required
that Borrower maintain such status, and Lender hereby acknowledges such
reliance and requirement.  Accordingly,
Borrower hereby represents, warrants and covenants as of the Closing Date and
until such time as the Loan is paid in full, that absent express advance
written waiver from Lender, which may be withheld the Lender’s sole discretion,
Borrower:


 


(a)           was and will be organized solely for purpose of owning
and operating the Mortgaged Property;


 


(b)           has not owned, does not own and will not own any
assets other than the Mortgaged Property (including incidental personal
property necessary for the operation thereof and proceeds therefrom);


 


(c)           was not engaged, is not engaged and will not engage in
any business, directly or indirectly, other than the ownership, management and
operation of the Mortgaged Property;


 


(d)           has not entered into and will not enter into any
contract or agreement with any partner, member, shareholder, trustee,
beneficiary, principal, joint venturer or Affiliate of Borrower except in the
ordinary course of its business pursuant to written agreements upon terms and
conditions that are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties other than such
Affiliate;


 


(e)           has not incurred and will not incur any debt, secured
or unsecured, direct or contingent (including guaranteeing any obligation),
other than (i) the Loan, and (ii) trade payables incurred in the ordinary
course of business with trade creditors in connection with owning, operating
and maintaining the Mortgaged Property, in such amounts as are normal and
reasonable under the circumstances, provided such debt is not evidenced by a
promissory note or other security instrument and is not at any time in an
aggregate amount in excess of two percent (2%) of the Principal Indebtedness,
and further provided that all such trade debts are paid within sixty (60) days
after the same are incurred (excluding therefrom any equipment financing paid
within sixty (60) days after the same are incurred and trade payables being
disputed or contested in good faith by the Borrower and in the same manner and
with the same deposits as Lien Claims set forth in Section 5.1(b)(ii) of
this Agreement;)


 


(f)            has not made and will not make any loan or advances to
any Person (including any of its Affiliates), or pledge its assets for the
benefit of any other Person, or seek or obtain credit or incur any obligation
to any third party based upon the assets of any other Person, or induce any
third party to rely on the creditworthiness of any other Person;


 


(g)           has remained and as of the Closing Date reasonably
expects to remain, solvent, and has maintained, and as of the Closing Date reasonably
expects to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;


 


(h)           has not acquired and will not acquire obligations or
securities of any Person;


 


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(i)            has not failed and will not fail to correct any known
misunderstanding or misrepresentation regarding its separate identity;


 


(j)            has done or caused to be done and will do all things
necessary to preserve its existence;


 


(k)           shall continuously maintain its existence and good
standing and be qualified to do business in all states necessary to carry on
its business, including the state in which the Mortgaged Property is located;


 


(l)            has conducted and operated and will conduct and
operate its business solely in its own name, with all oral and written
communications from Borrower, including, without limitation, correspondence,
invoices, purchase orders, billing statements, applications and business forms,
made solely in the name of Borrower;


 


(m)          has accurately maintained and will continue to
accurately maintain books, records, bank accounts, accounting records,
financial statements and other entity documents separate from those of its partners,
members, shareholders, trustees, beneficiaries, principals, Affiliates, and any
other Person, with such accounting records and financial statements having been
prepared and kept in accordance with reasonable accounting practices applied on
a consistent basis, and such financial statements of Borrower shall be prepared
in a manner that indicates (through appropriate footnotes if necessary) the
existence of Borrower and its assets and liabilities separate and apart from
any other Person; moreover, Borrower shall indicate in its financial statements
that the assets of Borrower are not available to satisfy the claims of
creditors of any Affiliate of Borrower and that the assets of any Affiliate of
Borrower are not available to satisfy the claims of creditors of Borrower and,
except with appropriate designation as set forth above, Borrower shall not
authorize its assets or liabilities to be listed on the financial statement of
any other Person;


 


(n)           has been and will be, and at all times has held and
will hold itself out to the public as, a legal entity separate and distinct
from any other Person (including any of its partners, members, shareholders,
trustees, beneficiaries, principals and Affiliates, and any Affiliates of any
of the same), and not as a department or division of any Person;


 


(o)           has and will file such tax returns with respect to
itself as may be required under applicable law and has prepared and will
prepare separate tax returns and financial statements, or if part of a
consolidated group, is shown as a separate member of such group;


 


(p)           has paid and shall pay its own liabilities,
indebtedness, and obligations of any kind, as the same shall become due, from
its own separate assets, rather than from those of other Persons, and Borrower
shall not consent to any Person operating the Mortgaged Property to incur
expenses as agent or on behalf of Borrower, unless such Person agrees, prior to
incurring such expense, to clearly indicate that such expenses are the sole
responsibility of, and any payment will come from, Borrower;


 


(q)           has not and will not enter into any transaction of
merger or consolidation, or acquire by purchase or otherwise all or
substantially all of the business or assets of, or any stock or beneficial
ownership of, any Person;


 


(r)            has not commingled and will not commingle or permit to
be commingled its funds or other assets with those of any other Person; and has
held and will hold title to all of its real and personal property in its own
name and not in the name of any other Person;


 


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(s)           has maintained and will maintain its assets in such a
manner that it is not costly or difficult to segregate, ascertain or identify
its individual assets from those of any other Person;


 


(t)            has not, does not and will not hold itself out to be
responsible for the debts or obligations of any other Person and, except for
the Loan Documents to which other Persons are party, shall not consent to any
other Person holding itself out as being responsible for the debts or
obligations of Borrower;


