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                                                        EXHIBIT 10.67










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                                 NOTE AGREEMENT


                           Dated as of June 22, 1997


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                                                               TABLE OF CONTENTS

This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.


<TABLE>
<S>       <C>                                                               <C>
Section 1.  Definitions and Accounting Matters..............................   1
     1.01  Certain Defined Terms............................................   1
     1.02  Accounting Terms and Determinations..............................  17

Section 2.  Facility........................................................  18
     2.01  Mortgage Loans...................................................  18
     2.02  Borrowings.......................................................  18
     2.03  Changes of Commitment............................................  19
     2.04  Fees.............................................................  19
     2.05  Note.............................................................  19
     2.06  Optional Prepayments.............................................  19
     2.07  Mandatory Prepayments............................................  19
     2.08  Additional Properties............................................  20
     2.09  Releases.........................................................  22
     2.10  Appraisals.......................................................  23

Section 3.  Payments of Principal and Interest..............................  23
     3.01  Repayment of Mortgage Loans......................................  23
     3.02  Interest.........................................................  23

Section 4.  Payments; Computations; Etc.....................................  23
     4.01  Payments.........................................................  23
     4.02  Computations.....................................................  24
     4.03  Setoff...........................................................  24
     4.04  Minimum Amounts..................................................  24
     4.05  Certain Notices..................................................  24

Section 5.  Yield Protection and Illegality.................................  25
     5.01  Additional Costs.................................................  25
     5.02  Illegality.......................................................  27
     5.03  Limitation on Types of Mortgage Loans............................  27
     5.04  Compensation.....................................................  28

Section 6.  Conditions Precedent............................................  28
     6.01  Closing Date.....................................................  28
     6.02  Initial and Subsequent Mortgage Loans............................  35

Section 7.  Representations and Warranties..................................  38
     7.01  Existence........................................................  38
     7.02  Financial Condition..............................................  38
     7.03  Litigation.......................................................  38
     7.04  No Breach........................................................  38
     7.05  Action...........................................................  39
     7.06  Approvals........................................................  39
     7.07  Use of Mortgage Loans............................................  39
     7.08  ERISA............................................................  39
     7.09  Taxes............................................................  40
     7.10  Investment Company Act...........................................  40
     7.11  Equal Employment and Non-Discrimination..........................  40

</TABLE>

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<TABLE>
<CAPTION>
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<S>       <C>                                                               <C>
     7.12  Subsidiaries, Etc................................................  40
     7.13  Title............................................................  41
     7.14  Partners, Etc....................................................  41
     7.15  Restricted Activities ...........................................  41
     7.16  Other Activities.................................................  41
     7.17  Employees........................................................  42
     7.18  Solvency.........................................................  43
     7.19  Delinquent Property Liens........................................  43
     7.20  Insurance........................................................  43
     7.21  Lien Priority....................................................  43
     7.22  Improvements.....................................................  43
     7.23  Casualty; Condemnation...........................................  43
     7.24  Zoning and Other Laws............................................  44
     7.25  Management Agreement.............................................  44
     7.26  Contracts........................................................  44
     7.27  Permits..........................................................  44
     7.28  Utilities........................................................  45
     7.29  Certificates of Occupancy........................................  45
     7.30  Assessments......................................................  45
     7.31  Condition of Properties..........................................  45
     7.32  Environmental Reports/Appraisals.................................  45
     7.33  Leases...........................................................  45
     7.34  No Cooperative or Condominium....................................  46

Section 8.  Covenants of the Borrower.......................................  46
     8.01  Financial Statements.............................................  46
     8.02  Litigation, Etc..................................................  49
     8.03  Existence, Etc...................................................  49
     8.04  Insurance........................................................  49
     8.05  Prohibition of Fundamental Changes...............................  50
     8.06  Limitation on Liens..............................................  50
     8.07  Indebtedness.....................................................  51
     8.08  Investments......................................................  52
     8.09  Dividend Payments................................................  52
     8.10  Activities.......................................................  52
     8.11  Transactions with Affiliates.....................................  53
     8.12  Intentionally Omitted............................................  53
     8.13  Modifications of Certain Documents...............................  53
     8.14  Additional Subsidiaries..........................................  54
     8.15  Debt Service Ratio...............................................  54
     8.16  Property Management..............................................  55
     8.17  Residential Leases...............................................  55

Section 9.  Events of Default...............................................  55

Section 10.  Miscellaneous..................................................  60
     10.01  Waiver..........................................................  60
     10.02  Notices.........................................................  60
     10.03  Expenses, Etc...................................................  60
     10.04  Amendments, Etc.................................................  61
     10.05  Successors and Assigns..........................................  61

</TABLE>

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<TABLE>                                                                    
<CAPTION>
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<S>       <C>                                                               <C>
     10.06  Assignments and Participation...................................  62
     10.07  Survival........................................................  63
     10.08  Captions........................................................  63
     10.09  Counterparts....................................................  63
     10.10  Governing Law; Submission to Jurisdiction.......................  63
     10.11  Waiver of Jury Trial............................................  64
     10.12  Marshalling; Recapture..........................................  64
     10.13  Cross Collateralization.........................................  64
     10.14  Confidentiality.................................................  64
     10.15  Appointment of Servicer.........................................  65


</TABLE>
                                                                              
SCHEDULE I                Indebtedness
SCHEDULE II               Litigation
SCHEDULE III              Subsidiaries and Investments
SCHEDULE IV               Initial Properties
SCHEDULE V                Material Property Contracts
SCHEDULE VI               Property Condition
SCHEDULE VII              Environmental
SCHEDULE VIII             Defaults
EXHIBIT A                 Form of Promissory Note
EXHIBIT B                 Form of Borrowing Notice
EXHIBIT C                 Form of Residential Leases for Initial Properties








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     THIS NOTE AGREEMENT dated as of June 22, 1997 (as amended, modified or
supplemented from time to time, this "Agreement") is by and between AMBASSADOR
II, L.P., a limited partnership duly organized and validly existing under the
laws of the State of Delaware (the "Borrower"), and NOMURA ASSET CAPITAL
CORPORATION, a corporation organized under the laws of the State of Delaware
(together with its successors and assigns, the "Lender").

                                    RECITALS

     WHEREAS, the Borrower desires to obtain from the Lender, and the Lender
has agreed to make to the Borrower, a series of loans, under the guarantee of
the Guarantors and under the terms and conditions hereof, in an aggregate
principal amount not exceeding $75,000,000 (the "Commitment") at any one time
outstanding.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

     Section 1.  Definitions and Accounting Matters.

     1.01  Certain Defined Terms.  As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when
used in the plural and vice versa):

     "Addition" shall have the meaning assigned to such term in Section
2.08(a).

     "Addition Notice" shall have the meaning assigned to such term in Section
2.08(a).

     "Additional Collateral Conditions" shall have the meaning assigned to such
term in Section 2.08(b).

     "Additional Costs" shall have the meaning assigned to such term in Section
5.01(a).

     "Additional Mortgages" shall mean any and all Mortgages delivered pursuant
to Section 2.08(b).

     "Additional Properties" shall have the meaning assigned to such term in
Section 2.08(a).

     "Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person and, if such Person is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and any trust
whose principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or
trust.  As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with")

<PAGE>   6

shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person which owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 10% or more of the partnership or
other ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person.  Notwithstanding the foregoing, no individual shall be deemed to be an
Affiliate of a corporation solely by reason of his or her being an officer or
director of such corporation.

     "Allocated Title Amount" shall mean, as at any date of determination
thereof, with respect to any Collateral Property, an amount equal to (a) the
Cash Flow of such Collateral Property for the twelve month period ending on or
most recently ended prior to such date divided by (b) 10% multiplied by (c)
115%; provided that the Allocated Title Amount for any Collateral Property
shall not exceed the maximum principal amount secured by the Mortgage on such
Collateral Property as set forth in such Mortgage (as reduced by prepayments
allocated to such Collateral Property pursuant to Section 4.01(b)).  If, with
respect to any Collateral Property, such twelve month period includes periods
prior to the Borrower's ownership of such Collateral Property, Cash Flow shall
include the Borrower's predecessor's cash flow with respect to such Collateral
Property (which cash flow (a) shall be certified to the best knowledge of a
senior financial officer of the Borrower and evidenced by such supporting
information as reasonably requested by the Lender) and (b) shall be adjusted to
reflect the amount, if any, that the Borrower has demonstrated, in the Lender's
sole discretion, is appropriate to reflect reductions in Property Expenses
which the Borrower expects to achieve as a result of increased efficiency of
operation of such Collateral Property or otherwise).

     "Ambassador" shall mean Ambassador Apartments, Inc., a Maryland 
corporation.

     "Ambassador Cash Flow" shall mean, for any period for Ambassador and its
Consolidated Subsidiaries, the sum (determined on a consolidated basis in
accordance with GAAP and without duplication) of the following:  (a) all rental
revenue and operating income (including, without limitation, actual rental
income and other income, base rents, percentage rents, common area maintenance,
charges, property tax recoveries, insurance recoveries, Consumer Price Index
rent adjustments and other miscellaneous income items) received by Ambassador
and its Consolidated Subsidiaries from the ownership and operation of any
Property during such period (but excluding income from advance payments,
deposits, escrows or a sale or other capital item transaction), plus (b)
depreciation and amortization (to the 

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extent deducted in determining rental revenue and operating income), minus (c) 
all Ambassador Property Expenses incurred by Ambassador and its Consolidated 
Subsidiaries during such period.

     "Ambassador Debt Service" shall mean, for any period for  Ambassador and
its Consolidated Subsidiaries, the sum (determined on a consolidated basis in
accordance with GAAP and without duplication) of the following:  (a) all
payments of principal of Indebtedness (other than payments of principal due on
the maturity date of a loan) of Ambassador and its Consolidated Subsidiaries
scheduled to be made during such period plus (b) the greater of (1) all
Interest Expense payable by Ambassador and its Consolidated Subsidiaries during
such period or (2) all Interest Expense payable by Ambassador and its
Consolidated Subsidiaries during such period calculated in accordance with the
definition of Interest Expense set forth in this Section 1.01 but assuming for
purposes of the calculation of Interest Expense that all interest payable in
respect of Indebtedness during such period is at the Mortgage Loan Constant.

     "Ambassador Debt Service Ratio" shall mean, as to any date of
determination on or after the Closing Date, the ratio of (A) Ambassador Cash
Flow for the twelve month period ending on the last day of the calendar month
ending on or most recently ended prior to such date of determination to (B)
Ambassador Debt Service for such period.

     "Ambassador Property Expenses" shall mean, for any Property owned by
Ambassador or any of its Consolidated Subsidiaries, all operating expenses
relating to such Property including the following items (provided, however,
that Ambassador Property Expenses shall not include Debt Service, Interest 
Expense, Capital Expenditures, contributions to capital expenditure reserves, 
non-cash items such as depreciation and amortization and any extraordinary 
one-time expenditures not considered operating expenses under GAAP):

     (1) all expenses for the operation of such Property including management
fees in respect thereof, all insurance premiums and expenses, accounting
expenses, advertising expenses, expenses for architectural services, bank
charges, utility charges, expenses for extermination, cleaning, and trash
removal services, expenses relating to window washing, landscaping and security
services, reasonable and necessary legal expenses incurred in connection with
the operation of such Property, tenant improvements, marketing costs (but not
including any expenses incurred in connection with a sale or other capital or
interim capital transaction);

     (2) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest or such impositions (or portions
thereof) that are payable by reason of the failure by Ambassador or any such
Consolidated Subsidiary to pay an imposition timely; and


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     (3) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP.

     "Applicable Margin" shall mean 1.50% per annum and shall apply to all
outstanding principal amounts under this Agreement commencing on the Closing
Date.

     "Approval Notice" shall have the meaning assigned to such term in Section
2.08(c).

     "Assignments" shall mean, collectively, each Assignment of Leases and
Rents relating to a Collateral Property.

     "Available Amount" shall mean, as at any date of determination, the
maximum aggregate principal amount of Mortgage Loans that can be outstanding
such that the Debt Service Ratio is not lower than 1.40 to 1.00, and in no
event exceeding the Commitment.

     "Basic Documents" shall mean, collectively, this Agreement, the Note, the  
Environmental Indemnity Agreement, the Security Documents and all other
agreements executed and delivered to the Lender by the Borrower, Ambassador or
any Guarantor in connection with any of the foregoing agreements, as any of the
foregoing agreements may be further amended, modified and supplemented and in
effect from time to time.

     "Borrower" shall have the meaning assigned to such term in the preamble.

     "Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City and, for purposes of
determining the LIBOR Rate, any day on which dealings in Dollar deposits are
carried out in the London interbank market (even if commercial banks in New
York City are authorized or required to close on such day).

     "Capital Expenditures" shall mean, for any period as to any Person,
expenditures (including the aggregate amount of Capital Lease Obligations
incurred during such period) made by such Person or any of its Consolidated
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.

     "Capital Lease Obligations" shall mean, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person 

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under GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board) and, for purposes of this Agreement, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP (including such Statement No. 13).

     "Cash Flow" shall mean, for any period (without duplication) with respect
to any Collateral Property, the sum of (a) Property NOI of such Collateral
Property (calculated before Interest Expense, extraordinary and unusual items
and income or loss attributable to equity in Affiliates) for such period plus
(b) depreciation and amortization in respect of such Collateral Property (to
the extent deducted in determining Property NOI) for such period minus (c)
Capital Expenditures and contributions to capital expenditure reserves in
respect of such Collateral Property made during such period; provided that for
purposes of calculating Cash Flow for any Collateral Property, Capital 
Expenditures and contributions to capital expenditure reserves shall be assumed 
to be $250 per annum per rentable unit for such Collateral Property.

     "Cedar Creek Property" shall have the meaning assigned to such term in
Section 2.02.

     "Closing Date" shall mean June 23, 1997.

     "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.

     "Collateral" shall mean any and all Property from time to time subject to
the Lien of any Security Document.

     "Collateral Properties" shall mean, collectively, the Initial Properties
and the Additional Properties which from time to time comprise the Collateral.

     "Commitment" shall mean the obligation of the Lender to make Mortgage
Loans in an aggregate principal amount at any one time outstanding up to but
not exceeding $75,000,000 (as the same may be reduced or terminated by the
Borrower at any time or from time to time pursuant to Section 2.03).

     "Common Units" shall have the meaning assigned to such term in the
Prospectus.

     "Consolidated Subsidiary" shall mean, as to any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.

     "Debt Service" shall mean (i) for any period for any Person 

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other than the Borrower, the sum (determined on a consolidated basis in
accordance with GAAP and without duplication) of the following:  (a) all
payments of principal of Indebtedness of such Person and its Consolidated
Subsidiaries scheduled to be made during such period plus (b) all Interest
Expense payable during such period and (ii) for any period for the Borrower, the
aggregate amount of principal and interest payments that would be due and
payable during the applicable period calculated using the Mortgage Loan 
Constant and assuming that the principal amount of the Mortgage Loans
outstanding as of the date of the determination was the principal amount 
applicable to the entire period for which the calculation is made.

     "Debt Service Ratio" shall mean with respect to the Borrower as to any
date of determination on or after the Closing Date, the ratio of (A) the
aggregate Cash Flow of all of the Collateral Properties for the twelve month
period ending on the last day of the calendar month ending on or most recently
ended prior to such date of determination to (B) Debt Service of the Borrower
for such period.  Notwithstanding the foregoing, (i) Cash Flow with respect to
an Additional Property shall be included in such calculations from the date of
the Approval Notice with respect to such Additional Property only, but, once so
included, shall include Cash Flow with respect to such Additional Property for
the same period used for the other Collateral Properties, and (ii) if, with
respect to any Collateral Property, such twelve month period includes periods
prior to the Borrower's ownership of such Collateral Property, Cash Flow shall
include the Borrower's predecessor's cash flow with respect to such Collateral
Property (which cash flow (a) shall be certified to the best knowledge of a
senior financial officer of the Borrower and evidenced by such supporting
information as reasonably requested by the Lender) and (b) shall be adjusted to
reflect the amount, if any, that the Borrower has demonstrated, in the Lender's
sole discretion, is appropriate to reflect reductions in Property Expenses
which the Borrower expects to achieve as a result of increased efficiency of
operation of such Collateral Property or otherwise).

     "Default" shall mean an Event of Default or an event which with notice or
lapse of time or both would become an Event of Default.

     "Dividend Payment" shall mean, as to any Person, any dividend or any
partnership distribution (in cash, property or obligations) on, or any other
payment or distribution on account of, or the setting apart of money for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of, any shares of any class of stock of such Person, (but
excluding dividends payable solely in shares of common stock) of such Person or
any portion of any partnership interest (whether general or limited) of such
Person.

     "Dollars" and "$" shall mean lawful money of the United States of America.

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     "Environmental Indemnity Agreement" shall mean the Environmental Indemnity 
Agreement dated as of the date hereof among the Borrower, Ambassador, the 
Guarantors and the Lender, as modified and supplemented and in effect from 
time to time.

     "Environmental Laws" shall mean any and all federal, state, and local
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata or ambient air or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into soil, surface waters, ground waters, land, stream sediments, surface or
subsurface strata or ambient air or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of Hazardous Materials.

     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

     "ERISA Affiliate" shall mean any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower, Ambassador or any Guarantor or is
under common control (within the meaning of Section 414(c) of the Code) with
the Borrower, Ambassador or any Guarantor.

     "Event of Default" shall have the meaning assigned to such term in Section
9.

     "Excess Cash Flow" shall mean, as at any date of determination thereof,
the excess (if any) of (a) Property NOI (calculated before the deduction of
Property Expenses, Interest Expense, extraordinary and unusual items and income
or loss attributable to equity in Affiliates) plus depreciation and
amortization (to the extent deducted in determining Property NOI) of the
Borrower and its Consolidated Subsidiaries, in each case for the calendar month
ending on the last day of the calendar month most recently ended prior to such
date of determination over (b) the amount of Debt Service (without regard to
clause (b)(2) of the definition of Debt Service), the amount of Property
Expenses (excluding the Management Fee) of the Borrower and its Consolidated
Subsidiaries for such period as set forth in the budgets submitted for the
Collateral Properties and the amount of Capital Expenditures (except to the
extent made from capital expenditure reserves) and contributions to capital
expenditure reserves made by the Borrower and its Consolidated Subsidiaries
during such period, in each case to the extent previously approved by the
Lender.


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     "GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with those which, in accordance with the last sentence of
Section 1.02(a), are to be used in making the calculations for purposes of
determining compliance with the terms of this Agreement.

     "General Partner" shall mean Ambassador II, Inc., a Delaware corporation.