 


(u)           has not and will not assume, guarantee or otherwise
become liable on or in connection with any obligation of any other Person and,
except for the Loan Documents to which other Persons are party, shall not consent
to any other Person guaranteeing, assuming or otherwise becoming liable for any
obligation of Borrower;


 


(v)           except for funds deposited into the Local Collection
Account, the Collection Account or the Reserve Accounts in accordance with the
Loan Documents, has not and shall not hold title to its assets other than in
its name;


 


(w)          complies and shall at all times hereafter comply with
all of the assumptions, statements, certifications, representations, warranties
and covenants regarding or made by it contained in or appended to the
nonconsolidation opinion delivered pursuant hereto;


 


(x)            has paid and will pay its own liabilities and
expenses, out of its own funds and shall not consent to any other Person paying
Borrower’s obligations except to the extent that timely reimbursement is made
for the same;


 


(y)           has held and will hold regular meetings, as
appropriate to conduct its business and has observed at all times  and will observe all limited liability
company formalities and record keeping;


 


(z)            has allocated and will allocate to Borrower reasonably
and on the basis of fair market value determined on an arms-length basis all
general overhead and administrative expenses, including all costs associated
with common employees and shared office space, any such allocation shall be
specifically and reasonably documented and substantiated, any such allocation
of expenses to Borrower shall be paid solely by Borrower from Borrower’s own
funds, and Borrower shall at all times use separate stationary, letterhead, invoices
and checks;


 


(aa)         has not and will not identify its members or partners,
Independent Director/Manager (as defined below) or any other member or partner
of any Affiliate of Borrower, or any other Person, as a division or part of it;


 


(bb)         has paid and will pay the salaries of its own
employees and has maintained and will maintain a sufficient number of employees
in light of its contemplated business operations;


 


(cc)         has maintained, currently maintains, and will continue
to maintain, its own cash, cash positions and bank accounts separate from any
other Person;


 


(dd)         shall not (i) liquidate or dissolve, in whole or in
part; (ii) consolidate, merge or enter into any form of consolidation with or
into any other Person, nor convey, transfer or lease its assets substantially
as an entirety to any Person (other than in accordance with Section 2.7(a)
hereof) nor permit any Person to consolidate, merge or enter into any form of
consolidation with or into itself, nor convey, transfer or lease its assets
substantially as an entirety to any Person; (iii) engage in any business other
than


 


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the ownership and operation of the Mortgaged Property; or (iv) amend
any provisions of its organizational documents containing provisions similar to
those contained in this Article VIII;


 


(ee)         is either (x) a limited partnership duly formed and
existing under the laws of the State of Texas with one general partner (that
being the General Partner) whose limited partnership agreement and, in the case
of the General Partner, whose limited liability company agreement contains each
of the representations, warranties and covenants set forth in this Article VIII
(other than in the case of the General Partner (gg) and (hh)) or (y) a limited
liability company duly formed and existing under the laws of the State of
Delaware with one (1) equity member (the “Single Member”) in addition to
the Independent Manager, whose limited liability company agreement (the “Borrower
Organizational Documents”) contains each of the representations, covenants
and warranties set forth in this Article VIII and requires General
Partner (in the case of a limited partnership) or Borrower (in the case of a
limited liability company) to at all times cause there to be at least one (1)
duly appointed independent director or independent manager, as applicable, who
is a natural person and also a non-economic member of Borrower (in the case of
a limited liability company) (each, an “Independent Director/Manager”)
whose affirmative vote will be required in order for a voluntary filing for
protection under the Bankruptcy Code or similar action by Borrower (and General
Partner, if applicable) and who is not at the time of such individual’s initial
appointment as Independent Director/Manager, shall not be during such
individual’s tenure as Independent Director/Manager, and may not have been at
any time during the preceding five years, (i) a shareholder, member or partner
of, or an officer, manager, director, except in his or her capacity as
Independent Director/Manager of Borrower (and General Partner, if applicable),
paid consultant or employee of, customer of or supplier to or a member of the
immediate family of Borrower (except in his or her capacity as Independent
Director/Manager of Borrower (and General Partner, if applicable) or any of its
shareholders, members, partners, subsidiaries or affiliates or (ii) any person
or other entity controlling or under common control with any such shareholder,
member, partner, officer, manager, director, employee, supplier or customer or
any member of the immediate family of any of them; provided, however,
that the foregoing limitations on the use of persons who are Affiliates of
Borrower as Independent Director/Manager shall not apply to Borrower’s use of
natural persons employed by CT Corporation or any reputable, national service
similar to CT Corporation and reasonably approved by Lender to fill the
position of Independent Director/ Manager required hereunder, notwithstanding
that such persons may also act as independent directors of such Affiliates of
Borrower, so long as such Independent Director/Manager does not derive more
than 5% of his/her annual income from serving as director/manager of Affiliates
of Borrower.  As used herein, the term “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a person or entity, whether
through ownership of voting securities, by contract or otherwise;


 


(ff)           has complied and will comply with the separateness
provisions of the Borrower Organizational Documents since such Borrower
Organizational Documents were executed and delivered, and with the laws of the
state of its formation relating to limited liability companies or limited
partnerships;


 


(gg)         with respect to any entity comprising the Borrower
that is a limited liability company, the Borrower Organizational Documents
provide and shall at all times continue to provide that upon the occurrence of
any event that causes the Single Member to cease to be a member of Borrower,
the Independent Director/Manager shall, without action of any person and
simultaneously with the Single Member ceasing to be a member of Borrower,
automatically continue as a member of such Borrower and shall continue Borrower
without dissolution;