     "GP Guarantee Agreement" shall mean the Guarantee and Pledge Agreement
dated as of the date hereof executed by the General Partner in favor of the
Lender, as modified and supplemented and in effect from time to time.

     "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, Indebtedness, net
worth, working capital or earnings of any Person, or a guarantee of the payment
of dividends or other distributions upon the stock of any corporation or
ownership interests of any entity or an agreement to purchase, sell or lease
(as lessee or lessor) property, products, materials, supplies or services
primarily for the purpose of enabling a debtor to make payment of his, her or
its obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank to open a letter of credit for
the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business.  The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.

     "Guarantee Agreements" shall mean, collectively, the GP Guarantee
Agreement and the LP Guarantee Agreement, each as modified and supplemented and
in effect from time to time.

     "Guarantor" shall mean each of the General Partner and the Operating
Partnership.

     "Hazardous Materials" shall have the meaning assigned to such term in the
Environmental Indemnity Agreement.


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<PAGE>   13






     "Indebtedness" shall mean, as to any Person: (a) indebtedness created,
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities); (b) obligations of such Person to pay
the deferred purchase or acquisition price of property or services, including
trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business; (c) Indebtedness of
others secured by a Lien on the property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
the account of such Person; (e) Capital Lease Obligations and other lease
obligations arising under leases that are in the nature of title retention
agreements of such Person; and (f) Indebtedness of others Guaranteed by such
Person.

     "Independent Director" shall have the meaning assigned to such term in
Section 7.16.

     "Initial Mortgages" shall have the meaning assigned to such term in
Section 6.01.

     "Initial Properties" shall mean the properties listed on Schedule IV.

     "Interest Expense" shall mean, for any period for any Person, all interest
in respect of Indebtedness accrued or capitalized by such Person during such
period (whether or not actually paid during such period).

     "Interest Payment Date" shall mean, with respect to any Mortgage Loan, the
first (1st) day of each calendar month.

     "Interest Period" shall mean, with respect to any Mortgage Loan, (a)
initially, the period (the "Stub Period") commencing on the date such Mortgage
Loan is made and ending on and including the last day of the calendar month in
which such Mortgage Loan is made, and (b) thereafter, each one-month period
commencing on the first day of each succeeding calendar month and ending on and
including the last day of such calendar month.  Notwithstanding the foregoing:
(i) if any Interest Period would otherwise commence before and end after the
Maturity Date, such Interest Period shall end on the Maturity Date; and (ii)
notwithstanding clause (i) above, no Interest Period (other than the Stub 
Period) shall have a duration of less than one month and, if the Interest 
Period for any Mortgage Loan would otherwise be a shorter period, such Mortgage 
Loan shall not be available hereunder.

     "Investment" in any Person shall mean:  (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of such Person; and (b) any 

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<PAGE>   14

deposit with, or advance, loan or other extension of credit to, such Person
(other than any such advance, loan or extension of credit having a term not
exceeding 90 days representing the purchase price of inventory or supplies
purchased in the ordinary course of business) or Guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
Person and (without duplication) any amount committed to be advanced, lent or
extended to such Person (other than any such advance, loan or extension of
credit having a term not exceeding 90 days representing the purchase price of
inventory or supplies purchased in the ordinary course of business).

     "Jurisdictional Capped Mortgage" shall have the meaning assigned to such
term in Section 6.02.

     "Lender" shall have the meaning assigned to such term in the preamble.

     "LIBOR Rate" shall mean, with respect to any Interest Period for any
Mortgage Loan, the 30-day London interbank offered rate for United States
dollar deposits as of 11:00 a.m. (London time) on the date which is two
Business Days prior to the first day of such Interest Period, in each case as
quoted on Telerate page 3750 or on such replacement system as is then
customarily used to quote the London interbank offered rate.  If two or more
such rates appear on Telerate page 3750 or associated pages, the rate in
respect of such Interest Period shall be the arithmetic mean of such offered
rates(rounded upward to the nearest 1/16).

     "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of this Agreement, the Borrower and each of its Subsidiaries shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.

     "LP Cash Flow" shall mean, for any period for the Operating Partnership
and its Consolidated Subsidiaries, the sum (determined on a consolidated basis
in accordance with GAAP and without duplication) of the following:  (a) all
rental revenue and operating income (including, without limitation, actual
rental income and other income, base rents, percentage rents, common area
maintenance, charges, property tax recoveries, insurance recoveries, Consumer
Price Index rent adjustments and other miscellaneous income items) received by
the Operating Partnership and its Consolidated Subsidiaries from the ownership
and operation of any Property during such period (but excluding income from
advance payments, deposits, escrows or a sale or other capital item
transaction), plus (b) depreciation and amortization (to the extent deducted in
determining rental revenue and operating income), minus (c) all LP Property
Expenses incurred by the Operating Partnership and its Consolidated
Subsidiaries during such 


                                    - 10 -

<PAGE>   15

period.

     "LP Debt Service" shall mean, for any period for the Operating Partnership
and its Consolidated Subsidiaries, the sum (determined on a consolidated basis
in accordance with GAAP and without duplication) of the following:  (a) all
payments of principal of Indebtedness (other than payments of principal due on
the maturity date of a loan) of the Operating Partnership and its Consolidated
Subsidiaries scheduled to be made during such period plus (b) the greater of
(1) all Interest Expense payable by the Operating Partnership and its
Consolidated Subsidiaries during such period or (2) all Interest Expense
payable by the Operating Partnership and its Consolidated Subsidiaries during
such period calculated in accordance with the definition of Interest Expense
set forth in this Section 1.01 but assuming for purposes of the calculation of
Interest Expense that all interest payable in respect of Indebtedness during
such period is at the Mortgage Loan Constant.

     "LP Debt Service Ratio" shall mean, as to any date of determination on or
after the Closing Date, the ratio of (A) LP Cash Flow for the twelve month
period ending on the last day of the calendar month ending on or most recently
ended prior to such date of determination to (B) LP Debt Service for such
period.

     "LP Guarantee Agreement" shall mean that Guarantee and Pledge Agreement
dated as of the date hereof executed by the Operating Partnership in favor of
the Lender, as modified and supplemented and in effect from time to time.

     "LP Property Expenses" shall mean, for any Property owned by the Operating
Partnership or any of its Consolidated Subsidiaries, all operating expenses
relating to such Property including the following items (provided, however,
that LP Property Expenses shall not include Debt Service, Interest Expense,
Capital Expenditures, contributions to capital expenditure reserves, non-cash
items such as depreciation and amortization and any extraordinary one-time
expenditures not considered operating expenses under GAAP):

     (1) all expenses for the operation of such Property including management
fees in respect thereof, all insurance premiums and expenses, accounting
expenses, advertising expenses, expenses for architectural services, bank
charges, utility charges, expenses for extermination, cleaning, and trash
removal services, expenses relating to window washing, landscaping and security
services, reasonable and necessary legal expenses incurred in connection with
the operation of such Property, tenant improvements, marketing costs (but not
including any expenses incurred in connection with a sale or other capital or
interim capital transaction);

     (2) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest or such 

                                    - 11 -

<PAGE>   16

impositions (or portions thereof) that are payable by reason of the failure by 
the Operating Partnership or any such Consolidated Subsidiary to pay an 
imposition timely; and

     (3) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP.

     "Management Agreements" shall mean the Property Management Agreement dated
as of October 16, 1996 between the Borrower and the Operating Partnership, and
such other management agreements which are entered into from time to time with
respect to any Collateral Properties, in each case as modified and supplemented
(without prejudice to Section 8.13) and in effect from time to time.

     "Management Fee" shall mean, with respect to each Collateral Property, the
fee (if any) payable to each Manager pursuant to the Management Agreements.

     "Manager" shall mean the Operating Partnership and any other manager under
the Management Agreements.

     "Market Study" shall mean a market study, prepared by the Borrower (or a
third party at the option of the Borrower), with respect to a Collateral
Property including, without limitation, (i) information relating to the rental
rates and sales of similar properties in the area in which such Collateral
Property is located, (ii) a discussion of the submarkets in which such
Collateral Property is located and (iii) a new construction analysis.

     "Material Adverse Effect" means a material adverse effect on any of (a)
the condition (financial or otherwise), business, performance, properties,
assets or operations of any Guarantor and its Consolidated Subsidiaries taken
as a whole or Ambassador and its Consolidated Subsidiaries taken as a whole or
the Borrower and its Consolidated Subsidiaries taken as whole, (b) the ability
of any Guarantor, Ambassador, the Borrower or any of its Subsidiaries to
perform its obligations under any Basic Document to which it is a party, (c)
the legality, validity or enforceability of any Basic Document or any
significant provision thereof or the rights and remedies of the Lender under
any Basic Document or any significant provision thereof, (d) the timely payment
of principal or interest on any Mortgage Loan or other amounts payable under
the Basic Documents, (e) the perfection or priority of the Liens on the
Collateral (under and as defined in each of the Security Agreement, the REIT
Agreement and the Guarantee Agreements), (f) any Collateral Property whose
Property NOI (before the deduction of Property Expenses) prior to the
occurrence or circumstance resulting in such effect is equal to or greater than
10% of the aggregate Property NOI (before the deduction of Property Expenses)
of all the Collateral Properties, (g) the value, utility, operation or legality
of any Collateral Property whose 

                                    - 12 -

<PAGE>   17

Property NOI (before the deduction of Property Expenses) prior to the occurrence
or circumstance resulting in such effect is equal to or greater than 10% of the
aggregate Property NOI (before the deduction of Property Expenses) of all the
Collateral Properties, (h) any Collateral Property whose Property NOI (before
the deduction of Property Expenses) prior to the occurrence or circumstance
resulting in such effect is less than or equal to 10% of the aggregate Property
NOI (before the deduction of Property Expenses) of all the Collateral Properties
but when taken together with any other Collateral Property whose Property NOI
(before deduction of Property Expenses) is less than or equal to 10% of the
aggregate Property NOI (before the deduction of Property Expenses) of all the
Collateral Properties results in an aggregate Property NOI (before deduction of
Property Expenses) equal to or greater than 10% of the aggregate Property
NOI (before deduction of Property Expenses) of all the Collateral Properties, 
or (i) the Property NOI (before the deduction of Property Expenses)
of any Collateral Property.

     "Maturity Date" shall mean December 31, 1997, or such earlier date
resulting from acceleration.

     "Mortgage Loan Constant" shall mean, as at any date of determination
thereof, the greater of (a) 8.81% per annum or (b) a mortgage loan constant
derived using a 360 month amortization schedule and an interest rate equal to
the sum of (1) 1.50% plus (2) the Treasury Yield per annum on such date of U.S.
Treasury Securities with a maturity of 10 years.  The "Treasury Yield" shall be
determined by reference to the most recent Federal Reserve Statistical Release
Section 15(519) or any comparable successor publication which has become
publicly available on the Business Day immediately preceding the date of
determination (or, if such Statistical Release is no longer published, any
publicly available source of similar market data acceptable to the Lender).

     "Mortgage Loans" shall mean the loans provided for by Section 2.01.

     "Mortgages" shall mean, collectively, each mortgage, deed of trust,
assignment of leases and rents, security agreement and fixture financing
statement and similar instrument executed by the Borrower in favor of the
Lender, covering each of the Collateral Properties, including, without
limitation, the respective properties and leasehold interests identified in the
schedules thereto including, without limitation, the Initial Mortgages and the
Additional Mortgages, as each such mortgage, deed of trust, assignment of rents
and fixture filing shall be modified and supplemented and in effect from time
to time.

     "Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrower,
Ambassador or any Guarantor or any ERISA 

                                    - 13 -

<PAGE>   18

Affiliate and which is covered by Title IV of ERISA.

     "Note" shall mean the promissory note dated the date hereof executed by
the Borrower and provided for by Section 2.05.

     "Operating Partnership" or "Ambassador L.P." shall mean Ambassador
Apartments, L.P., a Delaware limited partnership.

     "Partnership Agreement" shall mean the Limited Partnership Agreement of
the Borrower dated as of August 16, 1994 between the General Partner and the
Operating Partnership, as amended by Amendment No. 1 to Limited Partnership
Agreement dated February 15, 1995 and Amendment to Limited Partnership
Agreement dated as of June 20, 1996 and as further modified and supplemented
(without prejudice to Section 8.13) and in effect from time to time.

     "Participation Agreement" shall have the meaning assigned to such term in
Section 10.06.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

     "Permitted Investments" of any Person shall mean:  (a) direct obligations
of the United States of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America, or of
any agency thereof; (b) deposit accounts with or certificates of deposit and
bankers' acceptances issued by any bank or trust company organized under the
laws of the United States of America or any state thereof and having capital,
surplus and undivided profits of at least $500,000,000, or such other bank or
trust company reasonably acceptable to the Lender; (c) commercial paper rated
A-1 or better or P-1 by Standard & Poor's Corporation ("S&P") or Moody's
Investors Services, Inc. ("Moody's"), respectively, and maturing not more than
90 days from the date of acquisition thereof by such Person; and (d)
Investments in money market funds rated AAAm or AAAm-G by S&P and P-1 by
Moody's.

     "Permitted Liens" shall have the meaning assigned to such term in Section
8.06.

     "Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).

     "Plan" shall mean an employee benefit or other plan established or
maintained by the Borrower, Ambassador, any Guarantor or any ERISA Affiliate
and which is covered by Title IV of ERISA, other than a Multiemployer Plan.

     "Post-Default Rate" shall mean, in respect of any principal


                                    - 14 -

<PAGE>   19

of any Mortgage Loan or any other amount payable by the Borrower, Ambassador 
or any Guarantor under this Agreement or the Basic Documents that is not paid 
when due (whether at stated maturity, by acceleration or otherwise), a rate 
per annum during the period from and including the due date thereof to but
excluding the date on which such amount is paid in full equal to 4% above the
LIBOR Rate as in effect from time to time plus the Applicable Margin.

     "Preliminary Approval Notice" shall have the meaning assigned to such term
in Section 2.08(b).

     "Principal Office" shall mean the principal office of the Lender, located
at 2 World Financial Center, New York, New York 10281 or any other office
designated as such in writing by the Lender.

     "Property" shall mean assets and properties, whether real, personal or
mixed, tangible or intangible.

     "Property Expenses" shall mean, for any Collateral Property, all operating
expenses relating to such Collateral Property including the following items
(provided, however, that Property Expenses shall not include Debt Service,
Interest Expense, Capital Expenditures, non-cash items such as depreciation and
amortization and any extraordinary one-time expenditures not considered
operating expenses under GAAP):

     (1) all expenses for the operation of such Collateral Property including
the Management Fee in respect thereof, all insurance premiums and expenses,
accounting expenses, advertising expenses, expenses for architectural services,
bank charges, utility charges, expenses for extermination, cleaning and trash
removal services, expenses relating to window washing, landscaping and security
services, reasonable and necessary legal expenses incurred in connection with
the operation of such Collateral Property, tenant improvements, marketing costs
(but not including any expenses incurred in connection with a sale or other
capital or interim capital transaction);

     (2) impositions, water charges, property and real estate taxes, sewer
rents, other than fines, penalties, interest or such impositions (or portions
thereof) that are payable by reason of the Borrower's failure to pay an
imposition timely; and

     (3) the cost of routine interior and exterior maintenance, repairs and
minor alterations, the cost of which can be expensed under GAAP.

For purposes of computing Property Expenses for any Collateral Property the
Management Fee shall be assumed to be an amount equal to 4% of all gross
revenues actually received by the Borrower from the operations of such
Collateral Property or otherwise in respect of such Collateral Property.


                                    - 15 -

<PAGE>   20

     "Property NOI" shall mean, as of any date of determination thereof, for
each Collateral Property, the sum of (1) all rental revenue and operating
income (including, without limitation, actual rental income and other income,
base rents, percentage rents, common area maintenance, charges, property tax
recoveries, insurance recoveries, Consumer Price Index rent adjustments and
other miscellaneous income items) actually received by the Borrower from the
ownership and operation of such Collateral Property (but excluding income from
advance payments, deposits, escrows or a sale or other capital item
transaction) computed on a cash basis for the twelve month period ending on or
most recently ended prior to such date of determination minus (2) all Property
Expenses to the extent actually expended by the Borrower during such period.

     "Prospectus" shall mean the Prospectus dated August 24, 1994 relating to
the offering of 7,821,000 shares of Common Stock of Ambassador.

     "REIT Agreement" shall mean the REIT Agreement dated as of the date hereof
executed by Ambassador in favor of the Lender, as modified and supplemented and
in effect from time to time.

     "Regulatory Change" shall mean any change after the date of this Agreement
in United States Federal, state or foreign law, rules or regulations or the
adoption or making after such date of any interpretation, directive or request
applying to a class of financial institutions including the Lender of or under
any United States Federal, state or foreign laws, rules or regulations (whether
or not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.

     "Related Person" shall mean, with respect to any specified Person, any
other Person that is an Affiliate of the specified Person or any limited
partner of the specified Person (if such Person is a limited partnership) or
any shareholder of the specified Person (if such Person is a corporation).

     "Release" shall mean any satisfaction, release, assignment instrument,
deed of reconveyance or similar instrument or instruments (each in recordable
form and otherwise in form reasonably satisfactory to the Borrower but without
any representation or warranty of the Lender (other than a warranty as to the
Lender's own acts)) necessary to release any Collateral Property from the Lien
of all applicable Security Documents.

     "Release Conditions" shall have the meaning assigned to such term in
Section 2.09.

     "Release Date" shall have the meaning assigned to such term in Section
2.09.


                                    - 16 -

<PAGE>   21

     "Release Notice" shall have the meaning assigned to such term in Section
2.09.

     "Release Property" shall mean any Collateral Property which is proposed to
be or is the subject of a Release.

     "Revolver Period" shall have the meaning assigned to such term in Section
2.01.

     "Revolving Credit Termination Date" shall mean December 15, 1997, or such
earlier date resulting from acceleration.

     "Security Agreement" shall mean the Security Agreement dated as of the
date hereof among the Borrower and the Lender, as modified and supplemented and
in effect from time to time.

     "Security Documents" shall mean, collectively, the Guarantee Agreements,
the REIT Agreement, the Security Agreement, the Mortgages, the Assignments and
all Uniform Commercial Code financing statements required by this Agreement,
the Guarantee Agreements, the Security Agreement and the Mortgages to be filed
with respect to the security interests in personal property and fixtures
created pursuant to the Guarantee Agreements, the Security Agreement, the
Mortgages and all other documents and agreements executed or delivered to the
Lender by the Borrower, Ambassador or any Guarantor in connection with any of
the foregoing documents.

     "Servicer" shall have the meaning assigned to such term in Section 10.15.

     "Specific Event of Default" shall mean (a) any Event of Default of the
type described in Section 9(a), 9(b), 9(f), 9(g), 9(h), 9(l) or 9(n) or (b) the
delivery by the Lender to the Borrower of a written notice of its intent to
accelerate the Indebtedness arising under the Basic Documents in accordance
with Section 9.

     "Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a sufficient number of the
securities or other ownership interests having by the terms thereof ordinary
voting power directly or indirectly to elect a majority of the board of
directors or other persons performing similar functions of such corporation,
partnership or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more of the
Subsidiaries or by such Person and one or more of the Subsidiaries.


                                    - 17 -

<PAGE>   22

     "Title Companies" shall have the meaning assigned to such term in Section
6.01.

     "Total Market Value" shall mean, for any day, the product of (a) the
closing price of the relevant class of shares on the New York Stock Exchange
and (b) the total number of such shares outstanding on such day, including
shares issuable in exchange for then outstanding Common Units of the Operating
Partnership (other than Common Units held by Ambassador).

     "Wholly-Owned Subsidiary" shall mean, with respect to any Person, any such
corporation, partnership or other entity of which all of such securities or
other ownership interests, other than in case of a corporation, qualifying
shares, are so owned or controlled.

     1.02  Accounting Terms and Determinations.

     (a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lender
hereunder shall (unless otherwise disclosed to the Lender in writing at the time
of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lender hereunder after the date hereof (subject, in
the case of quarterly financial statements furnished hereunder, to normal
year-end audit adjustments and the absence of footnotes).  All calculations made
for the purposes of determining compliance with the terms of this Agreement
shall (except as otherwise expressly provided herein) be made by application 
of generally accepted accounting principles applied on a basis consistent with 
those used in the preparation of the annual or quarterly financial statements 
furnished to the Lender pursuant to Section 8.01 unless (i) the Borrower shall 
have objected to determining such compliance on such basis at the time of 
delivery of such financial statements or (ii) the Lender shall so object in 
writing within 30 days after delivery of such financial statements, in
either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 8.01, shall
mean the financial statements referred to in Section 7.02).

     (b) The Borrower shall deliver to the Lender at the same time as the
delivery of any annual or quarterly financial statement under Section 8.01 a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or 

                                    - 18 -

<PAGE>   23

quarterly financial statements as to which no objection has been made in
accordance with the last sentence of subsection (a) above, and reasonable
estimates of the difference between such statements arising as a consequence
thereof.

     (c) To enable the ready and consistent determination of compliance with
the covenants set forth in Section 8, the Borrower will not change the last day
of its fiscal year from December 31, or the last days of the first three fiscal
quarters in each of its fiscal years from March 31, June 30 and September 30, 
respectively.

     (d) The Borrower and the Lender hereby agree that for purposes of
calculating "Cash Flow", "Debt Service", "Debt Service Ratio", "Property
Expenses", and "Property NOI", as each such term is defined in Section 1.01
(herein called the "Specific Defined Terms") all rents, revenue and other
amounts received by the Borrower with respect to any Collateral Property which
has suffered and continues to suffer a Material Adverse Effect shall be
excluded from all calculations made under this Agreement in connection with, in
accordance with or pursuant to, such Specific Defined Terms and shall be
excluded for purposes of determining compliance by the Borrower with the Debt
Service Ratio and all other terms of this Agreement until such time as the
Lender shall have sent to the Borrower a notice in writing to the contrary.

     (e)  The Borrower and the Lender hereby further agree that an Additional
Property will be included in the calculation of the Specific Defined Terms only
after the Borrower receives the Approval Notice specified in Section 2.08(c)
with respect to such Additional Property.

     Section 2.  Facility.

     2.01  Mortgage Loans.  The Lender agrees, subject to the terms and
conditions of this Agreement, to make Mortgage Loans to the Borrower in Dollars
during the period (the "Revolver Period") from and including the date hereof to
but not including the Revolving Credit Termination Date in an aggregate
principal amount at any one time outstanding to the Borrower up to but not
exceeding the Available Amount as then in effect.  Subject to the preceding
sentence and the other terms of this Agreement, during the Revolver Period the
Borrower may borrow, prepay and reborrow the amount of the Commitment; provided
that the aggregate principal amount of Mortgage Loans at any one time
outstanding to the Borrower shall not exceed the amount of the Available Amount
as then in effect.

     2.02  Borrowings.  The Borrower shall give the Lender notice of each
borrowing of Mortgage Loans hereunder as provided in Section 4.05.  On the date
specified for each borrowing hereunder, the Lender shall, subject to the terms
and conditions of this Agreement, make available the amount of such Mortgage
Loan to the Borrower by 


                                    - 19 -

<PAGE>   24

depositing the same, in immediately available funds, in an account of the 
Borrower designated by the Borrower in writing.  Borrowings of Mortgage Loans 
hereunder shall occur only once during any calendar month, except that,
assuming all conditions to such borrowing are satisfied, the Borrower may
borrow in June 1997 a Mortgage Loan with respect to a property known as "Cedar
Creek Apartments" located in Bexar County, Texas (the "Cedar Creek Property").

     2.03  Changes of Commitment.  The Borrower shall have the right to
terminate or reduce the Commitment at any time or from time to time, provided
that: (i) the Borrower shall give notice of each such termination or reduction
as provided in Section 4.05; (ii) each partial reduction shall be in an amount
at least equal to $1,000,000; and (iii) if after giving effect to such
termination or reduction of the Commitment the outstanding principal amount of
the Mortgage Loans shall exceed the Commitment then the Borrower shall prepay
the Mortgage Loans in an amount equal to such excess together with interest
accrued thereon to the date of prepayment plus any amounts payable in respect
of such prepayment pursuant to Section 5.04.  The Commitment once terminated or
reduced may not be reinstated or increased.

     2.04  Fees.  The Borrower shall pay to the Lender on the Closing Date a
nonrefundable structuring fee in an amount equal to $562,500.  The Lender
acknowledges receipt of such other fees and amounts payable prior to the date
hereof by the Borrower to the Lender.

     2.05  Note.  The Mortgage Loans shall be evidenced by the Note.  The date,
amount, and initial interest rate of each Mortgage Loan made by the Lender to
the Borrower, and each payment made on account of the principal thereof, shall
be recorded by the Lender on its books and, prior to any transfer of the Note,
endorsed by the Lender on the schedule attached to the Note or any continuation
thereof which notations and endorsement shall be controlling absent
demonstrable error; provided that the failure of the Lender to make any such
notation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Note.


                                    - 20 -

<PAGE>   25





     2.06  Optional Prepayments.  Subject to Section 4.04, the Borrower shall
have the right to prepay Mortgage Loans at any time or from time to time,
provided that:  (1) the Borrower shall give the Lender notice of each such
prepayment as provided in Section 4.05; (2) the Borrower shall prepay the
Mortgage Loans in an amount equal to 101% of the aggregate principal amount of
the Mortgage Loans so being prepaid (unless the Mortgage Loans are being
prepaid (x) pursuant to Section 5.01, 5.02 or 5.03 or (y) in full on or before
July 8, 1997 with the proceeds from an issuance or sale by Ambassador of
capital stock) plus any amounts payable under Section 5.04 in connection with
such prepayment; and (3) the Borrower shall pay interest on the principal
amount prepaid, accrued to the date of prepayment, on the prepayment date.

     2.07  Mandatory Prepayments. Upon the occurrence and during the
continuance of a Specific Event of Default or at any time when the Borrower
shall fail to comply with Section 8.15 the Borrower shall prepay the Mortgage
Loans in an aggregate principal amount equal to 100% of Excess Cash Flow on the
next Interest Payment Date and on each Interest Payment Date thereafter until
all Mortgage Loans and all other amounts due under the Basic Documents shall
have been paid in full.



                                    - 21 -

<PAGE>   26



     2.08  Additional Properties.

           (a) Subject to the terms and conditions hereof, the Borrower may 
from time to time notify the Lender of its intention to add additional real 
properties to the Collateral Property (each, an "Addition"), upon compliance 
with the provisions of this Section 2.08. The Borrower may exercise its rights 
under this Section by delivering a written notice (an "Addition Notice") to the
Lender which shall refer to this Section, identifying the Property (the
"Additional Property") which the Borrower intends to add to the Collateral.
The Addition Notice shall be accompanied by all of the documents in the
possession of the Borrower (the "Approval Documents") referred to in clauses
(m), (n), (o), (p), (t) through (bb) (inclusive), (ee), (ff) and (gg) of
Section 6.01 (assuming for purposes of this Section 2.08 such proposed
Additional Property were an Initial Property).  The Lender shall review the
Approval Documents and notify the Borrower within 10 Business Days after
receipt of the last of the Approval Documents whether it (i) approves the
proposed Additional Property as Collateral, (ii) rejects the proposed
Additional Property as Collateral (and if the Lender rejects the proposed
Additional Property as Collateral the Lender shall provide a statement of the
reasons for such rejection) or (iii) requires a Market Study prepared by a
third party.  If the Lender requires a Market Study prepared by a third party,
the Lender shall review such Market Study of the Additional Property and shall
notify the Borrower within 10 Business Days after receipt of such Market Study
whether the Lender accepts or rejects the proposed Additional Property as
Collateral and if the Lender rejects such Additional Property as Collateral the
Lender shall provide a statement of the reasons for such rejection. If within
10 Business Days after receipt by the Lender of the Approval Documents or the
third party Market Study, as the case may be, the Lender has not given the
notice required by the preceding sentences, the Borrower shall notify the
Lender in writing, and if within 5 days of such notification the Lender has not
provided the required notice, then such proposed Additional Property shall be
deemed unacceptable to the Lender as Collateral.  All Property which the
Borrower proposes as Collateral must be satisfactory in all respects to the
Lender in its sole discretion and the Lender shall not have any obligation to
accept any Additional Property as Collateral even if the Borrower satisfies all
of the express conditions of this Agreement.  The Borrower shall pay on demand
all reasonable fees and expenses incurred by the Lender in connection with its
review of the Approval Documents and any due diligence related to the
Additional Property notwithstanding that the Lender may reject any Additional
Property as Collateral or an Addition shall not occur.  With respect to the
Cedar Creek Property, the Lender agrees to shorten the time periods specified
in this Section 2.08(a) and in Section 2.08(c) as the Lender determines is 
reasonably necessary.

           (b) If the Lender shall have notified the Borrower that an Additional
Property is acceptable Collateral (a "Preliminary 

                                    - 22 -

<PAGE>   27

Approval Notice") then such proposed Additional Property shall become an 
Addition to Collateral subject to the fulfillment of the following conditions 
(the "Additional Collateral Conditions"):

             (1) no Default with respect to Section 9(a), 9(f), 9(g) or 9(h) 
shall have occurred and be continuing and no Event of Default shall have 
occurred and be continuing, in each case, as of the date of the Addition Notice
or as of the date of the Preliminary Approval Notice and the Lender shall have 
received the documents referred to in clause (3) below;

             (2)  the Borrower shall have delivered to the Lender a certificate
of a senior financial officer of the Borrower setting forth the Debt Service 
Ratio immediately prior to and after such Addition (assuming the Approval 
Notice has been given) and showing in reasonable detail such computations;

             (3) the Lender shall have received the documents referred to in 
clauses (d), (e), (i), (j), (k), (l), (m), (q) and (s) of Section 6.01 with 
respect to the Additional Property (assuming for purposes of this Section 2.08 
such proposed Additional Property were an Initial Property), each in form and
substance reasonably satisfactory to the Lender;

             (4)  the Borrower shall have delivered certified copies of all 
corporate action taken by the General Partner on behalf of the Borrower 
approving the Mortgage and any other Basic Document which the Borrower shall
execute and deliver in connection with such Additional Property (including, 
without limitation, a certificate setting forth the resolutions of the board of
directors of the General Partner adopted with respect of such transactions),
together with an incumbency certificate for the General Partner;

             (5) the Borrower shall have delivered to the Lender such documents
amending the Basic Documents to reflect the Addition to the Collateral
(including, without limitation, an amendment to the Environmental Indemnity
Agreement) and such other documents as the Lender or counsel to the Lender
shall reasonably request, each in form and substance reasonably satisfactory to
the Lender; and

             (6) the conditions set forth in Section 6.02 (other than that set 
forth in Section 6.02(a) as to which the preceding clause (b)(1) shall be
applicable and  Section 6.02(d)) shall have been satisfied (including, without
limitation, evidence that in connection with such Addition (i) all fees and
expenses payable to the Lender and its counsel have been (or contemporaneously
are being) paid in full and (ii) all mortgage, mortgage recording and intangible
taxes and recording charges required to be paid in connection with the
execution, delivery or recording of the Security Documents as well as all title
premiums and other title and survey charges have been or

                                    - 23 -

<PAGE>   28
contemporaneously are being) paid in full).

           (c)  Within 5 Business Days after the satisfaction of the Additional
Collateral Conditions as determined by the Lender in its sole discretion, the
Lender shall deliver to the Borrower written notice (the "Approval Notice")
that the proposed Additional Property shall be deemed an Addition to the
Collateral.

     2.09  Releases.  Subject to Sections 2.06, 4.04 and 4.05, the Borrower
shall have the right to prepay the Mortgage Loans and to obtain a Release
terminating and releasing the Lien of the Security Documents in respect of any
Release Property upon compliance with the provisions of this Section 2.09.  The
Borrower shall exercise its rights under this Section by delivering a written
notice (a "Release Notice") to the Lender which shall refer to this Section,
identify the Release Property and be accompanied by a counterpart of the
Release executed and acknowledged by all parties thereto (if any) other than
the Lender and in form for execution by the Lender and by a certificate of a
senior officer of the Borrower certifying that the Release Conditions have been
satisfied.  Subject to the terms hereof, the Lender shall execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, to the
Borrower such counterpart within ten Business Days after receipt thereof.  The
obligation of the Lender to deliver a Release in respect of any Release
Property shall be subject to the fulfillment of the following conditions (the
"Release Conditions"):

           (a) no Default with respect to Section 9(a), 9(f), 9(g) or 9(h) 
shall have occurred and be continuing and no Event of Default shall have 
occurred and be continuing, in each case, as of the date of the Release Notice 
or as of the date (the "Release Date") that the Lender delivers the applicable 
Release;

           (b) if after giving effect to such Release, the aggregate outstanding
principal amount of Mortgage Loans exceeds the Available Amount, the Borrower
shall prepay such excess, together with interest accrued thereon to the date of
prepayment plus any amounts payable in respect of such prepayment pursuant to
Section 5.04;

           (c) after giving effect to such Release of Collateral Property and 
the payments contemplated by clause (b) above, the Debt Service Ratio for the
Borrower and the LP Debt Service Ratio for the Operating Partnership each shall
not be less than 1.40 to 1.00 as set forth in the certificate delivered
pursuant to Section 6.01(c) and the Borrower shall provide the Lender with a
certificate of a senior financial officer of the Borrower setting forth in
reasonable detail computations indicating such compliance;

           (d) the Lender shall have received such updates or confirmations 
relating to the tie-in endorsement(s) as the Lender may reasonably request;

                                    - 24 -

<PAGE>   29

           (e) the conditions set forth in Section 6.02 (other than that set 
forth in Section 6.02(a) as to which clause (a) above shall be applicable) 
shall have been satisfied; and

           (f) the Borrower shall have delivered to the Lender such documents
amending the Basic Documents to reflect such Release and such other documents
as the Lender or counsel to the Lender shall reasonably request, in each case
in form and substance reasonably satisfactory to the Lender.

     2.10  Appraisals.  Prior to the occurrence of a Default with respect to
Section 9(a), 9(f), 9(g) or 9(h) or an Event of Default, the Lender shall be
entitled to request only one appraisal (an "Appraisal") to be performed by an
appraiser who is a member of the American Institute of Real Estate Appraisers
and satisfactory to the Lender with respect to each Collateral Property or all
the Collateral Properties.  After the occurrence and during the continuance of
a Default with respect to Section 9(a), 9(f), 9(g), or 9(h) or an Event of
Default the Lender shall be entitled to request one or more Appraisals with
respect to each Collateral Property or all the Collateral Properties.  The
Borrower shall pay all reasonable fees for any appraisals performed pursuant to
this Section 2.10.

     Section 3.  Payments of Principal and Interest.

     3.01  Repayment of Mortgage Loans.  The Borrower will pay to the Lender
the principal of the outstanding Mortgage Loans, and each Mortgage Loan shall
mature, on the Maturity Date.

     3.02  Interest.  Subject to Section 5.02, the Borrower will pay to the
Lender interest on the unpaid principal amount of each Mortgage Loan for the
period from and including the date of such Mortgage Loan to but excluding the
date such Mortgage Loan shall be paid in full, at the LIBOR Rate (as in effect
from time to time) plus the Applicable Margin.  Notwithstanding the foregoing
upon the occurrence and during the continuance of any Event of Default, the
Borrower will pay to the Lender interest at the applicable Post-Default Rate on
the principal of all Mortgage Loans and (to the fullest extent permitted by
law) on all other amounts payable by the Borrower hereunder or under the Note
or under the other Basic Documents for the period from and including the date
of such Event of Default to but excluding the date the same is paid in full or
such Event of Default shall have been cured and is no longer continuing.
Accrued interest on each Mortgage Loan shall be payable (i) on the Interest
Payment Dates and (ii) upon the payment or prepayment thereof (but only on the
principal amount so paid or prepaid), except that interest payable at the
Post-Default Rate shall be payable from time to time on demand.  Promptly after
the determination of any interest rate provided for herein or any change
therein, Lender shall give written notice thereof to the Borrower.


                                    - 25 -

<PAGE>   30


     Section 4.  Payments; Computations; Etc.

     4.01  Payments.

     (a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this
Agreement and the Note shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
Principal Office, not later than 2:00 p.m. New York time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day).

     (b) All payments of principal of the Mortgage Loans under this Agreement
(including, without limitation, prepayments pursuant to Section 2.06, 2.07 or
2.09 or as a result of the acceleration of the Mortgage Loans pursuant to
Section 9) and under the other Basic Documents shall be applied to the Mortgage
Loans in such manner and order of priority as the Lender shall elect in its sole
and absolute discretion (subject to the Borrower's right under Section 4.05 to
select the Mortgage Loan being prepaid under Section 2.06).  Notwithstanding the
foregoing, the amounts secured by any Jurisdictional Capped Mortgage (as defined
in Section 6.02) shall not be reduced in connection with any payments of
principal which the Lender has the right to apply to the Mortgage Loans in such
manner and order of priority as the Lender shall elect in its sole and absolute
discretion in accordance with the immediately preceding sentence until the
aggregate principal amount of Mortgage Loans secured by such Jurisdictional
Capped  Mortgage(s) shall exceed the total principal amount of all Mortgage
Loans then outstanding.  In any such event, the Lender will determine in its
sole discretion which Mortgages comprising such Jurisdictional Capped Mortgages
are to be reduced.