 


(hh)         with respect to any entity comprising the Borrower
that is a limited liability company, Borrower shall cause reputable Delaware
counsel acceptable to Lender (the “Delaware Law Firm”) to deliver to
Lender an opinion letter reasonably satisfactory to Lender, whereby the
Delaware


 


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Law Firm opines (which opinion may be subject to standard assumptions,
qualifications, limitations and exceptions acceptable to Lender), among other
requirements of Lender, that: (1) the unanimous consent of the Single Member
and the Independent Director/Manager is required in order for the applicable
Borrower to file a voluntary bankruptcy petition; (2) the provision in Borrower
Organizational Documents that requires unanimous consent as a condition to
filing a voluntary bankruptcy petition is enforceable against the Single
Member; (3) the bankruptcy, dissolution, liquidation or death of the Single
Member will not cause the applicable Borrower to be dissolved; (4) no creditor
of the Single Member shall have the right to obtain possession of, or otherwise
exercise legal or equitable remedies with respect to, the applicable Borrower’s
property; and (5) Delaware law, not federal law, governs the determination of
what persons or entities have the authority to file a voluntary bankruptcy
petition on behalf of the applicable Borrower;


 


(ii)           the Borrower Organizational Documents provide and
shall at all times continue to provide that Borrower shall not cause, permit,
or empower the General Partner or the Single Member, as applicable, manager, or
any other person to consolidate or merge Borrower and General Partner into any
other entity, or, without the affirmative vote and express written authorization
of all members or partners of Borrower and the Independent Director/Manager, to
institute proceedings to have Borrower and General Partner adjudicated bankrupt
or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against Borrower and General Partner or file a petition seeking or
consent to, reorganization or relief with respect to Borrower and General
Partner under any applicable federal or state law relating to bankruptcy, or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of Borrower and General Partner or a
substantial part of Borrower’s and General Partner’s property, or make any
assignment for the benefit of creditors of Borrower and General Partner, or
admit in writing Borrower’s or General Partner’s inability to pay its debts
generally as they become due, or take action in furtherance of any such action;
and


 


(jj)           the Borrower Organizational Documents provide and
shall at all times continue to provide (i) that Borrower shall at all times
maintain an arms-length relationship with any Affiliates of Borrower, (ii) that
Borrower shall at all times maintain independent management over its daily
business affairs, free from any control exercised by any Affiliate of Borrower,
and (iii) that to the extent that control of Borrower is exercised by any
manager, and the same individual acts as manager or similar control person with
respect to any Affiliate of Borrower, such individual will act in accordance with
the separateness requirements of the Loan Documents and Borrower Organizational
Documents, including, without limitation (A) an express requirement under the
Borrower Organizational Documents that the manager of Borrower make all
decisions regarding the business of Borrower independent of, and not dictated
by, any Affiliate of the Borrower, and (B) the provisions of the Loan Documents
and the Borrower Organizational Documents relating to transactions with
Affiliates of Borrower and conflicts of interest.


 


ARTICLE IX.

MISCELLANEOUS


 


Section 9.1.            Survival.  This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, the making the Loan hereunder and the execution and delivery by
Borrower to Lender of the Loan Documents, and shall continue in full force and
effect so long as any portion of the Indebtedness is outstanding and
unpaid.  Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party. 
All covenants, promises and agreements in this Agreement contained, by
or on behalf of Borrower, shall inure to the benefit of the respective
successors and assigns of Lender. 
Nothing in this Agreement or in any other Loan Document, express or
implied, shall give to any Person other than the parties and the


 


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holder of the Note and the other Loan Documents, and their legal
representatives, successors and assigns, any benefit or any legal or equitable
right, remedy or claim hereunder.


 


Section 9.2.            Lender’s
Discretion.  Whenever
pursuant to this Agreement, Lender exercises any right given to it to approve
or disapprove, or any arrangement or term is to be satisfactory to Lender, the
decision of Lender to approve or disapprove or to decide whether arrangements
or terms are satisfactory or not satisfactory shall (except as is otherwise
specifically herein provided) be in the sole discretion of Lender and shall be
final and conclusive.


 


Section 9.3.            Governing
Law.


 


(a)           This Agreement was negotiated in New York and made by
Lender and accepted by Borrower in the State of New York, and the proceeds of the
Note delivered pursuant hereto were disbursed from New York, which State the
parties agree has a substantial relationship to the parties and to the
underlying transaction embodied hereby, and in all respects (including, without
limitation, matters of construction, validity, performance, and maximum
permissible rates of interest), this Agreement and the obligations arising
hereunder shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts made and performed in such State
and any applicable law of the United States of America, except that at all
times the provisions for the creation, perfection and enforcement of the liens
and security interests created pursuant to each Mortgage and Assignment of Rents
and Leases shall be governed by the laws of each State where the related
Mortgaged Property is located, except that the security interests in Account
Collateral shall be governed by the laws of the State of New York or the State
where the Account Collateral is held, at the option of Lender.