     (c) If the due date of any payment under this Agreement or the Note would
otherwise fall on a day which is not a Business Day such date shall be extended
to the next succeeding Business Day and interest shall be payable for any
amount so extended for the period of such extension.

     4.02  Computations.  Interest on Mortgage Loans shall be computed on the
basis of a year of 360 days and actual days elapsed occurring in the period for
which payable.


                                    - 26 -

<PAGE>   31


     4.03  Setoff.  The Borrower agrees that, in addition, to (and without
limitation of) any right of set-off or counterclaim the Lender may otherwise
have, the Lender shall be entitled, at its option, to offset balances held by
it for account of the Borrower, Ambassador or any Guarantor (or amounts due
from it to the Borrower, Ambassador or any Guarantor) at any of its offices, in
Dollars or in any other currency, against any principal of or interest on any
of the Mortgage Loans, or any other amount payable to the Lender hereunder,
which is not paid when due (regardless of whether such balances are then due to
the Borrower), in which case it shall promptly notify the Borrower thereof,
provided that the Lender's failure to give such notice shall not affect the
validity thereof.

     4.04  Minimum Amounts.  Each borrowing and optional prepayment of
principal of Mortgage Loans shall be in an amount at least equal to $2,000,000.

     4.05  Certain Notices.  Notices by the Borrower to the Lender of any
termination or reduction of the Commitment, of borrowings of Mortgage Loans and
of prepayments of Mortgage Loans pursuant to Section 2.06 shall be irrevocable
and shall be effective only if received by the Lender not later than 2:00 p.m.
New York time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, or prepayment specified below:


                                              Number of
                                              Business
                     Notice                   Days Prior
                     ------                   ----------  

                     Termination or
                     reduction of Commitment      15

                     Borrowing or prepayment
                     of Mortgage Loans             5


Each such notice of termination or reduction of Commitment shall specify the
amount of the Commitment to be terminated or reduced.  Each such notice of
prepayment shall specify the Mortgage Loans to be prepaid and the amount
(subject to Section 4.04), and the date of prepayment (which shall be a
Business Day).  Each notice of borrowing of Mortgage Loans shall be
substantially in the form of Exhibit B hereto and shall specify the amount
(subject to Section 4.04) to be borrowed, the date of borrowing (which shall be
a Business Day), the Debt Service Ratio immediately prior to and immediately
after such borrowing and shall be accompanied by such other information as the
Lender may reasonably request.  Each notice of borrowing by the Borrower
hereunder shall constitute a certification by the Borrower to the effect set
forth in clauses (a), (b) and (e) of Section 6.02 (both as of the date of such 
notice and, unless the Borrower otherwise notifies the Lender prior to the date
of such borrowing, as of the

                                    - 27 -

<PAGE>   32

date of such borrowing).


     Section 5.  Yield Protection and Illegality.

     5.01  Additional Costs.

     (a) The Borrower shall pay to the Lender from time to time such amounts as
the Lender may reasonably determine to be necessary to compensate it for any
increase in costs which the Lender reasonably determines are attributable to
its making or maintaining any Mortgage Loans or its obligation to make any
Mortgage Loans hereunder, or any reduction in any amount receivable by the
Lender hereunder in respect of any of such Mortgage Loans or such obligation
(such increases in costs and reductions in amounts receivable being herein
called "Additional Costs"), resulting from any Regulatory Change which:

          (i) imposes or modifies any reserve, capital or similar requirement
     relating to any extensions of credit or other assets of the Lender or any
     commitment of the Lender (including the Commitment); or

          (ii) imposes any other condition affecting this Agreement or the Note
     (or any of such extensions of credit) or the Commitment.

If the Lender requests compensation from the Borrower under this Section
5.01(a), the Borrower may, by notice to the Lender, suspend the obligation of
the Lender to make Mortgage Loans until the Regulatory Change giving rise to
such request ceases to be in effect.  In the event that the amount of
compensation requested under this Section 5.01(a) in any twelve month period
exceeds an amount equal to the product of (a) .35% and (b) the outstanding
principal amount of the Mortgage Loans as of the date of the request for such
compensation, then the Borrower shall have the right at any time thereafter to
prepay all or any part of the Mortgage Loans hereunder together with any
amounts payable pursuant to this Section and Section 5.04 in connection with
such prepayment and accrued interest thereon.

     (b) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Borrower shall pay directly to the
Lender from time to time on request such amounts as the Lender may reasonably
determine to be necessary to compensate the Lender for any costs which it
determines are attributable to the maintenance by the Lender, pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law) of any court or governmental or monetary authority, or
pursuant to any risk-based capital guideline or other requirement (whether or
not having force of law and whether or not the failure to comply therewith
would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority, of capital in respect to its Commitment
or the Mortgage Loans (such compensation to 


                                    - 28 -


<PAGE>   33
      
be in an amount equal to any reduction of the rate of return on assets or 
equity of the Lender to a level below that which the Lender could have achieved
but for such law, regulation, interpretation, directive or request).

     (c) The Lender will notify the Borrower of any event occurring after the
date of this Agreement that will entitle the Lender to compensation under
paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in
any event within 45 days, after the Lender obtains actual knowledge thereof;
provided, however, that if the Lender fails to give such notice within 45 days
after it obtains actual knowledge of such an event, the Lender shall, with
respect to compensation payable pursuant to this Section 5.01 in respect of any
costs resulting from such event, only be entitled to payment under this Section
5.01 for costs incurred from and after the date 45 days prior to the date that
the Lender does give such notice.  The Lender will furnish to the Borrower a
certificate setting forth the basis and amount of each request by the Lender
for compensation under paragraph (a) or (b) of this Section 5.01.
Determinations and allocations by the Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to Section 5.01(a), on its
costs or rate of return of maintaining Mortgage Loans or its obligation to make
Mortgage Loans, or on amounts receivable by it in respect of Mortgage Loans,
and of the amounts required to compensate the Lender under this Section 5.01,
shall be conclusive absent manifest error; provided that such determinations
and allocations are made on a reasonable basis.

     5.02  Illegality.  Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for the Lender to honor its obligation to
make or maintain Mortgage Loans bearing interest at the LIBOR Rate hereunder
then the Lender shall promptly notify (a "Lender's Notice") the Borrower
thereof and the Lender's obligation to make Mortgage Loans bearing interest at
the LIBOR Rate shall be suspended until such time as the Lender may again make
and maintain Mortgage Loans bearing interest at the LIBOR Rate and the Lender
may offer to establish the interest rate applicable to the Mortgage Loans at
the Lender's then customary spread (the "Substitute Spread"), taking into
account the amount of the Mortgage Loans and the credit worthiness of the
Borrower, above an index used for variable rate loans as reasonably determined
by the Lender (the "Substitute Rate").  By written notice to the Lender within
ten (10) days of receipt of the Lender's Notice, the Borrower may accept such
offer in which case the interest rate applicable to the Mortgage Loans shall be
a rate equal to the Substitute Rate as in effect from time to time plus the
Substitute Spread.  If the Borrower does not timely accept such offer, then from
the date of Lender's Notice, the interest rate applicable to the Mortgage Loans
shall be a rate equal to the Substitute Rate as in effect from time to time plus
the Substitute Spread and the Borrower shall, upon the request of the Lender,
prepay any Mortgage Loans then outstanding hereunder together with any
amounts payable in connection with such prepayment pursuant to Section 


                                    - 29 -

<PAGE>   34
      
5.04 and together with accrued interest thereon.

     5.03  Limitation on Types of Mortgage Loans.  Anything herein to the
contrary notwithstanding, if, on or prior to the determination of the LIBOR
Rate for any Interest Period, the Lender determines (which determination shall
be conclusive absent manifest error) that:

     (a) quotations of interest rates for the deposits referred to in the
  definition of "LIBOR Rate" in Section 1.01 are not being provided for
  purposes of determining rates of interest for Mortgage Loans; or

     (b) the rates of interest referred to in the definition of "LIBOR Rate" 
  in Section 1.01 upon the basis of which the rate of interest for Mortgage 
  Loans is to be determined are not likely to adequately cover the cost to the 
  Lender of making or maintaining Mortgage Loans for such Interest Period;

then the Lender shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lender may offer to establish the
interest rate applicable to the Mortgage Loans at the Substitute Rate plus the
Substitute Spread and the Borrower may, by written notice to the Lender within
ten (10) days of receipt of such notice, accept such offer, in which case the
interest rate applicable to the Mortgage Loans shall be a rate equal to the
Substitute Rate in effect from time to time plus the Substitute Spread,
provided that if the Borrower does not timely accept such offer, then from the
date of such notice, the interest rate applicable to the Mortgage Loans shall
be a rate equal to the Substitute Rate in effect from time to time plus the
Substitute Spread and the Lender shall be under no obligation to make
additional Mortgage Loans and the Borrower shall on the last day(s) of the 
then current Interest Period(s) for the outstanding Mortgage Loans prepay such 
Mortgage Loans.

     5.04  Compensation.  The Borrower shall pay to the Lender, upon the
request of the Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Lender) to compensate it for any loss, cost or
expense which the Lender reasonably determines are attributable to:

     (a) any payment or prepayment of a Mortgage Loan for any reason
   (including, without limitation, the acceleration of the Mortgage Loans
   pursuant to Section 9) on a date other than the last day of the Interest
   Period for such Mortgage Loan; or

     (b) any failure by the Borrower for any reason (including, without
   limitation, the failure of any of the conditions precedent specified in
   Section 6 to be satisfied) to borrow a Mortgage Loan on the date for such
   borrowing specified in the relevant notice of borrowing given pursuant to
   Section 4.05.

                                    - 30 -

<PAGE>   35

Such compensation shall equal the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or prepaid
or not borrowed for the period from the date of such payment or failure to
borrow to the last day of the then current Interest Period for such Mortgage
Loan (or, in the case of a failure to borrow, the Interest Period for such
Mortgage Loan which would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Mortgage Loan provided
for herein over (ii) the cost of funds to the Lender of making such Mortgage
Loan (as reasonably determined by the Lender).

     Section 6.  Conditions Precedent.

     6.01  Closing Date.  This Agreement shall become effective on the Closing
Date, provided that the Lender shall have received the following documents,
each of which shall be satisfactory to the Lender in form and substance:

     (a)   Corporate and Partnership Documents.  The following documents, each 
  certified as indicated below:

           (i) a copy of the certificate of limited partnership, as amended, of 
     the Borrower, certified by the Secretary of State of the State of Delaware
     as of a recent date and a copy of the partnership certificate or articles
     of incorporation, as amended, of Ambassador and each Guarantor, certified
     by the Secretary of State of its jurisdiction of organization, and a
     certificate as to the good standing of and organizational documents filed
     by the Borrower, Ambassador and each Guarantor from such Secretary of
     State, dated as of a recent date;

           (ii) a certificate of the Secretary or an Assistant Secretary of the 
     Borrower, Ambassador and each Guarantor dated the Closing Date and
     certifying (A) that, in the case of the Borrower and the Operating
     Partnership, attached thereto is a true and complete copy of the
     partnership certificate as in effect on the date of such certificate, and
     that, in the case of the General Partner and Ambassador, attached thereto
     is a true and complete copy of the charter and by-laws of such Person, (B)
     that attached thereto is a true and complete copy of, in the case of the
     Borrower, the Partnership Agreement and, in the case of the Operating
     Partnership, the partnership agreement of the Operating Partnership, as in
     effect on the date of such certificate, (C) that attached thereto is a true
     and complete copy of resolutions duly adopted the board of directors of the
     General Partner and Ambassador, authorizing the execution, delivery and
     performance of such of the Basic Documents to which such Person
     (and, in the case of the General Partner, 

                                    - 31 -


<PAGE>   36

           the Borrower) is or is intended to be party and the extensions of
           credit hereunder, and that such resolutions have not been
           modified, rescinded or amended and are in full force and effect, and
           (D) that the partnership certificates of the Borrower and the
           Operating Partnership have not been amended since the date of the
           certification thereto furnished pursuant to clause (i) above.

           (b) Incumbency.  A certificate of the General Partner and Ambassador 
as to the incumbency and specimen signature of each officer of such Person
executing such of the Basic Documents to which such Person (and, in the case of
the General Partner, the Borrower and, in the case of Ambassador, the Operating
Partnership) is intended to be a party and each other document to be delivered
by such Person (and, in the case of the General Partner, the Borrower and, in
the case of Ambassador, the Operating Partnership) from time to time in
connection therewith (and the Lender may conclusively rely on such certificate
until it receives notice in writing  from such Person); and a certificate of
another officer of each such  Person as to the incumbency and specimen
signature of such Person, and a  corresponding certificate of another officer
of such Person as to its  signing officers.

           (c) Officer's Certificate.  A certificate of a senior financial      
officer of the Borrower to the effect set forth in Section 6.02(h).

           (d) Opinion of Counsel to the Borrower, Ambassador and the   
Guarantors.  Opinions of counsel to the Borrower, Ambassador and the Guarantors
with respect to such matters as the Lender may reasonably request and otherwise
in form and substance reasonably satisfactory to the Lender.
 
           (e) Local Counsel Opinions.  Opinions of local counsel to the Lender 
in each of the states in which the Initial Properties are located with respect
to such matters as the Lender may reasonably request and otherwise in form and
substance reasonably satisfactory to the Lender.

           (f) Note.  The Note, duly completed and executed.

           (g) Security Documents.  The GP Guarantee Agreement, the LP Guarantee
Agreement and the REIT Agreement, duly executed and delivered by each
Guarantor, the Borrower, Ambassador and the Lender, as applicable.

           (h) Indemnity Agreement.  The Environmental Indemnity Agreement, duly
executed by the Borrower, Ambassador, the Guarantors and the Lender.


                                    - 32 -
<PAGE>   37
      

          (i) Mortgages, Etc.  Duly recorded first Mortgages which shall
     constitute valid first mortgage liens on the fee simple title to the
     Initial Properties (collectively, the "Initial Mortgages") and which shall
     secure all of the Secured Obligations (as defined in the Initial
     Mortgages), subject only to such defects, Liens, encumbrances,
     assessments, security interests, restrictions, easements and other title
     exceptions as shall be approved by the Lender, together with duly recorded
     first Assignments relating to the Initial Properties.

          (j) UCC Financing Statements.  UCC-1 financing statements covering 
     fixtures on each Initial Property, in each case appropriately completed 
     and duly executed and delivered to the Lender for filing in the 
     appropriate county land offices.

          (k) Searches.  Copies of the UCC filing searches, tax lien searches,
     judgment, real estate tax searches and municipal department searches
     setting forth any and all building violations (if available) conducted in
     respect of the Borrower and each Initial Property in all relevant
     jurisdictions and in each county where an Initial Property is located
     demonstrating as at a recent date the existence of no other financing
     statements (other than in respect of Permitted Liens) with respect to the
     Borrower or to such Initial Property, together with evidence that any
     filing fees or recording taxes payable in connection with any such
     searches have been paid.

          (l) Management Agreements.  Certified copy of each Management
     Agreement for the Initial Properties, duly executed by the parties
     thereto, together with a consent and subordination agreement relating
     thereto (in form and substance satisfactory to the Lender), duly executed
     by each Manager.

          (m) Title Insurance.  Policies of title insurance on forms of and
     issued by one or more title companies satisfactory to the Lender (the
     "Title Companies"), showing fee simple title vested in the Borrower and
     insuring the first priority of the Liens created under the Initial
     Mortgages in an amount for each Initial Property equal to not less than
     the Allocated Title Amount for such Initial Property, subject only to such
     defects, Liens, restrictions, easements and other title exceptions as are
     reasonably satisfactory to the Lender, together with, as may be reasonably
     required by the Lender, such reinsurance schedules and agreements in
     respect of all then existing title insurance policies for the Collateral
     Properties in amounts and otherwise in form and substance reasonably
     satisfactory to the Lender and executed by the Title Companies, and
     containing such endorsements and affirmative insurance provisions as the
     Lender may reasonably require.  In addition, the Borrower shall have paid
     to the Title Companies all expenses and premiums of the Title Companies in
     connection with the issuance of such policies and endorsements

                                    - 33 -

<PAGE>   38
      
     and an amount equal to the recording and stamp taxes (including mortgage
     recording taxes) payable in connection with recording the Initial 
     Mortgages in the appropriate county land offices.

          (n) Environmental Audit.  Evidence reasonably satisfactory to the
     Lender that (1) there are no pending or threatened claims, suits, actions
     or proceedings arising out of or relating to the existence of any
     Hazardous Materials at, in, on or under any Initial Property, (2) each
     Initial Property is in compliance with all Environmental Laws applicable
     to such Initial Property, and (3) no Hazardous Materials exist at, in, on
     or under such Initial Property except in compliance with applicable
     Environmental Laws.  Such evidence shall include, without limitation, (i)
     a comprehensive environmental audit (which shall include, without
     limitation, a visual survey, a record review and an area reconnaissance,
     an asbestos and lead paint analysis and a Phase I environmental study and,
     if the Lender shall request, a Phase II environmental study), reasonably
     satisfactory, in form and substance, to the Lender, conducted and
     certified by a qualified, independent environmental consultant licensed by
     the relevant state(s) in which each Initial Property is located, (ii)
     evidence that all required approvals from all governmental and
     quasi-governmental authorities having jurisdiction with respect to the
     Initial Properties, if any, in connection with Environmental Laws have
     been obtained, and (iii) such other environmental reports, inspections and
     investigations as the Lender shall, in its reasonable discretion, require,
     prepared, in each instance, by engineers or other consultants reasonably
     satisfactory to the Lender.  All such audits, approvals, reports,
     inspections and investigations shall be paid for by the Borrower and shall
     be reasonably satisfactory, in form and substance, to the Lender.
     Evidence satisfactory to the Lender that (A) the Borrower has complied (or
     has made arrangements to comply) with the recommendations of all
     environmental consultant(s) referred to above, and (B) except as otherwise
     described in the reports set forth on Schedule VII hereto, all Hazardous
     Materials have been removed from each Initial Property to the extent
     required by applicable law.