 


(b)           Borrower hereby consents to the jurisdiction of any
federal court or state court in New York, New York or within the county and
state in which any Mortgaged Property is located and irrevocably agrees that,
subject to Lender’s election, any legal suit, action or proceeding against
Lender or Borrower arising out of or relating to this Agreement or the other
Loan Documents may be instituted and litigated in such courts.  Borrower hereby (i) irrevocably waives, to
the fullest extent permitted by applicable law, any objection which it may now
or hereafter have to the laying of venue of any such suit, action or proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum, and (ii) irrevocably submits
to the jurisdiction of any such court in any such suit, action or
proceeding.  Borrower does hereby
designate and appoint Corporation Service Company, as its authorized agent to
accept and acknowledge on its behalf service of any and all process which may
be served in any such suit, action or proceeding in any federal or state court
in New York, New York, and agrees that service of process upon said agent at
said address (or at such other office in New York, New York as may be
designated by Borrower from time to time in accordance with the terms hereof)
with a copy to Borrower at its principal executive offices, and written notice
of said service of Borrower mailed or delivered to Borrower in the manner
provided herein shall be deemed in every respect effective service of process
upon Borrower, in any such suit, action or proceeding in the State of New
York.  Borrower (i) shall give
prompt notice to Lender of any change in address of its authorized agent
hereunder, (ii) may at any time and from time to time designate a
substitute authorized agent with an office in New York, New York (which office
shall be designated as the address for service of process), and (iii) shall
promptly designate such a substitute if its authorized agent ceases to have an
office in New York, New York or is dissolved without leaving a successor.


 


Section 9.4.            Modification,
Waiver in Writing.  No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement or any other Loan Document, or consent or waiver referred to in any
Loan Document or consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in a writing signed by the party
against whom enforcement is sought, and then such waiver or consent shall be
effective only in the


 


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specific instance, and for the purpose, for which given.  Except as otherwise expressly provided
herein, no notice to or demand on Borrower shall entitle Borrower to any other
or future notice or demand in the same, similar or other circumstances.


 


Section 9.5.            Delay
Not a Waiver.  Neither any
failure nor any delay on the part of Lender in insisting upon strict performance
of any term, condition, covenant or agreement, or exercising any right, power,
remedy or privilege hereunder, or under any other Loan Document, or any other
instrument given as security therefor, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
future exercise, or the exercise of any other right, power, remedy or
privilege.  In particular, and not by
way of limitation, by accepting payment after the due date of any amount
payable under this Agreement, the Note or any other Loan Document, Lender shall
not be deemed to have waived any right either to require prompt payment when
due of all other amounts due under this Agreement, the Note or the other Loan
Documents, or to declare a default for failure to effect prompt payment of any
such other amount.


 


Section 9.6.            Notices.  All notices, consents, approvals and
requests required or permitted hereunder or under any other Loan Document shall
be given in writing and shall be effective for all purposes if delivered or
sent by: (a) hand delivery, (b) certified or registered United States mail,
postage prepaid, (c) nationally recognized overnight delivery service, (d) by
facsimile transmission, addressed if to Lender or to Borrower at its applicable
address set forth on Schedule 5 hereto, or at such other address and Person as
shall be designated from time to time by any party hereto, as the case may be,
in a written notice to the other parties hereto in the manner provided for in
this Section 9.6, or (e) other than with respect to an amendment or
modification, an electronic medium.  A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered
or three Business Days after mailing; in the case of overnight delivery and
facsimile transmission, on the Business Day after the same was sent; or in the
case of electronic medium, when confirmed by e-mail.  A party receiving a notice which does not comply with the
technical requirements for notice under this Section 9.6 may elect to
waive any deficiencies and treat the notice as having been properly given.  Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or
the Notes or of any Exhibit hereto to be executed and delivered hereunder shall
be effective as delivery of an original executed counterpart thereof.


 


Section 9.7.            TRIAL
BY JURY.  BORROWER, TO THE
FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION
OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY
PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN
DOCUMENTS.


 


Section 9.8.            Headings.  The Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.


 


Section 9.9.            Assignment.


 


(a)           Borrower may not sell, assign or transfer any interest
in the Loan Documents, or any portion of the foregoing (including, without
limitation, Borrower’s rights, title, interests, remedies, powers and duties
hereunder and thereunder) without Lender’s prior written consent.  Lender shall have the right to assign or
participate this Agreement and/or its interest in any of the other Loan
Documents and the obligations hereunder to any Person.  In the event of an assignment by Lender,
(a) the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would have if it were an original “Lender”
hereunder; (b) the assignee shall be deemed for all purposes to be a “Lender”


 


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hereunder; and (c) upon any such substitution of Lender, a replacement
or addition “Lender signature page” shall be executed by the new Lender and
attached to this Agreement and thereupon become a part of this Agreement.  After the effectiveness of any assignment,
the new Lender shall provide notice to Borrower of the identity, address and
other pertinent information pertaining to the new Lender.  Notwithstanding anything in this Agreement
to the contrary, after an assignment by Lender, the “Lender” (prior to such
assignment) shall continue to have the benefits of any rights or
indemnifications and shall continue to have the obligations contained herein
which Lender had during the period such party was a “Lender” hereunder.  Borrower agrees that each participant shall
be entitled to the benefits of Section 2.10 with respect to its participation in
this Agreement or any other Loan Document from time to time as if such
participant were a Lender; provided that, in the case of Section 2.10,
such participant shall have complied with the requirements of said Section, and
provided, further, that no participant shall be entitled to
receive any greater amount pursuant to Section 2.10 than the transferor Lender
would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such participant had no such
transfer occurred.


 


(b)           Lender may from time to time elect to enter into a
servicing agreement with a servicer, pursuant to which the servicer shall be
appointed to service and administer the Loan and the Account Collateral in
accordance with the terms hereof and to exercise any and all other rights of
Lender with respect to the Loan as set forth in such servicing agreement.  Lender shall promptly notify Borrower if
Lender shall elect to appoint or change the servicer, and all notices and other
communications from Borrower to Lender shall be delivered to the servicer with
a copy concurrently delivered to the Lender, and any notice, direction or other
communication from the servicer to Borrower shall have the same force and
effect as a notice, direction or communication from Lender.  The servicer shall be entitled to be
reimbursed for any cost, expense or liability which is incurred by the servicer
pursuant to such servicing and administrative duties and which would otherwise
be reimbursable to Lender under this Agreement or any other Loan Document in
the same manner and to the same extent as if Lender incurred such cost, expense
or liability in the first place.  The
parties hereto acknowledge and agree that the servicer shall be a third party
beneficiary to this Agreement and the other Loan Documents.


 


Section 9.10.          Severability.  Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.


 


Section 9.11.          Preferences.  Lender shall have no obligation to marshal
any assets in favor of Borrower or any other party or against or in payment of
any or all of the obligations of Borrower pursuant to this Agreement, the Note
or any other Loan Document.  Lender
shall have the continuing and exclusive right to apply or reverse and reapply
any and all payments by Borrower to any portion of the obligations of Borrower
hereunder, provided that such application or reapplication is performed by
Lender in accordance with the terms of this Agreement or any other applicable
Loan Document.  To the extent Borrower
makes a payment or payments to Lender for Borrower’s benefit, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
received, the obligations hereunder or part thereof intended to be satisfied
shall be revived and continue in full force and effect, as if such payment or
proceeds had not been received by Lender.


 


Section 9.12.          Waiver
of Notice.  Borrower shall
not be entitled to any notices of any nature whatsoever from Lender except with
respect to matters for which this Agreement or another Loan Document
specifically and expressly provides for the giving of notice by Lender to
Borrower and except


 


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with respect to matters for which Borrower is not, pursuant to
applicable Legal Requirements, permitted to waive the giving of notice.  Borrower hereby expressly waives the right
to receive any notice from Lender with respect to any matter for which this
Agreement or the other Loan Documents does not specifically and expressly
provide for the giving of notice by Lender to Borrower.


 


Section 9.13.          Failure
to Consent.  If Borrower
shall seek the approval by or consent of Lender  hereunder or under the Note, or any of the other Loan Documents,
and Lender shall fail or refuse to give such consent or approval, then Borrower
shall not be entitled to any damages for any withholding or delay of such
approval or consent by Lender, it being intended that Borrower’s sole remedy shall
be to bring an action for an injunction or specific performance.


 


Section 9.14.          Schedules
Incorporated.  The
information set forth on the cover, heading and recitals hereof, and the
Schedules attached hereto, are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.


 


Section 9.15.          Offsets,
Counterclaims and Defenses.  Any
assignee of any of Lender’s interest in and to this Agreement and the other
Loan Documents shall take the same free and clear of all offsets, counterclaims
or defenses which are unrelated to this Agreement and the other Loan Documents
which Borrower may otherwise have against any assignor or this Agreement and
the other Loan Documents.  No such
unrelated counterclaim or defense shall be interposed or asserted by Borrower
in any action or proceeding brought by any such assignee upon this Agreement or
upon any other Loan Document.  Any such
right to interpose or assert any such unrelated offset, counterclaim or defense
in any such action or proceeding is hereby expressly waived by Borrower.


 


Section 9.16.          No
Joint Venture or Partnership.  Borrower and Lender intend that the relationship created
hereunder be solely that of borrower and lender.  Nothing herein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Borrower
and Lender nor to grant Lender any interest in the Collateral other than that
of secured party, mortgagee or lender.


 


Section 9.17.          Waiver
of Marshalling of Assets Defense.  To the fullest extent Borrower may legally do so, Borrower waives
all rights to a marshalling of the assets of Borrower, and others with
interests in Borrower, and of the Collateral, or to a sale in inverse order of
alienation in the event of foreclosure of the interests hereby created, and
agrees not to assert any right under any laws pertaining to the marshalling of
assets, the sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever to
defeat, reduce or affect the right of Lender under the Loan Documents to a sale
of any Collateral for the collection of the Indebtedness without any prior or
different resort for collection, or the right of Lender to the payment of the
Indebtedness out of the Net Proceeds of the Collateral in preference to every
other claimant whatsoever.


 


Section 9.18.          Waiver
of Counterclaim.   To
the extent permitted by applicable law, Borrower hereby waives the right to
assert a counterclaim, other than compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents.


 


Section 9.19.          Conflict;
Construction of Documents. 
In the event of any conflict between the provisions of this Agreement
and the provisions of any of the other Loan Documents, the provisions of this
Agreement shall prevail.  The parties
hereto acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that the Loan Documents
shall not be subject to the principle of construing their meaning against the
party that drafted same.


 


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Section 9.20.          Brokers
and Financial Advisors. 
Borrower hereby represents that it has dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement.  Borrower hereby agrees to indemnify and hold Lender harmless from
and against any and all claims, liabilities, costs and expenses of any kind in
any way relating to or arising from a claim by any Person that such Person
acted on behalf of Borrower in connection with the transactions contemplated
herein.  The provisions of this Section
9.20 shall survive the expiration and termination of this Agreement and the
repayment of the Indebtedness.


 


Section 9.21.          Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.