          (o) Insurance.  Certificates of insurance evidencing the existence of
     all insurance required to be maintained by the Borrower pursuant to the
     Basic Documents and the designation of the Lender as the loss payee
     thereunder, such certificates to be in such form and contain such
     information as is specified in the Basic Documents.  In addition, an
     original prepaid policy or policies of general liability insurance, boiler
     and machinery insurance, hazard, fire and other casualty insurance
     (including earthquake insurance, if available at commercially reasonable
     rates), rent loss and business interruption insurance and such other types
     of insurance as the Lender may reasonably deem appropriate, all in such
     amounts as are required under the Basic 



                                    - 34 -

<PAGE>   39
      

     Documents providing full extended coverage and naming the Lender, in each
     instance, as the first mortgagee under a New York Standard Mortgagee Clause
     (or local equivalent) or otherwise covering the Lender's interest in each
     Initial Property in a manner reasonably satisfactory to the Lender.  All
     insurance shall be issued by an insurance company or companies acceptable
     to the Lender.  If any Initial Property, or any part thereof, is located in
     an area designated by the U.S. Secretary of Housing and Urban Development
     as an area having special flood hazards and in which flood insurance has
     been made available under the National Flood Insurance Act of 1968,
     as amended, then such insurance shall be furnished.

          (p) Operating Statements.  Operating statements for each Initial
     Property for the one-year period most recently ended prior to the Closing
     Date, in form and substance reasonably satisfactory to the Lender,
     together with the financial information for each Initial Property
     described in Section 8.01(g); provided, however, that, if such operating
     statements or financial information are not available, the Borrower shall
     provide the Lender with operating statements and financial information for
     such periods as the Borrower can obtain using reasonable efforts and any
     other financial information reasonably requested by the Lender.

          (q) Security Agreement.  A security agreement granting a valid first
     priority security interest, free of chattel mortgages, security
     agreements, conditional sales contracts and other Liens or title retention
     arrangements, on all fixtures, equipment and articles of personal property
     now or thereafter affixed to, or used in connection with, each Initial
     Property to the extent owned by the Borrower.  Such security interest
     shall be granted in the Initial Mortgages or in such other instruments as
     the Lender may reasonably require, and the Borrower shall execute and
     deliver such UCC financing statements as the Lender may reasonably require
     in connection therewith.

          (r) Intentionally Omitted.

          (s) Tie-In Endorsement.  To the extent available, a tie-in 
     endorsement with respect to the Initial Properties issued by a Title 
     Company.

          (t) Survey.  A survey of each Initial Property, prepared by a
     licensed or registered land surveyor satisfactory to the Lender, in
     compliance with the minimum standard detail requirements for land title
     surveys adopted by the American Land Title Association and American
     Congress on Surveying and Mapping, and certified to the Lender, the
     Borrower, the Title Companies and any other parties requested by the
     Lender as of a certification date approved by the Lender.  The survey
     shall show 


                                    - 35 -

<PAGE>   40
      

     the dimensions and total acreage of each Initial Property, all interior lot
     lines of each Initial Property, the locations of all buildings, parking
     areas and other improvements situated on each Initial Property, all visible
     utility structures affecting each Initial Property, all visible easements
     and rights of way pertaining to or affecting each Initial Property, all
     encroachments onto or from each Initial Property, all easements and rights
     of way pertaining to or affecting each Initial Property of which the
     surveyor[s] have been advised, the location and name of all streets
     adjacent to each Initial Property, all modes of ingress and egress
     to and from each Initial Property and such other details as to each Initial
     Property (and any property abutting such Initial Property) as may be
     reasonably  requested by the Lender.

          (u) Zoning Compliance; Occupancy.  Evidence reasonably satisfactory
     to the Lender regarding compliance with (i) all applicable zoning,
     subdivision, environmental and other laws, orders, rules, regulations and
     requirements of all governmental or quasi-governmental authorities having
     jurisdiction with respect to the Initial Properties, and (ii) a copy of
     the certificates of occupancy certified by the Borrower for each Initial
     Property.

          (v) Legal Description.  A satisfactory legal description of each
     Initial Property which is consistent, in all respects, with the survey
     delivered pursuant to Section 6.01(t).

          (w) Budget.  An itemized budget for the operation of each Initial
     Property for the 1997 calendar year, which budget(s) shall be reasonably
     satisfactory, in form and substance, to the Lender.

          (x) Material Contracts.  Certified copies of all material contracts 
     and agreements relating to each Initial Property, including, without 
     limitation, all service contracts and management agreements covering or 
     affecting each Initial Property, the form of residential lease for each 
     Initial Property and all permits, approvals and licenses issued with 
     respect to each Initial Property.

          (y) Access.  Evidence that each Initial Property has access for
     ingress and egress between such Initial Property and all public roadways
     in the immediate vicinity of such Initial Property.

          (z)  Utility Services.  Evidence that all utility services required
     for each Initial Property are available and in adequate supply at the
     boundaries of such Initial Property and are not subject to curtailment,
     termination or revocation.

                                    - 36 -

<PAGE>   41
      
          (aa)  Property Condition Report.  Reports covering the structural
     condition of each Initial Property together with "as-built" plans and
     specifications prepared, in each case, by an engineer or other
     professional reasonably satisfactory to the Lender.

          (bb)   Tax Assessment.  Evidence that each Initial Property is
     assessed separate and apart from any other Property for local property tax
     and subdivision purposes.

          (cc)  Fees and Expenses.  Evidence (including, without limitation,
     payment instructions given by the Borrower) that (1) all fees and expenses
     payable to the Lender, including without limitation, the fees and expenses
     referred to in Sections 2.04 and 10.03, to the extent then due and
     payable, have been (or contemporaneously are being) paid in full, and (2)
     all mortgage, mortgage recording and intangible taxes and recording
     charges required to be paid in connection with the execution, delivery or
     recording of the Security Documents as well as all title premiums and
     other title and survey charges have been (or contemporaneously are being)
     paid in full.

          (dd)  Financials.  A certificate of a senior financial officer of the
     Borrower attaching thereto (1) the financial statements referred to in
     Section 7.02 and (2) a budget and financial forecast of income and
     expenses and sources and uses of cash for the Borrower for the 1997
     calendar year (in form and detail satisfactory to the Lender), together
     with a written statement of the assumptions used in the preparation thereof
     and a certificate of such senior financial officer to the effect that such
     budget, financial forecast and assumptions are reasonable and represent the
     Borrower's best good faith estimates of its future financial performance
     and requirements, it being understood that such budget, financial forecast
     and assumptions are not to be viewed as facts to the extent that they
     relate to future events and that actual results may differ materially from
     those projected therein.

          (ee)  Rent Roll, Etc.  A rent roll and delinquency report for each
     Initial Property, in form and substance reasonably satisfactory to the
     Lender, certified by a senior officer of the Borrower.

          (ff)  Market Study.  A Market Study for each Initial Property, in
     form and substance reasonably satisfactory to the Lender.

          (gg)  Other Documents.  Such other documents relating to the
     transactions contemplated hereby as the Lender may reasonably request.

                                    - 37 -

<PAGE>   42
      

     6.02  Initial and Subsequent Mortgage Loans.  The obligation of the Lender
to make any Mortgage Loan to the Borrower upon the occasion of each borrowing
hereunder (including the initial borrowing) is subject to the further
conditions precedent that the Lender shall have received the following
documents, and that both immediately prior to the making of such Mortgage Loan
and also after giving effect thereto:

     (a)  Default.  No Default shall have occurred and be continuing.

     (b)  Representations.  Except for representations and warranties 
   expressly made or deemed made as of a specific date which shall be expressly
   stated to be true and correct on and as of such date when made again on the
   date of the making of a Mortgage Loan, the representations and warranties
   made by the Borrower in Section 7 and in the other Basic Documents and
   made by each Guarantor in Section 3 of each Guarantee Agreement and in the
   other Basic Documents and made by Ambassador in Section 2 of the REIT
   Agreement shall be true and complete in all material respects on and as of 
   the date of the making of such Mortgage Loan with the same force and effect 
   as if made on and as of such date.

     (c)  Recording Taxes.

          (1) The Borrower shall have paid all mortgage recording taxes payable
     (if any) in each jurisdiction in which any Collateral Property is located.

          (2) Without limiting the generality of the foregoing, and
     notwithstanding anything to the contrary contained in any Mortgage, the
     Borrower and the Lender specifically acknowledge and agree that, to the
     extent there is a payment of principal in connection with the Mortgage
     Loans which results in the aggregate outstanding principal amount of the
     Mortgage Loans being less than the aggregate maximum principal amount of
     the Mortgage Loans secured by any Jurisdictional Capped Mortgage(s) in any
     one state (whether or not such aggregate outstanding principal amount of
     the Mortgage Loans was originally less than the aggregate maximum
     principal amount of the Mortgage Loans secured by such Jurisdictional
     Capped Mortgage(s) prior to such payment), then (a) the Borrower may
     thereafter be required to pay additional mortgage recording taxes in
     connection with any future advance or re-advance pursuant to this
     Agreement so that the Jurisdictional Capped Mortgages in existence at the
     time of such advance or re-advance will secure, in accordance with
     applicable law, the amount of such advance or re-advance up to the
     aggregate maximum original principal amount secured by such Jurisdictional
     Capped Mortgage(s), and (b) if and to the extent that the Lender
     reasonably and in good faith determines that any such additional 


                                    - 38 -

<PAGE>   43
      
     mortgage recording taxes are so due and payable in connection with any such
     future advance or re-advance, the Borrower shall pay such additional
     mortgage recording taxes to the appropriate governmental taxing
     authorities, and shall duly execute and deliver to the Lender any and all
     supplemental or additional mortgages and consolidation agreements in form
     and substance reasonably satisfactory to the Lender (or otherwise
     containing terms and conditions substantially similar to those contained 
     in the Jurisdictional Capped Mortgages in existence on the date hereof) 
     as may be reasonably required by the Lender in connection therewith.

          (3) As used herein, "Jurisdictional Capped Mortgages" shall 
     collectively mean, for each state, all of the Mortgage(s) now or hereafter 
     covering Collateral Property located in such state which by their terms
     secure a maximum original principal amount of indebtedness which is less
     than the Commitment as in effect from time to time, whether for the purpose
     of limiting the debt secured by such Mortgage and the mortgage recording
     taxes payable in connection therewith or otherwise with the Lender's
     approval; and the "aggregate maximum principal amount of the Mortgage Loans
     secured by any such Jurisdictional Capped Mortgage(s)" shall mean the
     aggregate maximum original principal amount of indebtedness secured by all
     of the Mortgages covering Collateral Property in such state as specified in
     such Mortgages.

        (d) Title Updates.  The Lender shall have received a notice of title
     continuation and an endorsement to each of the existing title insurance
     policies covering the Collateral Properties insuring that since the making
     of the last Mortgage Loan there has been no change in state of title or
     priority of the Lender's Lien and no survey exceptions not theretofore
     approved by the Lender, together with other evidence satisfactory to the
     Lender that no mechanics liens or other Liens have been filed and remain
     filed with respect to the Collateral Properties, which endorsement shall
     have the effect of (i) updating the date of the existing title insurance
     policies covering the Collateral Properties to the date of the making of
     such Mortgage Loan and insuring that the priority of the Lender's Lien is
     not subject to any intervening Liens arising between the date of the
     existing title policies and the date of the making of such Mortgage Loan
     and (ii) increasing the coverage of the existing title insurance policies
     by an amount equal to the Mortgage Loan then being made, together with, as
     may be required by the Lender, such reinsurance schedules and agreements
     in respect of all existing title insurance policies for the Collateral
     Properties in amounts and otherwise in form and substance reasonably
     satisfactory to the Lender and executed by the Title Companies; provided
     that (1) the Borrower shall not have any obligation to deliver such notice
     of title continuation or endorsement if the Borrower shall have delivered
     such notices and endorsements within 60 days prior to 

                                    - 39 -

<PAGE>   44
      
     the date of the making of such Mortgage Loan (unless the aggregate
     principal amount of the Mortgage Loan(s) being made is equal to or greater
     than $10,000,000 in which case notwithstanding the foregoing the Borrower
     shall deliver such notice of title continuation and endorsement) and (2)
     with respect to Collateral Properties located in the State of Texas
     the Borrower shall not have any obligation to deliver such notice of title
     continuation or endorsement for any such Collateral Property but shall
     deliver to the Lender in lieu thereof a clean abstract issued by the Title
     Company or letter from the Title Company in form and substance reasonably
     satisfactory to the Lender indicating that there does not exist any
     unreleased Liens on any such Collateral Property on the date of the making
     of such Mortgage Loans and indicating that the state of title or priority
     of the Lender's Lien with respect to such Collateral Property on the date
     of the making of such Mortgage Loans has not been impaired from the state
     of title or priority of the Lender's Lien on the Closing Date with respect
     to such Collateral Property (or on such date on which a Property becomes
     an Addition to Collateral with respect to an Additional Property).  The
     Lender shall have also received such updates relating to the tie-in
     endorsement(s) as the Lender may reasonably request.

          (e) Ratios.  (1) Each of the Debt Service Ratio, the Ambassador Debt
     Service Ratio and the LP Debt Service Ratio shall not be less than 1.40 to
     1.00 and (2) the Total Market Value of all outstanding shares of common
     stock of Ambassador plus all outstanding Common Units of the Operating
     Partnership (other than Common Units held by Ambassador) shall not be less
     than $75,000,000.

          (f) Accommodation Documents.  The Borrower shall have executed and
     delivered to the Lender such documents and agreements and taken such
     action including, without limitation, executing such amendments or
     supplements to the Basic Documents, which in the reasonable judgment of
     the Lender, are necessary so that the Lender shall not (in the reasonable
     judgment of the Lender) be required to qualify to do business in or obtain
     any licenses or authorization in any jurisdiction in which any Collateral
     Property is located.

          (g) Fees and Expenses.  Evidence (including, without limitation,
     payment instructions given by the Borrower) that (1) all fees and expenses
     payable to the Lender, including, without limitation, the fees and
     expenses referred to in Sections 2.04 and 10.03, to the extent then due
     and payable, have been (or contemporaneously are being) paid in full and
     (2) all mortgage, mortgage recording and intangible taxes and recording
     charges required to be paid in connection with the execution, delivery or
     recording of the Security Documents as well as all title premiums
     and other title and survey charges have been (or 

                                    - 40 -


<PAGE>   45
      
     contemporaneously are being) paid in full.

          (h) Officer's Certificate.  A certificate of a senior officer of the
     Borrower certifying that to the best of his/her knowledge after due
     inquiry the conditions set forth in clauses (a), (b), and (e) of this
     Section 6.02 are satisfied.

          (i) Other Documents.  Such other documents relating to such
     transactions as the Lender may reasonably request.

     Section 7.  Representations and Warranties.  The Borrower represents and
warrants to the Lender that:

     7.01  Existence.  Each of the Borrower and its Subsidiaries:  (a) is a
corporation, partnership or other entity duly organized and validly existing
under the laws of the jurisdiction of its organization; (b) has all requisite
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.

     7.02  Financial Condition.  The actual balance sheet of the Borrower as at
December 31, 1996, the actual statement of operations of the Borrower for the
period ended on December 31, 1996 and the statement of operations of the
Borrower for the trailing twelve month period ended on April 30, 1997
heretofore furnished to Lender pursuant to Section 6.01(dd) fairly present the
financial condition of the Borrower as at December 31, 1996 and the results of
operations for the period ended on December 31, 1996 and April 30, 1997,
respectively, (subject in the case of such statements to the assumption that
the Initial Properties have during such entire period, constituted all of the
Collateral Properties) all in accordance with reasonable financial projection
methodology and based upon reasonable assumptions, it being understood that any
such projections and assumptions are not to be viewed as facts to the extent
that they relate to future events and that actual results may differ from those
projected therein.  The Borrower did not have on said date any material
contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance 
sheet as at said date and except to the extent not required to be so disclosed 
under GAAP.  Since April 30, 1997, there has been no material adverse change 
in the financial condition, operations or business of the Borrower from that 
set forth in said financial statements as at said date.

     7.03  Litigation.  Except as disclosed on Schedule II hereto, there are no
legal or arbitral proceedings or any proceedings

                                    - 41 -

<PAGE>   46
      
by or before any governmental or regulatory authority or agency, now pending or 
(to the knowledge of the Borrower) threatened against  the Borrower or any of
its Subsidiaries which, if adversely determined, could  reasonably be expected
to have a Material Adverse Effect.

     7.04  No Breach.  Except as set forth on Schedule VIII hereto, none of the
execution and delivery of this Agreement or any other Basic Document to which
the Borrower is a party, the consummation of the transactions herein and
therein contemplated and compliance with the terms and provisions hereof and
thereof will conflict with or result in a breach of, or require any consent
(except such consents as have been obtained) under, the charter or by-laws, the
Partnership Agreement or the organizational documents of the Borrower or the
General Partner, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which the Borrower or the General Partner or any of
their respective Subsidiaries is a party or by which any of them is bound or to
which any of them is subject, or constitute a default under any such agreement
or instrument, or (except for the Lien arising under the Security Documents)
result in the creation or imposition of any Lien upon any of the revenues or
assets of the Borrower or the General Partner or any of their respective
Subsidiaries pursuant to the terms of any such agreement or instrument.

     7.05  Action.  The Borrower has all necessary power and authority to
execute, deliver and perform its obligations under this Agreement and the other
Basic Documents to which it is a party; the execution, delivery and performance
by the Borrower of this Agreement and the other Basic Documents to which it is
a party have been duly authorized by all necessary action on its part; and each
of this Agreement and the other Basic Documents to which the Borrower is a
party has been duly and validly executed and delivered by the Borrower and
constitutes, and the Note when executed and delivered for value will
constitute, its legal, valid and binding obligation, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.

     7.06  Approvals.  No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by the Borrower
of this Agreement and the other Basic Documents to which it is a party (other
than in connection with the creation or perfection of Liens arising under the
Security Documents) or for the validity or enforceability thereof.

     7.07  Use of Mortgage Loans.  Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, 

                                    - 42 -

<PAGE>   47
      
whether immediate, incidental or ultimate, of buying or carrying margin stock 
and no part of the proceeds of any Mortgage Loan hereunder will be used to buy 
or carry any margin stock.