 


Section 9.22.          Estoppel
Certificates. 
Borrower and Lender hereby agree at any time and from time to time upon
not less than fifteen (15) days prior written notice by Borrower or Lender to
execute, acknowledge and deliver to the party specified in such notice, a
statement, in writing, certifying that this Agreement is unmodified and in full
force and effect (or if there have been modifications, that the same, as
modified, is in full force and effect and stating the modifications hereto),
and stating whether or not, to the knowledge of such certifying party, any
Default or Event of Default has occurred and is then continuing, and, if so,
specifying each such Default or Event of Default; provided, however,
that it shall be a condition precedent to Lender’s obligation to deliver the
statement pursuant to this Section 8.22, that Lender shall have
received, together with Borrower’s request for such statement, an Officer’s
Certificate stating that, to the knowledge of Borrower, no Default or Event of
Default exists as of the date of such certificate (or specifying such Default
or Event of Default).


 


Section 9.23.          Payment
of Expenses.  Borrower
shall pay all Transaction Costs (excluding any Tax Liabilities which are not
payable by the Borrower pursuant to Section 2.10), which shall include,
without limitation, (a) reasonable out-of-pocket costs and expenses of Lender
in connection with (i) the negotiation, preparation, execution and delivery of
the Loan Documents and the documents and instruments referred to therein; (ii)
the creation, perfection or protection of Lender’s Liens in the Collateral
(including, without limitation, fees and expenses for title and lien searches
or amended or replacement Mortgages, UCC financing statements or Collateral
Security Instruments, title insurance premiums and filing and recording fees,
third party due diligence expenses for the Mortgaged Property plus travel
expenses, accounting firm fees, costs of the Appraisals, Environmental Reports
(and an environmental consultant), and the Property Condition Assessments and
costs and fees incurred in connection with arranging, setting up, servicing and
maintaining the Account Collateral); (iii) the administration of the Loan
Documents and the Loan and response to any requests for Lender consent or
approval of any matter; (iv) the negotiation, preparation, execution and
delivery of any amendment, waiver, restructuring or consent relating to any of
the Loan Documents, and (v) the preservation of rights under and enforcement of
the Loan Documents and the documents and instruments referred to therein,
including any communications or discussions relating to any action that
Borrower shall from time to time request Lender to take, as well as any
restructuring or rescheduling of the Indebtedness, (b) the reasonable fees,
expenses and other charges of counsel to Lender or its servicer in connection
with all of the foregoing, and (c) Lender’s reasonable out-of-pocket travel
expenses in connection with site visits to the Mortgaged Property; provided,
that so long as an Event of Default has not occurred and is not continuing, the
Borrower shall not be obligated to pay for Lender’s travel expenses in
connection with more than one site visit to each individual Mortgaged Property
during any twelve consecutive month period and Lender shall use reasonable
efforts to minimize the Transaction Costs paid by Borrower in connection with
such site visits.


 


Section 9.24.          Non-Recourse.  Anything contained herein, in the Note or in
any other Loan Document to the contrary notwithstanding, but subject in all
respect to provisos (A) through (E)


 


99

















 


below, no recourse shall be had for the payment of the principal or
interest on the Loan or for any other Indebtedness, obligation or liability
hereunder or under any other Loan Document or for any claim based hereon or
thereon or otherwise in respect hereof or thereof against (i) any
Affiliate of Borrower other than Borrower), (ii) any Person owning,
directly or indirectly, any legal or beneficial interest in Borrower or any
Affiliate of Borrower (other than Borrower) or (iii) any partner, member,
principal, officer, controlling person, beneficiary, trustee, advisor,
shareholder, employee, agent, Affiliate or director of any Persons described in
clauses (i) through (iii) above (other than Borrower), and it is understood
that neither the Note nor any other Indebtedness, obligation or liability under
or with respect to this Agreement and any other Loan Document may be enforced
against any Person described in clauses (i) through (iii) above
(other than Borrower); provided, however, that the foregoing
provisions of this paragraph shall not:


 


(A)          prevent recourse to Borrower, the assets of Borrower,
the Mortgaged Property or any other instrument or document which is pledged by
Borrower to Lender pursuant to the Loan Documents, including all Collateral;


 


(B)           have any applicability whatsoever to the collateral
pledged pursuant to the Pledge Agreement or limit the liability of the parties
under the Guaranty of Non-Recourse Obligations; or


 


(C)           constitute a waiver, release or discharge of any
indebtedness or obligation evidenced by the Note or secured by the Loan
Documents, and the same shall continue until paid or discharged in full;


 


(D)          prevent recourse to Borrower and Guarantor, jointly
and severally, and their respective assets for repayment of the Indebtedness,
and the Indebtedness shall be fully recourse not only to Borrower but also to
Guarantor, in the event:


 


(1)           Borrower or any Affiliate contests or in any way
interferes with, directly or indirectly (collectively, a “Contest”), any
foreclosure action or sale commenced by Lender or with any other enforcement of
Lender’s rights, powers or remedies under any of the Loan Documents or under
any document evidencing, securing or otherwise relating to any of the
Collateral (whether by making any motion, bringing any counterclaim, claiming
any defense, seeking any injunction or other restraint, commencing any action
seeking to consolidate any such foreclosure or other enforcement with any other
action, or otherwise) (except this clause (1) shall not apply if Borrower or
such Affiliate successfully asserts a Contest and obtains a favorable court
order for the Borrower as to same);


 


(2)           any Mortgaged Property becomes an asset in a voluntary
bankruptcy or insolvency proceeding or any petition for bankruptcy,
reorganization or arrangement pursuant to federal bankruptcy law, or any
similar federal or state law, shall be filed (x) by Borrower or
(y) against Borrower with the consent or acquiescence of Borrower or the
Guarantor or their respective Affiliates;


 


(3)           of any Transfer in violation of the terms of the Loan
Documents;


 


(4)           Borrower or the General Partner or the Guarantor makes
an assignment for the benefit of creditors or admits, in writing or in any
legal proceeding, its insolvency or inability to pay its debts as they become
due; or


 


(5)           of
any breach of the Side Agreement; or


 


100

















 


(E)           prevent recourse to Borrower and Guarantor, jointly
and severally, and their respective assets, and Borrower and Guarantor shall be
fully and personally liable, for any loss, costs, liability, damage or expense
(including, without limitation, attorneys’ fees and disbursements) suffered or
incurred by Lender or any Indemnified Party related to or arising from any of
the following acts committed by or on behalf of Borrower, Guarantor or any of
their respective Affiliates:


 


(1)           any fraud, misappropriation or misapplication of funds
(including Loss Proceeds or Rents) in contravention of the Loan Documents, or
intentional misrepresentation contained in any Loan Documents or report
furnished pursuant to any Loan Document;


 


(2)           additional financing obtained by Borrower (whether
secured or unsecured) in violation of the terms of the Loan Documents;


 


(3)           actual material physical waste to the Mortgaged
Property or material damage to the Mortgaged Property resulting from gross
negligence or willful misconduct;


 


(4)           of any breach of Article VIII hereof;


 


(5)           of any breach of any representation, warranty or
covenant in this Agreement or the Environmental Indemnity Agreement, concerning
Environmental Laws and Hazardous Substances;


 


(6)           any security deposits received by Borrower or Manager
from tenants not being properly applied, returned to tenants when due or
delivered to Lender, a receiver or a purchaser of the Mortgaged Property in the
event of a foreclosure sale upon such Person taking possession of the Mortgaged
Property;


 


(7)           any Legal Requirement mandating the forfeiture by
Borrower of the Collateral or any portion thereof because of the conduct or
purported conduct of criminal activity by Borrower or any Affiliate in
connection therewith;


 


(8)           all costs and expenses, including reasonable
attorneys’ fees and expenses, incurred in enforcing any obligation or liability
or in collecting any amount due under this Section 9.24(D) or this Section
9.24(E), the Environmental Indemnity and the Guaranty of Non-Recourse
Obligations, which, as to Borrower, is a recourse obligation of Borrower as
described in this Section 9.24(D) or this Section 9.24(E), the
Environmental Indemnity and the Guaranty of Non-Recourse Obligations, or, as to
Guarantor, is a recourse obligation of Guarantor under the Guaranty of
Non-Recourse Obligations or the Environmental Indemnity;


 


(9)           the failure to pay Impositions assessed against the
Mortgaged Property to the extent there was sufficient funds available to pay
and Lender allows Borrower to apply the same, or the failure to maintain
insurance as required under the  Loan
Documents, or the failure to pay any deductible amount in respect of any
insurance maintained in respect of the Mortgaged Property, or the failure to
pay and discharge any mechanic’s or materialman’s Liens against the Mortgaged
Property to the extent there was sufficient funds available to pay and
discharge and Lender allows Borrower to apply the same; or


 


(10)         any Rents or Proceeds received or collected by Borrower,
any Affiliate of Borrower or Manager and not deposited into the Local
Collection Account or the Collection Account in accordance with Section 2.12.


 


101

















 


IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their duly authorized representatives,
all as of the day and year first above written.


 


 


	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  MERRILL
  LYNCH MORTGAGE LENDING, INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert J.  Spinna, Jr.

  	
   

  
	
   

  	
   

  	
  Name:
  Robert J.  Spinna, Jr.

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  ARC Communities 19 LLC

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott L. 
  Gesell

  	
   

  
	
   

  	
  Name: Scott L. 
  Gesell

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARC19TX LP

  
	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott L. 
  Gesell

  	
   

  
	
   

  	
  Name: Scott L. 
  Gesell

  
	
   

  	
  Title: Vice President

  



 


S-1

















 


SCHEDULE 5


 


ADDRESSES
FOR NOTICES


 


	
  If to Borrower:

  	
  [insert applicable
  Borrower name]

  
	
   

  	
  600 Grant Street, Suite
  900

  
	
   

  	
  Denver, CO  80203

  
	
   

  	
  Attn:  John G. 
  Sprengle

  
	
   

  	
  Phone:  (303) 383-7509

  
	
   

  	
  Facsimile:  (303) 294-9959

  
	
   

  	
  e-mail:  johns@arc-hs.com

  
	
   

  	
   

  
	
  With a copy to:

  	
  [insert applicable  Borrower name]

  
	
   

  	
  600 Grant Street, Suite
  900

  
	
   

  	
  Denver, CO  80203

  
	
   

  	
  Attn:  Scott L. 
  Gesell

  
	
   

  	
  Phone:  (303) 383-7506

  
	
   

  	
  Facsimile:  (303) 294-0085

  
	
   

  	
  e-mail:  scottg@arc-hs.com

  
	
   

  	
   

  
	
  With a copy to:

  	
  Skadden Arps Slate
  Meagher & Flom

  
	
   

  	
  Four Times Square

  
	
   

  	
  New York, New York  10036

  
	
   

  	
  Attn:  Fred B. 
  White, III

  
	
   

  	
  Phone:  (212) 735-2144

  
	
   

  	
  Facsimile:  (917) 777-2144

  
	
   

  	
  e-mail:  fwhite@skadden.com

  
	
   

  	
   

  
	
  If to Lender:

  	
  Merrill Lynch Mortgage
  Lending Inc.