     7.08  ERISA.  (a) No Plan has an "accumulated funding deficiency" within
the meaning of Section 412 of the Code or Section 302 of ERISA and each Plan is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code, and (b) none of the Borrower, Ambassador, any Guarantor
or, to the extent that the Borrower, Ambassador or any Guarantor could have
joint and several liability therefor, any ERISA Affiliate has incurred any
liability to the PBGC or any Plan or Multiemployer Plan (other than to make
contributions in the ordinary course of business or to pay premiums to the
PBGC).  Except as disclosed on the financial statements provided to the Lender
in accordance with this Agreement, no employee welfare benefit plan (within the
meaning of Section 3(1) of ERISA) that the Borrower, Ambassador or any
Guarantor maintains, sponsors, contributes to or is obligated to contribute to
provides benefits, including, without limitation, death or medical benefits
(whether or not insured) with respect to any current or former employee beyond
retirement or termination of service other than (a) coverage mandated by law,
(b) retirement or death benefits under any Plan that is intended to be qualified
under Section 401(a) of the Code or (c) disability benefits under any such
employee welfare benefit plan that have been fully provided for by insurance or
otherwise, in an amount which, in the aggregate, would be material in relation
to the consolidated financial condition, business, operations or prospects taken
as a whole of Ambassador and its Consolidated Subsidiaries taken as a whole or,
with respect to an obligation solely of the Borrower, of the Borrower and its
Consolidated Subsidiaries taken as a whole.  None of the Borrower, the General
Partner or the Operating Partnership is, or, in connection with this Agreement
or any Mortgage Loan, is acting on behalf of, any employee benefit plan subject
to either Title I of ERISA or Section 4975 of the Code.

     7.09  Taxes.  Each Guarantor, Ambassador, the Borrower and its
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received
by them; except such taxes which are being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained as
required by Section 8.03.  The charges, accruals and reserves on the books of
each Guarantor, Ambassador, the Borrower and its Subsidiaries in respect of
taxes and other governmental charges are, in the opinion of the Borrower,
adequate.  There are not presently pending any special assessments against the
Collateral or any part thereof.

     7.10  Investment Company Act.  Neither Ambassador nor any Guarantor nor
the Borrower is an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.

                                    - 43 -

<PAGE>   48
      
     7.11  Equal Employment and Non-Discrimination.  The Borrower has complied
with all applicable federal, state and local legal requirements regarding equal
employment opportunity and non-discrimination (including, without limitation,
the requirements of Executive Order 11246).

     7.12  Subsidiaries, Etc.  Set forth in Schedule III hereto is a complete
and correct list, as of the date of this Agreement, of all Subsidiaries of the
Borrower (and the respective jurisdiction of organization of each such
Subsidiary) and of all Investments (other than Permitted Investments) held by
the Borrower and its Subsidiaries in any joint venture or other Person.  Except
as disclosed in Schedule III hereto and except with respect to any Subsidiary
which is a Delaware corporation any Lien arising under Section 324 of the
Delaware General Corporation Law, the Borrower owns, free and clear of Liens,
all outstanding shares or equity interests of such Subsidiaries (and each such
Subsidiary owns, free and clear of Liens (other than with respect to any
Subsidiary which is a Delaware corporation any Lien arising under Section 324 of
the Delaware General Corporation Law), all outstanding shares or equity
interests of its Subsidiaries) and all such shares are validly issued, fully
paid and non-assessable and the Borrower (or the respective Subsidiary)
also owns, free and clear of Liens (other than with respect to any Subsidiary
which is a Delaware corporation any Lien arising under Section 324 of the
Delaware General Corporation Law), all such Investments.

     7.13  Title.  The Borrower is the sole beneficial owner of, and has good
and marketable title to, all of the tangible Property and assets reflected as
owned by it in the balance sheet referred to in Section 7.02 and good and valid
leasehold interests in all Properties held under lease, and none of such
Properties or assets will be subject to any Lien (other than Permitted Liens).
The Borrower has good title to all of the Collateral reflected as owned in the
balance sheet of the Borrower referred to in Section 7.02, free and clear of
all Liens, other than Permitted Liens, which, in the aggregate, are not
substantial in amount, do not in any case materially detract from the value,
utility, operation or legality of the Property subject thereto or materially
impair the operation of the Borrower and have only arisen in the ordinary
course of business of the Borrower.

     7.14  Partners, Etc.  The sole general partner of the Borrower is the
General Partner.  The only limited partner of the Borrower is the Operating
Partnership.  Neither the Borrower nor any of its Subsidiaries has any
obligation to any Person to purchase, repurchase or issue any ownership
interest in it.  Neither the Borrower nor any of its Subsidiaries has any
obligation to any Person to sell, pledge or otherwise transfer any of its
interest in any of its Subsidiaries except pursuant to the Security Documents.

     7.15  Restricted Activities.  The Partnership Agreement 

                                    - 44 -
<PAGE>   49
      
provides that so long as any Secured Obligation (as defined in the Security 
Agreement) remains outstanding and the Commitment remains in effect the 
Borrower may not engage in any business activity other than activities 
necessary, appropriate, suitable or convenient to (i) acquiring, owning,
operating, leasing, developing, renovating, marketing, managing and selling or
otherwise disposing of the Collateral Properties and any properties which have
been released from the Lien of the Security Documents, (ii) borrowing
Indebtedness that is not prohibited under Section 8.07, (iii) granting Liens
that are not prohibited under Section 8.06, and (iv) entering into, or
modifying, contractual arrangements for the management of the Collateral
Properties and any properties which have been released from the Liens of the
Security Documents.

     7.16  Other Activities.  The charter of the General Partner of the
Borrower requires that the board of directors of the General Partner will at
all times consist of at least one director who is not an officer, director or
employee of, or subject to control by, Ambassador or any Guarantor or any
Subsidiaries or any Affiliates thereof and does not own, directly or
indirectly, stock or ownership interests in the Borrower, Ambassador, any
Guarantor, any Subsidiary or Affiliate thereof or any shareholders or partners
of any of the foregoing and is otherwise independent of the Borrower,
Ambassador and each Guarantor and their respective Subsidiaries and Affiliates
(the "Independent Director"); provided that an Independent Director of
Ambassador may be an Independent Director of the General Partner.  The Borrower
has at all times since its formation, (i) kept its own separate books and
records, used separate stationary, invoices and checks, filed its own tax
returns, maintained its own bank accounts, kept its funds or other assets
separate from the funds or other assets of Ambassador, each Guarantor and all
other Persons, all to the extent necessary, to maintain an existence separate
and apart from Ambassador, each Guarantor and any Affiliate, (ii) funded from
its own assets (including its initial working capital reserve) all of its
activities, expenses and liabilities, (iii) paid its own operating expenses and
liabilities from its own funds, (iv) observed all customary partnership
procedures and formalities, (v) identified itself, in all dealings with the
public, under its own partnership name and as a separate and distinct entity,
and not identified itself as being a division or a part of Ambassador, any
Guarantor or any other Person or identified Ambassador, any Guarantor or any
other Person as being a division or a part of the Borrower, (vi) maintained
financial statements, records and books of account separate from those of
Ambassador, each Guarantor or any other Person, (vii) insured that its office
bears a reasonable allocation of the expenses associated with the offices of
its partners and Affiliates, and (viii) except as expressly permitted by this
Agreement, conducted all transactions and dealings between it and its
Affiliates on an arm's length basis and otherwise as set forth in Section 8.11.
Without limiting the forgoing, the Borrower has maintained in place, and has 
caused each of its Subsidiaries to maintain in place, all policies and
procedures and has

                                    -45 -

<PAGE>   50
      
taken and will continue to take, and has caused each of its Subsidiaries to
take and will continue to take, all actions to ensure that (A)  creditors deal
with the Borrower and each of its Subsidiaries as separate economic units (and
not as a single economic unit with any of its partners or any other Affiliate
of the Borrower or such Subsidiary) and (B) the affairs of the Borrower and
each of its Subsidiaries are kept separate from those of its partners and each
other Affiliate of the Borrower or such Subsidiary (and not entangled with the
affairs of any of its partners or any other Affiliate of the Borrower or such
Subsidiary).  The corporate charter of the General Partner of the Borrower
provides that a majority vote of all the directors of the General Partner
(including the affirmative vote of the Independent Director) is necessary (i)
for any dissolution, liquidation, merger or consolidation, or to transfer all
or substantially all of the assets of the General Partner (ii) to seek relief
under any federal or state bankruptcy law or (iii) for any amendment of the
General Partner's charter related to the purpose of the General Partner, the
vote of the Board of Directors required to do any of the acts described in
clauses (i) and (ii) of this sentence, the requirement for an Independent
Director, and the subordination of indemnification obligations.

     7.17  Employees.  The Borrower has no employees.

     7.18  Solvency.  None of the transactions contemplated by the Basic
Documents will be or have been made with an actual intent to hinder, delay or
defraud any present or future creditors of the Borrower, and the Borrower is
not and will not be rendered insolvent by such transactions and will have
received fair and reasonably equivalent value in good faith for the grant of
the Liens created by the Security Documents.  The Borrower is able to pay its
debts as they become due, including contingent obligations reasonably likely to
become due.

     7.19  Delinquent Property Liens.  Except for claims which are not material
in amount or which are expressly permitted to exist under this Agreement or
which otherwise constitute Permitted Liens, there is no delinquent tax, sewer
rent, water charge, assessment or other outstanding charge against any
Collateral Property; and, except as shown in the title policies, there are no
mechanics' or similar Liens or, to the Borrower's knowledge, claims for overdue
payment for work performed by or on behalf of the Borrower, labor or material 
affecting the Collateral Properties which are or could reasonably be expected 
to become Liens prior to, or equal with, the Liens of the Mortgages and, except
as previously disclosed in writing to the Lender, there are no mechanics' or 
similar Liens or claims affecting a material portion of the Collateral 
Properties which have not been insured or endorsed over by the Title Companies
issuing the title policies.

     7.20  Insurance.  Each Collateral Property is covered by 

                                    - 46 -

<PAGE>   51
      
insurance of the type and in the amounts and provided by the carriers required 
by the Mortgage encumbering such Collateral Property.

     7.21  Lien Priority.  Upon due recordation in the appropriate recording
offices, the Mortgages will constitute valid, subsisting and enforceable first
priority Liens and perfected security interests on the Collateral Properties
owned by the Borrower, including all buildings and fixtures which constitute
part of such Collateral Properties under applicable law, and all additions,
alterations and replacements made at any time with respect to the foregoing,
subject only to Permitted Liens.

     7.22  Improvements.  Except as disclosed in the surveys or title policies
delivered to Lender hereunder, all improvements comprising a portion of any
Collateral Property lie wholly within the boundary and building restriction
lines of such Collateral Property and no improvements on adjoining properties
encroach upon any Collateral Property in any material respect.

     7.23  Casualty; Condemnation.  The Collateral Properties are free of
material damage and waste and there is no proceeding pending or, to the best of
the Borrower's knowledge, threatened, for the total or partial taking of any
Collateral Property.

     7.24  Zoning and Other Laws.  Each Collateral Property and the use and
operation thereof, separate and apart from any other properties, constitutes a
legal use under applicable zoning regulations and complies in all material
respects with all applicable requirements of law and all applicable insurance
requirements.  With respect to each Initial Property, since the date of the
zoning letter from the applicable municipality delivered to the Lender on or
prior to the Closing Date, (i) there has been no change in the use of such
Initial Property, (ii) there has been no construction at such Initial Property
and (iii) the Borrower has not received any notice from the applicable
municipality regarding (A) any alleged violation of applicable zoning
regulations or (B) a change in the zoning applicable to such Initial Property.
Each Collateral Property complies in all material respects with the applicable
provisions of the Americans with Disabilities Act and the Fair Housing
Amendments Act of 1988 and all applicable regulations issued thereunder and
each similar applicable state law and regulation.

     7.25  Management Agreement.  The Borrower has made available to Lender a
correct and complete copy of each Management Agreement relating to the
Collateral Properties and all amendments thereto.

     7.26  Contracts.  Schedule V sets forth a description of each contract,
service contract or other agreement and management agreement (including all
amendments thereto) to which the Borrower, each Guarantor or any Affiliate
thereof is a party which is material to the value, utility, operation or
legality of any Collateral 


                                    - 47 -

<PAGE>   52
      

Property other than any such contract or agreement which may be terminated on
thirty days' or less notice and without any material penalty and the information
set forth in such Schedule is correct and complete in all material respects.  A
correct and complete copy of each contract or other agreement and management
agreement (including all such amendments) specified on Schedule V has been
provided to the Lender and each thereof is unmodified (except as set forth on
Schedule V) and in full force and effect and neither the Borrower nor, to the
Borrower's knowledge, any other party to any thereof is in default thereunder
(other than any defaults which, if uncured, would not have a material adverse
effect on the value, utility, operation or legality of the applicable Collateral
Property).

     7.27  Permits.  There has been issued in respect of each Collateral
Property all permits and governmental approvals necessary or required to own,
operate, use and occupy such Collateral Property in the manner currently
operated, including any required permits relating to Hazardous Materials, other
than any such permit or approval which, if not obtained, would not have a
material adverse effect on the value, utility, operation or legality of such
Collateral Property.  Each such permit is in full force and effect and the
Borrower has not received any notice of violation or revocation thereof.  No
other permits are required from any governmental entity in order to operate any
Collateral Property as it is now operated.

     7.28  Utilities.  The Borrower has not received any written notice of
actual or threatened reduction or curtailment of any utility service now
supplied to any Collateral Property.

     7.29  Certificates of Occupancy.  The Borrower has not received any
written notice of actual or threatened cancellation or suspension of any
certificate of occupancy for any portion of any Collateral Property and all
existing certificates of occupancy (to the extent required by applicable law)
are in full force and effect.

     7.30  Assessments.  The Borrower has not received any written notice of
actual or threatened special assessments or reassessments of any Collateral
Property which is not reflected on financial information previously delivered
to Lender or which would have a Material Adverse Effect.

     7.31  Condition of Properties.  Except as set forth in the reports listed
on Schedule VI, the buildings, structures and improvements included on or
within each of the Collateral Properties are structurally sound, and all
mechanical, electrical, heating, air conditioning, drainage, sewer, water and
plumbing systems are in proper working order.

     7.32  Environmental Reports/Appraisals.  The Borrower has delivered to the
Lender correct and complete copies of all written environmental audits,
appraisals and market studies in its possession 

                                    - 48 -

<PAGE>   53
      
respecting the Collateral Properties and all such environmental audits are 
listed in Schedule VII hereto.

7.33  Leases.  There are no commercial leases relating to any Collateral
Property except as set forth in rent rolls for such Collateral Property.  In
connection with each rental of a unit or apartment at each Collateral Property,
the Borrower has used only (i) the forms of residential lease attached hereto
as Exhibit C for each Initial Property and (ii) the forms of residential lease
delivered to, and approved in writing by, the Lender for each Additional
Property at the time such Additional Property becomes an Addition to    
Collateral.  The rents listed on the rent roll(s) for each Collateral Property
delivered to and accepted by, the Lender are the rents actually being
collected, and, except as noted on said rent roll(s) and the delinquency
reports, to the Borrower's best knowledge after a due and careful inquiry,
there are no such rents more than thirty (30) days past due, and said rents do
not exceed the legal maximum rent allowed by applicable law.  None of the units
or apartments at any of the Collateral Properties are subject to any rent
control or rent stabilization laws and the Borrower has not received any notice
from any governmental authority stating otherwise.  To the Borrower's best
knowledge after a due and careful inquiry, there are no applications, orders,
protests or complaints with reference to rents, services or equipment, pending
within governmental authority or court for any Collateral Property, and the
Borrower has not received written notices stating otherwise.  For the past
twelve (12) months there has been no organized rent strike or joint action by a
tenants' group to withhold rent at any of the Collateral Properties.  Except as
disclosed on Schedule II hereto, as of the date hereof, there is no litigation
pending or threatened against the Borrower, as landlord, which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.

     7.34 No Cooperative or Condominium. The Borrower does not operate any
Collateral Property, or permit any Collateral Property to be operated, as a
cooperative or condominium building or buildings in which the tenants or
occupants participate in the ownership, control or management of such
Collateral Property or any part thereof as tenant stockholders or otherwise.
The Borrower has not, during the period of its ownership of each Collateral
Property, presented an offering plan to the tenants thereof to convert the same
to a cooperative or condominium status.

     Section 8.  Covenants of the Borrower.  The Borrower agrees that so long
as the Commitment is in effect and until payment in full of all Mortgage Loans
hereunder, all interest thereon and all other amounts payable by the Borrower
hereunder:

                                    - 49 -


<PAGE>   54


     8.01  Financial Statements.  The Borrower shall deliver or cause to be
delivered to the Lender (and upon the Lender's request to any Person which is a
Servicer or trustee of any Collateral Property):

          (a) as soon as available and in any event within 45 days after the
     end of each quarterly fiscal period of each fiscal year of the Borrower,
     unaudited consolidated statements of income, retained earnings and changes
     in financial position (or of cash flow, as the case may be) of the
     Borrower and its Consolidated Subsidiaries for such period and for the
     period from the beginning of the respective fiscal year to the end of such
     period, and the related consolidated balance sheet as at the end of such
     period, setting forth in each case in comparative form the corresponding
     consolidated figures for the corresponding period in the preceding fiscal
     year, accompanied by a certificate of a senior financial officer of the
     Borrower, which certificate shall state that said financial statements
     fairly present the consolidated financial condition and results of
     operations, as the case may be, of the Borrower and its Consolidated
     Subsidiaries in accordance with generally accepted accounting principles,
     consistently applied, as at the end of, and for, such period (subject to
     normal year-end audit adjustments and the absence of footnotes);

          (b) (Intentionally omitted);

          (c) promptly upon their becoming available, copies of all
     registration statements and regular periodic reports, if any, which the
     Borrower shall have filed with the Securities and Exchange Commission (or
     any governmental agency substituted therefor) or any national securities
     exchange;

          (d) promptly upon the mailing thereof to the partners of the Borrower
     generally, copies of all financial statements, reports and statements so
     mailed, if any;

          (e) as soon as possible, and in any event within 10 Business Days
     after the Borrower knows or has reason to know that any of the events or
     conditions specified below with respect to any Plan or Multiemployer Plan
     have occurred or exist, a statement signed by a senior financial officer
     of the Borrower setting forth, to the extent the Borrower has knowledge or
     information about such extent or condition, details respecting such event
     or condition and the action, if any, which any Guarantor, Ambassador, the 
     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 such Guarantor, Ambassador, the Borrower or an ERISA Affiliate with
     respect to such event or condition):

                (i)  any reportable event, as defined in Section 

                                    - 50 -

<PAGE>   55
      
           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 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 shall be a reportable event regardless of the
           issuance of any waivers in accordance with Section 412(d) of the
           Code);

                (ii)  the filing under Section 4041 of ERISA of a notice of
           intent to terminate any Plan or the termination of 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;

                (iv)  the complete or partial withdrawal by any  Guarantor,
           Ambassador, the Borrower or any ERISA Affiliate under Section 4201
           or 4204 of ERISA from a Multiemployer Plan, provided that such
           withdrawal would result in the imposition of withdrawal liability
           (within the meaning of Section 4201 of ERISA) on any Guarantor,
           Ambassador, the Borrower or any ERISA Affiliate, or the receipt by
           any Guarantor, Ambassador, the Borrower or any ERISA Affiliate 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;
           and

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

           (f) promptly after the Borrower knows or has reason to know that any
     Event of Default has occurred and is continuing, a written notice of such
     Event of Default describing the same in reasonable detail and, together
     with such notice or as soon thereafter as possible, a description of
     the action that the Borrower has taken and proposes to take with respect
     thereto;

          (g) as soon as available but in any event within 30 days after the
     end of each quarterly fiscal period of each fiscal year of the Borrower, a
     report (certified by a senior financial officer of the Borrower) setting
     forth for each Collateral Property:  (i) a profit and loss statement and
     income statement, (ii) a detailed statement of operations on a cash basis
     (including an analysis on a month-to-month and year-to-date basis showing
     and explaining any variance between the results of actual operations and
     the projected results of operations), and (iii) a 

                                    - 51 -

<PAGE>   56
      
     detailed calculation of Property NOI for such Collateral Property;

          (h) as soon as available and in any event within 30 days after the
     end of each quarterly fiscal period of each fiscal year of the Borrower,
     operating statements showing all elements of income and expenses for the
     operation of each Collateral Property, occupancy rates, rent rolls
     (identifying the leased premises, names of all tenants, units leased,
     monthly rental and all other charges payable under each lease, date to
     which paid, term of lease, date of occupancy, date of expiration, any and
     every special provision, concession or inducement granted to tenants) and
     a delinquency report for each Collateral Property and such other relevant
     information with respect to each Collateral Property as requested by the
     Lender, in each case certified by a senior financial officer of the
     Borrower;

          (i) as soon as available and in any event within twenty-one (21) days
     after the end of each month, (w) a current rent roll (identifying the
     leased premises, names of all tenants, units leased, monthly rental and
     all other charges payable under each lease, date to which paid, term of
     lease, date of occupancy, date of expiration, any and every special
     provision, concession or inducement granted to tenants) for each
     Collateral Property, (x) an operating statement showing all elements of
     income and expenses for the operation of each Collateral Property for such
     month, (y) a delinquency report for each Collateral Property for such
     month and (z) a detailed calculation of the Property NOI for each
     Collateral Property for the trailing twelve month period ending on the
     last day of the second preceding month, on an EXCEL disk, in each case 
     certified by a senior financial officer of the Borrower; and

          (j) promptly upon receipt thereof, copies of all monthly, quarterly
     and annual reports delivered under the Management Agreements; and

          (k) from time to time such other information regarding the business,
     affairs or financial condition of any Guarantor, Ambassador, the Borrower
     or any of their respective Subsidiaries (including, without limitation,
     any Plan or Multiemployer Plan and any reports or other information
     required to be filed under ERISA) and such additional statements, reports,
     projections, budget and other information regarding any Collateral
     Property or the Collateral as the Lender may reasonably request.