  
	
   

  	
  4 World Financial
  Center

  
	
   

  	
  New York, New York  10088

  
	
   

  	
  Attn:  Robert Spinna

  
	
   

  	
  Phone:  (212) 449-4341

  
	
   

  	
  Facsimile:  (212) 449-4341

  
	
   

  	
  e-mail:  robert_spinna@ml.com

  
	
   

  	
  Merrill Lynch Mortgage
  Lending Inc.

  
	
   

  	
  4 World Financial
  Center

  
	
   

  	
  New York, New York  10088

  
	
   

  	
  Attn:  Sheri Horowitz

  
	
   

  	
  Phone:  (212) 449-0951

  
	
   

  	
  Facsimile:  (212)738-1013

  
	
   

  	
  e-mail:  sheri_horowitz@ml.com

  



 

















 


	
   

  	
  Merrill Lynch Mortgage
  Lending Inc.

  
	
   

  	
  4 World Financial
  Center

  
	
   

  	
  New York, New York  10088

  
	
   

  	
  Attn:  John Katz

  
	
   

  	
  Phone:  (212) 449-9178

  
	
   

  	
  Facsimile:  (212)738-1013

  
	
   

  	
  e-mail:
  john_katz@ml.com

  



 


3

















 


SCHEDULE 6


 


WORK RESERVE FUNDING CONDITIONS


 


(1)           Not less than ten
(10) Business Days prior to the date on which Borrower desires Lender to
withdraw any funds on deposit in the Deferred Maintenance Escrow Account or
Replacement Reserve Account (collectively, the “Work Reserves”),
Borrower shall provide Lender and its servicer with a written request,
including therein the specific Approved Capital Expenditures or Immediate
Repairs for which disbursement is requested (collectively, “Approved
Expenditures”; and the related improvement or replacement project to which
any such request for disbursement relates shall be referred to as the “Work”)
and such other information (such as the price of materials and the cost of
contracted labor or other services) as Lender may reasonably require, and including,
in the case of a reimbursement of Borrower, evidence that the related costs
have been paid.


 


(2)           On the date such
request is received by Lender and on the date of disbursement from the Work
Reserves, no Event of Default shall exist and remain uncured.


 


(3)           Lender shall have
received a certificate from Borrower stating that all Approved Expenditures to
be funded by the requested disbursement have been completed in a good and
workmanlike manner and in accordance with any plans and specifications reasonably
approved by Lender and all Legal Requirements of any Governmental Authority
having jurisdiction over the Mortgaged Property, such certificate to be
accompanied, in either case, by a copy of any license, permit or other approval
by any Governmental Authority required to commence (only for the first advance
with respect to each distinct item of work) and/or complete (only for the final
advance with respect to each distinct item of work) the related Work.


 


(4)           Lender shall have
received a certificate from Borrower stating that each Person that supplied
materials or labor in connection with the Approved Expenditures to be funded by
the requested disbursement has been paid in full, such certificate to be
accompanied by copies of invoices for all items or materials purchased and all
contracted labor or services provided.


 


(5)           Lender shall have
received appropriate lien waivers from each contractor, supplier, materialman,
mechanic or subcontractor, which lien waivers shall conform to the requirements
of applicable law and shall cover all work performed and materials supplied
(including equipment and fixtures) for the affected Mortgaged Property by that
contractor, supplier, subcontractor, mechanic or materialman through the date
covered by the current disbursement request.


 


(6)           At Lender’s option,
Lender shall have received a title search for the affected Mortgaged Property
effective to the date of the disbursement, which search shows that no
mechanic’s or materialmen’s liens or other Liens of any nature have been placed
against the Mortgaged Property since the date of recordation of such Mortgage
affecting such Mortgaged Property and that title to the Property is free and
clear of all Liens (other than the Permitted Encumbrances).


 


(7)           Lender reserves the
right, at its option and as a condition to any disbursement from a Work
Reserve, to approve (1) all drawings and plans and specifications, if any, for
any Work which require aggregate payments in amounts exceeding $50,000, and (2)
all contracts and work orders with materialmen, mechanics, suppliers,
subcontractors, contractors and other parties providing labor or materials in
connection with any Work which require aggregate payments in amounts exceeding
$50,000.  For any Work which requires
aggregate payments in amounts exceeding $50,000 or is structural in nature or
relates to the fire life safety systems at the Property, Lender may require an
inspection of the affected Mortgaged Property prior to making a monthly
disbursement from the applicable Work Reserve in order


 


4

















 


to verify completion of the work for which disbursement is sought.  Lender may require that such inspection be
conducted by an appropriate independent qualified architect or engineer
selected by Lender and/or may require a copy of a certificate of completion by
an independent qualified architect or engineer licensed in the state where the
applicable Mortgaged Property is located and otherwise acceptable to Lender
prior to the disbursement of any amounts from the Work Reserve.  Borrower shall pay the reasonable,
out-of-pocket expense of such inspections as required hereunder, whether such
inspections are conducted by Lender or by an independent qualified professional.


 


5