The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) above, a certificate of a senior
financial officer of the Borrower (1) to the effect that no Event of Default
has occurred and is continuing (or, if any Event of Default has occurred and is
continuing, describing the  


                                    - 52 -

<PAGE>   57
      
same in reasonable detail and describing the action that the Borrower has taken
and proposes to take with respect thereto) and (2) setting forth in reasonable 
detail the computations necessary  to determine whether the Borrower is in 
compliance with Section 8.15 as at the  end of the respective quarterly period.

     8.02  Litigation, Etc.  The Borrower will promptly give to the Lender
notice of (a) all legal or arbitral proceedings, and of all proceedings by or
before any governmental or regulatory authority or agency, and any material
development in respect of such legal or other proceeding affecting the Borrower
or any Subsidiary, except proceedings which, if adversely determined, would not
have a Material Adverse Effect and (b) of any proposal by any public authority
to acquire any Collateral Property or any portion thereof.

     8.03  Existence, Etc.  The Borrower will, and will cause each of its
Subsidiaries to:  preserve and maintain its corporate or partnership existence
and all of its material rights, privileges and franchises; comply with the
requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements would have a Material Adverse Effect; pay and discharge all taxes,
assessments and governmental charges or levies imposed on it or on its income
or profits or on any of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; maintain all of its Properties
used or useful in its business in good working order and condition, ordinary
wear and tear excepted; and permit representatives of the Lender, during normal
business hours and upon reasonable prior notice, to examine, copy and make      
extracts from its books and records, to inspect its Properties, and to discuss
its business and affairs with its officers, all to the extent reasonably
requested by the Lender.

     8.04  Insurance.  The Borrower will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers all
Property of a character usually insured by entities engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such entities and carry such other
insurance as is usually carried by such entities.

     8.05  Prohibition of Fundamental Changes.  The Borrower will not, nor will
it permit any of its Subsidiaries to, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution).  The Borrower will not, nor will it
permit any of its Subsidiaries to, acquire any business or assets from, or
capital stock or equity interests of, or be a party to any acquisition of, any
Person except for (a) purchases of inventory and other assets to be sold or
used in 


                                    - 53 -

<PAGE>   58
      
the ordinary course of business, (b) purchases of other Property, and (c)
Investments permitted under Section 8.08.  Except as otherwise expressly
permitted under this Agreement, the Borrower will not convey, sell, transfer or
otherwise dispose of any Collateral Property or the Collateral without the prior
written consent of the Lender.  The Borrower will not, nor will it permit any of
its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in
one transaction or a series of transactions, all or a substantial part of its
business or assets, whether now owned or hereafter acquired (including, without
limitation, receivables and leasehold interests, but excluding (i) any inventory
or other assets sold or disposed of in the ordinary course of business, (ii)
obsolete, worn-out and other property, tools or equipment no longer used or
useful in its business so long as the amount thereof sold in any single fiscal
year by the Borrower and its Subsidiaries shall not have a fair market value in
excess of $500,000 in aggregate, or (iii) Collateral Properties sold or 
transferred in compliance with this Agreement).  The Borrower will not admit
or replace or permit the admission or replacement of any limited partner or
general partner, in each case without the prior written consent of the Lender.
The Borrower shall not become a Person other than a limited partnership and
shall not become a general or limited partner in any general or limited
partnership other than a limited partner in any direct limited partnership
Subsidiary of the Borrower permitted by Section 8.14, or permit any of its
Subsidiaries to become a general or limited partner in any general or limited
partnership.

     8.06  Limitation on Liens.  The Borrower will not, nor will it permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
any of its Property, assets or revenues, whether now owned or hereafter
acquired, except (the following Liens, "Permitted Liens"):

          (a) Liens imposed by any governmental authority for taxes,
     assessments or charges not yet delinquent or which are being contested in
     good faith and by appropriate proceedings (and, with respect to the
     Borrower and the Collateral Properties, in accordance with the Mortgages
     relating thereto) if adequate reserves with respect thereto are maintained
     on the books of the Borrower or any of its Subsidiaries, as the case may
     be, in accordance with GAAP;

          (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
     or other like Liens arising in the ordinary course of business which are
     not overdue for a period of more than 30 days or which are being contested
     in good faith and by appropriate proceedings (and with respect to the
     Borrower and the Collateral Properties, in accordance with the Mortgages
     relating thereto);

          (c) pledges or deposits under worker's compensation, unemployment
     insurance and other social security legislation;


                                    - 54 -


<PAGE>   59
      
          (d) deposits to secure the performance of bids, trade contracts
     (other than for borrowed money), leases, statutory obligations, surety and
     appeal bonds, performance bonds and other obligations of a like nature
     incurred in the ordinary course of business;

          (e) easements, rights-of-way, restrictions and other similar
     encumbrances incurred in the ordinary course of business and encumbrances 
     consisting of zoning restrictions, easements, licenses, restrictions on 
     the use of property or minor imperfections in title thereto which, in the 
     aggregate, are not material in amount, and which do not in any case
     materially detract from the value of the property subject  thereto or
     interfere with the ordinary conduct of the business of the Borrower or any
     of its Subsidiaries;

          (f) Liens arising or permitted to exist under any of the Basic
     Documents and Liens set forth in any title policies covering the
     Collateral Properties; and

          (g) any extension, renewal or replacement of the foregoing, provided,
     however, that the Liens permitted hereunder shall not be spread to cover
     any additional Indebtedness or property (other than a substitution of like
     property).

     8.07  Indebtedness.  The Borrower will not, nor will it permit any of its
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:

          (a) Indebtedness to the Lender hereunder and under any other Basic
     Documents;

          (b) Indebtedness outstanding on the date hereof and listed in
     Schedule I hereto;

          (c) Indebtedness of the Borrower consisting of trade accounts payable
     (other than for borrowed money) incurred in the ordinary course of
     business in an aggregate principal amount (excluding real estate taxes and
     insurance) not at any time exceeding an amount equal to $300 multiplied by
     the number of apartment units contained in the Collateral Properties; and

          (d) Indebtedness secured by Permitted Liens.

     8.08  Investments.  The Borrower will not, nor will it permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:

          (a) operating deposit accounts with banks and Permitted Investments;
     and


                                    - 55 -

<PAGE>   60
      
     (b) Investments by the Borrower consisting of advances or loans to  the
     Operating Partnership; provided, however, that the Borrower may not  make
     such advances or loans unless it has reserved sufficient Property NOI to
     pay the amount of interest due on the next succeeding Interest Payment
     Date.

     8.09  Dividend Payments.  The Borrower will not, nor will it permit any
of  its Subsidiaries to, declare or make any Dividend Payment (i) at any time
that a Specific Event of Default shall have occurred and be continuing or at
any time that the Borrower shall fail to comply with Section 8.15 and (ii)
unless the Borrower, prior to such Dividend Payment, has reserved sufficient
Property NOI to pay the amount of interest due on the next succeeding Interest
Payment Date.

     8.10  Activities.

     (a) Neither the Borrower nor any of its Subsidiaries shall engage to any
substantial extent in any line or lines of business activity other than the
business described in Section 7.15.  The Borrower shall not, nor shall it
permit any of its Subsidiaries to, purchase any real properties other than the
Collateral Properties, conduct any business other than that permitted under the
Partnership Agreement or charter and by-laws of the General Partner of the
Borrower or such Subsidiary, have any assets or liabilities other than assets
or liabilities derived from or related to the Collateral Properties or
properties which previously constituted Collateral or otherwise related to a
business that is permitted under the Partnership Agreement or such Subsidiary's
partnership agreement or charter and by-laws, violate any of the provisions of
the Partnership Agreement or such Subsidiary's charter or by-laws or
partnership agreement or amend the Partnership Agreement or such Subsidiary's
partnership agreement or charter or by-laws.

     (b) The Borrower (i) will keep its own separate books and records, use
separate stationary, invoices and checks, maintain its own bank accounts, keep
its funds or other assets separate from the funds or other assets of Ambassador,
each Guarantor and all other Persons, all to the extent necessary to maintain an
existence separate and apart from Ambassador, each Guarantor and any Subsidiary
or Affiliate thereof, (ii) will fund from its own assets (including its initial
working capital reserve) all of its activities, expenses and liabilities,
(iii) will pay its own operating expenses and liabilities from its own funds and
will be adequately capitalized for such business purpose, (iv) will observe all
customary partnership procedures and formalities and hold such appropriate
meetings or obtain such appropriate consents of its partners as are necessary to
authorize all of its actions as required by applicable law or the Partnership
Agreement, (v) will in all dealings with the public act under its own
partnership name and as a separate and distinct legal entity, and will not
identify itself as being a division or a part of Ambassador, any Guarantor or
any other Person or identify Ambassador, any Guarantor or any other Person as
being a division or a part of the 


                                    - 56 -

<PAGE>   61
      

Borrower, (vi) will maintain financial statements, records and books of account
separate from those of Ambassador, each Guarantor or any other Person, (vii)
will have its office bear a reasonable allocation of the expenses associated
with the offices of its partners and Affiliates, and (viii) except as expressly
permitted under this Agreement, will conduct all transactions and dealings
between it and its Affiliates on an arm's length basis and otherwise as set
forth in Section 8.11. Without limiting the foregoing, the Borrower will
maintain in place, and cause each of its Subsidiaries to maintain in place, all
policies and procedures and take and continue to take, and cause each of its
Subsidiaries to take and continue to take, all actions to ensure that (A)
creditors deal with the Borrower and each of its Subsidiaries as a separate
economic unit (and not as a single economic unit with any of its partners or any
other Affiliate of the Borrower or such Subsidiary) and (B) the affairs of the
Borrower and each of its Subsidiaries are kept separate from those of its
partners and each other Affiliate of the Borrower or such Subsidiary (and not
entangled with the affairs of any of its partners or any other Affiliate of the
Borrower or such Subsidiary).

     8.11  Transactions with Affiliates.  Except as expressly permitted by this
Agreement or as otherwise consented to by the Lender in writing, the Borrower
will not, nor will it permit any of its Subsidiaries to, directly or
indirectly:  (a) make any Investment in an Affiliate except as provided in
Section 8.08(b); (b) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate; (c) merge into or consolidate with or purchase or
acquire assets from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
provided that (x) the Borrower may enter into and comply with the Management
Agreement, (y) any Affiliate who is an individual may serve as a director,
officer or employee of the General Partner of the Borrower or its Subsidiaries
and receive reasonable compensation for his or her services in such capacity
and (z) the Borrower and its Subsidiaries may enter into transactions (other
than extensions of credit by the Borrower or any of its Subsidiaries to an
Affiliate) providing for the leasing of property, the rendering or receipt of
services or the purchase or sale of inventory and other assets in the ordinary
course of business if the monetary or business consideration arising therefrom 
would be substantially as advantageous to the Borrower and its Subsidiaries as 
the monetary or business consideration which would obtain in a comparable 
transaction with a Person not an Affiliate.

     8.12  Intentionally Omitted.

     8.13  Modifications of Certain Documents.  The Borrower will not consent
to any modification, supplement or waiver of any of the provisions of the
Partnership Agreement or any Management Agreement or terminate the Partnership
Agreement or any Management Agreement without the prior written consent of the
Lender.  The Borrower will not permit any Subsidiary thereof to consent to any
modification, supplement or waiver of any provisions of its charter, by-laws,

                                    - 57 -

<PAGE>   62
      
certificate of partnership or partnership agreement, as the case may be, or
terminate any such documents without the prior written consent of the Lender.
The Borrower will not, and will not permit any Subsidiary thereof to, consent
to any modification, supplement or waiver of any provision of a service
contract which would have a material adverse effect on the value, utility,
operation or legality of any Collateral Property or terminate any service
contract if such termination would have a material adverse effect on the value,
utility, operation or legality of any Collateral Property.

     8.14  Additional Subsidiaries.  The Borrower shall not form or acquire any
Subsidiaries without the prior written consent of the Lender.  In the event
that the Lender shall permit a Person to become a Subsidiary of the Borrower
(a) the structure capitalization, shareholders and/or partners of such
Subsidiary and purpose and organizational documents of such Subsidiary shall be
reasonably acceptable and satisfactory to the Lender and (b) the Borrower shall
(i) notify the Lender promptly after such Person becomes a Subsidiary of the
Borrower, (ii) execute and deliver to the Lender a security agreement (in form
and substance reasonably satisfactory to the Lender) providing that all of the
outstanding shares of capital stock or equity or ownership interests of such
Subsidiary shall be pledged to the Lender as collateral security for the
Mortgage Loans, and deliver to the Lender the certificate(s) representing such
capital stock or equity or ownership interests, together with instruments of
collateral assignment in such form as the Lender may reasonably request, (iii)
cause such Subsidiary to execute and deliver a security agreement (in form and
substance reasonably satisfactory to the Lender) and take such other actions to
grant to the Lender a first priority security interest in all of its assets and
to deliver proof of corporate or partnership action, incumbency of officers,
opinions of counsel and other documents as the Lender may reasonably request,
(iv) cause such Subsidiary to make such representations and warranties and
undertake such obligations as the Lender may reasonably request, (v) cause such
Subsidiary to execute and deliver such documents and agreements and do such
acts as the Lender may request, and (vi) deliver to the Lender such
certificates, documents and opinions (each in form and substance satisfactory
to Lender) as the Lender shall request.  Except as permitted by the Basic
Documents, the Borrower shall not sell, transfer or otherwise dispose of any
shares of stock or equity or ownership interests in any of its Subsidiaries,
nor permit any of its Subsidiaries to issue any shares of stock of any class or
equity or ownership interests whatsoever to any Person (other than to the
Borrower).  In the event that any such additional shares of stock or equity or
ownership interests shall be issued by any Subsidiary, the Borrower agrees
forthwith to deliver or cause to be delivered to the Lender pursuant to the
relevant security agreement the certificates evidencing such shares of stock or
equity or ownership interests, accompanied by undated stock powers or
assignments executed in blank and shall take such other action as the Lender
shall request to perfect the security interest created therein pursuant to the
relevant security agreement.

     8.15  Debt Service Ratio.  The Borrower will not at any time 


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<PAGE>   63
      
permit the Debt Service Ratio for the Borrower to be less than 1.40 to 1.00.

     8.16  Property Management.  The Borrower shall cause each of the
Collateral Properties to be managed solely pursuant to the Management
Agreements by the Managers.  The Borrower shall diligently perform and observe
all of the terms, covenants and conditions of the Management Agreements to be
performed and observed by it and promptly deliver to the Lender a true copy of
each notice the Borrower gives of any default by a Manager in the performance
or observance of any of the terms, covenants or conditions of such Manager
contained in a Management Agreement and any notice received by the Borrower of
any default of any of its obligations contained in the Management Agreements.
The Borrower shall not surrender the Management Agreements or (except pursuant
to the Security Documents) assign its interest therein or consent to the
assignment by any Manager of its interest therein. Upon the Lender's request,
the Borrower shall exercise each option (if any) to extend or renew the term of
the Management Agreements.  In the event that (A) there shall have occurred and
be continuing an Event of Default or (B) the Debt Service Ratio of the Borrower
shall be less than 1.25 to 1.00 at any time, the Lender may instruct the
Borrower to remove any Manager and so designate a replacement property manager
acceptable to the Lender and the Borrower shall so remove such property Manager
and so designate a replacement manager.  The Borrower shall not, without the
prior written consent of the Lender (which shall not be unreasonably withheld),
enter into any property management agreement concerning the Collateral
Properties (other than the Management Agreements), or (b) enter into any
property management agreement in respect of any Collateral Property (other than
the Management Agreements).

     8.17  Residential Leases.  In connection with each rental of a unit at
each Collateral Property, the Borrower shall only use one of the forms of
residential lease attached hereto as Exhibit C for each such Collateral
Property that constitutes an Initial Property or a form of residential lease
delivered to, and approved in writing by, the Lender for each such Collateral
Property that constitutes an Additional Property at the time such Additional
Property becomes an Addition to Collateral.

     Section 9.  Events of Default.  If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:

          (a)  (1) The Borrower shall default in the payment when due of any
     principal of any Mortgage Loan; or (2) the Borrower shall default in the
     payment when due of any interest on any Mortgage Loan or any fee payable
     hereunder or any other amount payable by it hereunder or under the other
     Basic Documents and such default shall continue for a period of more than
     three Business Days; or

          (b) (1) Ambassador, the General Partner or the Borrower or any of
     their respective Subsidiaries (other than the Operating Partnership and
     its Subsidiaries as to which clause (3) below 

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<PAGE>   64
      
     shall be applicable) shall default in the payment when due of any principal
     of or interest on any of its other Indebtedness aggregating $500,000 or
     more; or (2) except as set forth in Schedule VIII hereto, any event
     specified in any note, agreement, indenture or other document evidencing or
     relating to any Indebtedness of Ambassador, the General Partner or the
     Borrower or any of their respective Subsidiaries (other than the Operating
     Partnership and it Subsidiaries as to which clause (4) below shall be
     applicable) aggregating $500,000 or more shall occur if the effect of such
     event is to cause, or (with the giving of any notice or the lapse of time
     or both) to permit the holder or holders of such Indebtedness (or a trustee
     or agent on behalf of such holder or holders) to cause, such Indebtedness
     to become due, or to be prepaid in full (whether by redemption, purchase or
     otherwise), prior to its stated maturity; or (3) the Operating Partnership
     or any of its Subsidiaries (other than the Borrower and its Subsidiaries)
     shall default in the payment when due of any principal of or interest on
     any of its other Indebtedness aggregating $1,500,000 or more; or (4) any
     event specified in any note, agreement, indenture or other document
     evidencing or relating to any Indebtedness of the Operating Partnership or
     any its Subsidiaries (other than the Borrower and its Subsidiaries) 
     aggregating $1,500,000 or more shall occur if the effect of such event is
     to cause, or (with the giving of any notice or the lapse of time or both)
     to permit the holder or holders of such Indebtedness (or a trustee or agent
     on behalf of such holder or holders) to cause, such Indebtedness to become
     due, or to be prepaid in full (whether by redemption, purchase or
     otherwise), prior to its stated maturity; or

          (c) Any representation, warranty or certification made or deemed made
     in any Basic Document (or in any modification or supplement thereto) by
     the Borrower, Ambassador or by any Guarantor or in any certificate
     furnished to the Lender pursuant to the provisions hereof (or thereof),
     shall prove to have been false or misleading as of the time made or
     furnished in any material respect; or

          (d) (1) The Borrower shall default in the performance of any of its
     obligations under Sections 8.01(a) or 8.01(f) or Sections 8.05 through
     8.10 (inclusive) or Section 8.12, 8.13, 8.14 or 8.16; or (2) the Borrower
     shall default in the performance of any of its obligations under any
     Mortgage (other than its obligation to pay any amounts payable under any
     Mortgage as to which Section 9(a)(2) shall be applicable) and such default
     shall continue unremedied for a period of more than 10 days after the
     grace and notice periods set forth therein; or (3) the Borrower shall
     default in the performance of any of its obligations under Sections 4,
     5.02, 5.04 or 5.07 of the Security Agreement; or (4) the Borrower shall
     default in the performance of any of its obligations under the
     Environmental Indemnity Agreement; or (5) the Borrower shall default in
     the performance of any of its other obligations under this Agreement
     (other than under Section 8.15 as to which clause (6) shall be applicable
     and


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<PAGE>   65
      
     it being understood that the failure to comply with Section 8.15 shall
     not constitute a Default or Event of Default, or a Default or Event of
     Default under any Basic Document) or any other Basic Document and such
     default shall continue unremedied for a period of 30 days after receipt by
     the Borrower of written notice from the Lender; or (6) the Debt Service
     Ratio for the Borrower shall be less than 1.25 to 1.00 at any time; or

          (e) (1) Any Guarantor shall default in the performance of any of its
     obligations under Sections 5.03 through 5.07 (inclusive), 5.10 or 5.11 of
     any Guarantee Agreement; or (2) the General Partner shall default in the
     performance of any of its obligations under Sections 5.13, 5.14, 6.02,
     6.04 or 6.07 of the GP Guarantee Agreement; or (3) the Operating
     Partnership shall default in the performance of any of its obligations
     under Sections 5.12, 5.13, 6.02, 6.04 or 6.07 of the LP Guarantee
     Agreement; or (4) the LP Debt Service Ratio shall be less than 1.25 to
     1.00 at any time; or (5) the Ambassador Debt Service Ratio shall be less
     than 1.25 to 1.00 at any time; or (6) the Total Market Value of all
     outstanding shares of common stock of Ambassador plus all outstanding
     Common Units of the Operating Partnership other than Common Units held by
     Ambassador shall be less than $75,000,000 at any time; or (7) Ambassador
     or any Guarantor shall default in the performance of any of its
     obligations under the Environmental Indemnity Agreement; or (8) any
     Guarantor shall default in the performance of any of its other obligations
     in any Guarantee Agreement or any other Basic Document and such default
     shall continue unremedied for a period of 30 days after receipt by the
     Borrower of written notice from the Lender; or (9) Ambassador shall
     default in the performance of any of its obligations under Sections 4.03
     through 4.09 (inclusive), 4.12 through 4.16 (inclusive), or 5.02, 5.04 or
     5.07 of the REIT Agreement; or (10) Ambassador shall default in the
     performance of any of its other obligations in the REIT Agreement or any
     other Basic Document and such default shall continue unremedied for a
     period of 30 days after receipt by the Borrower of written notice from the
     Lender; or

          (f) Any Guarantor, Ambassador, the Borrower or any of their
     respective Subsidiaries shall admit in writing its inability to, or be
     generally unable to, pay its debts as such debts become due; or

          (g) Any Guarantor, Ambassador, the Borrower or any of their
     respective Subsidiaries shall (i) apply for or consent to the appointment
     of, or the taking of possession by, a receiver, custodian, trustee or
     liquidator of itself or of all or a substantial part of its property, (ii)
     make a general assignment for the benefit of its creditors, (iii) commence
     a voluntary case under the Bankruptcy Code (as now or hereafter in
     effect), (iv) file a petition as debtor seeking to take advantage of any
     other law relating to bankruptcy, insolvency, reorganization, winding-up,
     or composition or readjustment of debts, (v) fail to controvert in a
     timely and appropriate manner, or acquiesce in


                                    - 61 -


<PAGE>   66



     writing to, any petition filed against it in an involuntary case under the
     Bankruptcy Code, or (vi) take any action for the purpose of effecting any
     of the foregoing; or

          (h) A proceeding or case shall be commenced, without the application
     or consent of any Guarantor, Ambassador, the Borrower or any of their
     respective Subsidiaries, in any court of competent jurisdiction, seeking
     (i) its liquidation, reorganization, dissolution or winding-up, or the
     composition or readjustment of its debts, (ii) the appointment of a
     trustee, receiver, custodian, liquidator or the like of any Guarantor,
     Ambassador, the Borrower or any Subsidiary or of all or any substantial
     part of its assets, or (iii) similar relief in respect of any Guarantor,
     Ambassador, the Borrower or any Subsidiary under any law relating to
     bankruptcy, insolvency, reorganization, winding-up, or composition or
     adjustment of debts, and such proceeding or case shall continue
     undismissed, or an order, judgment or decree approving or ordering any of
     the foregoing shall be entered and continue unstayed and in effect, for a
     period of 60 or more consecutive days; or an order for relief against any
     Guarantor, Ambassador, the Borrower or any such Subsidiary shall be
     entered in an involuntary case under the Bankruptcy Code; or

          (i) A final judgment or judgments for the payment of money in excess
     of $500,000 (but only to the extent not covered by insurance) in the
     aggregate shall be rendered by a court or courts against any Guarantor,
     Ambassador, the Borrower and/or any of their respective Subsidiaries and
     the same shall not be discharged (or provision shall not be made for such
     discharge), or a stay of execution thereof shall not be procured, within
     60 consecutive days from the date of entry thereof and such Guarantor, the
     Borrower or the relevant Subsidiary shall not, within said period of 60
     consecutive days, or such longer period during which execution of the same
     shall have been stayed, appeal therefrom and cause the execution thereof
     to be stayed during such appeal; or

          (j) An event or condition specified in Section 8.01(e) shall occur or
     exist with respect to any Plan or Multiemployer Plan and, as a result of
     such event or condition, together with all other such events or
     conditions, any Guarantor, Ambassador, the Borrower or any ERISA Affiliate
     shall incur, or in the opinion of the Lender shall be reasonably likely to
     incur, a current liability to a Plan, a Multiemployer Plan or PBGC (or any
     combination of the foregoing) which is, in the reasonable good faith 
     determination of the Lender, material in relation to the consolidated 
     financial condition, business, operations or prospects taken as a whole of 
     Ambassador, and its Consolidated Subsidiaries taken as a whole or, with 
     respect to an obligation solely of the Borrower, of the Borrower and its 
     Consolidated Subsidiaries taken as a whole; or

                                    - 62 -

<PAGE>   67
      

          (k) Except for expiration or termination in accordance with its
     terms, any of the Security Documents or the Environmental Indemnity
     Agreement or the Management Agreement shall be terminated or shall cease
     to be in full force and effect, for whatever reason; or any of the
     Security Documents shall be declared null and void, or shall fail to
     create the Liens, rights, powers and privileges purported to be created
     thereby (including, without limitation, a perfected security interest in
     and Lien on all of the Collateral, subject to no equal or prior Lien other
     than Permitted Liens); or

          (l) The Operating Partnership shall cease to be the sole limited
     partner of the Borrower; or the General Partner shall cease to be the sole
     general partner of the Borrower; or the General Partner shall cease to be
     a Wholly-Owned Subsidiary of Ambassador; or the Borrower shall cease to be
     an indirect Subsidiary of Ambassador; or

          (m) Ambassador shall fail or cease to qualify as a "real estate
     investment trust" pursuant to Sections 856 through 860 of the Code; or the
     General Partner shall fail to qualify as a "qualified REIT subsidiary"
     under the Code; or

          (n) Any Guarantor, Ambassador or the Borrower shall be terminated,
     dissolved or liquidated (as a matter of law or otherwise); or proceedings
     shall be commenced by or on behalf of any Person (including a Guarantor,
     Ambassador or the Borrower) seeking the termination, dissolution or
     liquidation of any Guarantor, Ambassador or the Borrower and such
     proceedings (commenced by any Person other than a Guarantor, Ambassador or
     the Borrower) shall continue undismissed, or an order, judgment or decree
     approving or ordering any such proceedings shall be entered and continue
     unstayed and in effect, for a period of 60 or more consecutive days; or
     any event specified in Section 10.01 of the Partnership Agreement shall
     occur; or

          (o) Without the Lender's prior written consent, any Collateral
     Property or any part hereof or interest therein becomes subject to any
     easement, covenant, lien, charge, mortgage or other encumbrance whether 
     junior or senior to the related Mortgage, except for the Permitted Liens; 
     or

          (p) Without the Lender's prior written consent, any Collateral
     Property or any part thereof becomes subject to any nonresidential lease
     (other than commercial leases relating to laundry facilities, leases
     described in the title policies relating to any Collateral Property which
     create Liens and commercial leases set forth on the rent rolls relating to
     any Collateral Property), license or occupancy agreement; or

          (q) Without the Lender's prior written consent, the leases, rents,
     income or revenues of any Collateral Property are assigned, pledged or
     otherwise encumbered or become subject to any lien, charge or mortgage,
     except for Permitted Liens; or

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<PAGE>   68
      
          (r) Without the Lender's prior written consent, any Collateral
     Property or any part thereof or interest therein is sold, assigned,
     transferred, conveyed or otherwise disposed of or is the subject of any
     attempted sale, assignment, transfer or conveyance except as expressly
     permitted under this Agreement;

THEREUPON:  (i) in the case of an Event of Default other than one referred to
in clause (g) or (h) of this Section 9 with respect to the Borrower, Ambassador
or any Guarantor, the Lender may, by notice to the Borrower, terminate the
Commitment and/or declare the principal amount then outstanding of, and the
accrued interest on, the Mortgage Loans and all other amounts payable by the
Borrower hereunder and under the Note (including, without limitation, any
amounts payable under Section 5.04) to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower; and (ii) in the case of the occurrence of an Event of
Default referred to in clause (g) or (h) of this Section 9 with respect to the
Borrower, Ambassador or any Guarantor, the Commitment shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Mortgage Loans and all other amounts payable by the Borrower
hereunder and under the Note (including, without limitation, any amounts
payable under Section 5.04) shall become automatically due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.

     Section 10.  Miscellaneous.

     10.01  Waiver.  No failure on the part of the Lender to exercise and no 
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement or the Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or the Note preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.

     10.02  Notices.  All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telecopy or in writing and
telecopied or delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof; or, as to any party, at
such other address as shall be designated by such party in a written notice to
each other party given in accordance with this Section 10.02.  Except as
otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given when transmitted by telecopier or delivered in each
case given or addressed as aforesaid.

     10.03  Expenses, Etc.


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<PAGE>   69
      
     (a) The Borrower agrees to pay or reimburse the Lender for paying:  (1)
all reasonable out-of-pocket expenses of the Lender, (including, without
limitation, the reasonable fees and expenses of Messrs. Milbank, Tweed, Hadley
& McCloy, counsel to the Lender and of any local counsel to the Lender), in
connection with (A) the negotiation, preparation, execution and delivery of
this Agreement, the Note and the other Basic Documents and the making of the
Mortgage Loans hereunder (including, without limitation, all reasonable
out-of-pocket expenses of the Lender (including fees and expenses of counsel to
the Lender) in connection with the preparation, negotiation, review and
execution of any documents required pursuant to Section 2.08 and 2.09 hereof in
connection with the Addition and/or Release of any Collateral Properties, and
(B) any amendment, modification or waiver of any of the terms of this Agreement
or the other Basic Documents; (2) all reasonable costs and expenses of the
Lender (including reasonable counsel fees) in connection with any Event of
Default and any enforcement or collection proceedings resulting therefrom
including, without limitation, in connection with any bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings involving
the Borrower, Ambassador or any Guarantor or a "workout" of the Mortgage Loans;
(3) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement, the other Basic Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement, the other Basic Documents or
any document referred to therein; and (4) all taxes and assessments, recording
fees, registration taxes, title insurance premiums, appraisal fees, costs of    
surveys, fees of third-party consultants and all other fees and expenses
reasonably incurred by the Lender in connection with any Collateral (including,
without limitation, all mortgage loan servicing fees incurred in connection with
the Collateral).

     (b) The Borrower hereby agrees to indemnify the Lender and its directors,
officers, employees and agents from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages or expenses incurred by any of
them arising out of or by reason of any claim of any Person (1) relating to or
arising out of any Basic Document or the transactions contemplated thereby, (2)
resulting from the ownership or Lien on any Collateral Property or receipt of
any Rents (as defined in the Security Agreement), (3) relating to any accident,
injury to or death of persons or loss of or damage to property occurring, in,
on or about any Collateral Property or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(4) relating to any use, nonuse or condition in, on or about any Collateral
Property or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (5) relating to the
performance of any labor or services or the furnishing of any materials or
other property in respect of any Collateral Property or any part thereof, or
(6) relating to any actual or proposed use by the Borrower of the proceeds of
any of the Mortgage Loans, including, 


                                    - 65 -

<PAGE>   70
      
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other necessary
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Lender or any other Person to be indemnified).

     10.04  Amendments, Etc.  Any provision of this Agreement may be amended or
modified only by any instrument in writing signed by the Borrower and the
Lender.

     10.05  Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.  Without limiting the generality of the foregoing, the
Lender may, at any time and from time to time without the consent of the
Borrower, assign or otherwise transfer all or any portion of its rights and
remedies in this Agreement to any other person or entity, either separately or
together with such other property of the Lender for such purposes and on such
terms as the Lender shall elect, and such other person or entity shall thereupon
become vested with all of the rights and obligations in respect thereof granted
to the Lender herein or otherwise. Without limiting the foregoing, in connection
with any assignment of the Mortgage Loans pursuant to Section 10.06(b), the
Lender may, subject to Section 10.06(b), assign or otherwise transfer all of its
rights and remedies under this Agreement to the assignee, and such assignee
shall thereupon become vested with all of the rights and obligations in respect
thereof granted to the Lender herein or otherwise.  Each representation and
agreement made by the Borrower in this Agreement shall be deemed to run to
and each reference to the Lender herein shall be deemed to refer to the Lender
and all of its successors and assigns.

     10.06  Assignments and Participation.

     (a) The Borrower may not assign its rights or obligations hereunder or
under the Note without the prior written consent of the Lender.

     (b) The Lender may sell, assign, syndicate or otherwise transfer and/or
dispose of all or any part of any Mortgage Loan or Mortgage Loans and/or all or
any portion of the Note or the Commitment without the prior written consent of
the Borrower.  Upon written notice to the Borrower of an assignment (which
notice shall identify the assignee, the amount of the assigning Commitment and
Mortgage Loans assigned) the assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment), the obligations,
rights and benefits of the Lender hereunder holding the Commitment and Mortgage
Loans (or portions thereof) assigned to it (in addition to the Commitment and
Mortgage Loans if any, theretofore held by such Assignee) and the Lender,
shall, to the extent of such assignment, be released from the Commitment (or
portions thereof) so assigned.


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<PAGE>   71
      
     (c) The Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Mortgage Loan or Mortgage Loans made or
to be made and the collateral security therefor, but such participant shall not
have any rights or benefits under this Agreement or the Note or the other Basic
Documents (the participant's rights against the Lender in respect of such
participation to be those set forth in the agreement (the "Participation 
Agreement") executed by the Lender in favor of the participant). All amounts
payable by the Borrower to the Lender under Section 5 shall be determined as if
the Lender had not sold or agreed to sell any participation in  such Mortgage
Loan and as if the Lender were funding all of such Mortgage Loan in the same way
that it is funding the portion of such Mortgage Loan in which no participation
have been sold.  In no event shall the Lender be obligated to the participant
under the Participation Agreement to take or refrain from taking any action
hereunder or under the Note or under the other Basic Documents except that the
Lender may agree in the Participation Agreement that it will not, without the
consent of the participant, agree to (i) the increase or extension of the term,
or the extension of the time or waiver of any requirement for the reduction or
termination, of the Commitment, (ii) the extension of any date fixed for the
payment of principal of or interest on the related Mortgage Loan or Mortgage
Loans, (iii) the reduction of any payment of principal thereof, (iv) the
reduction of the rate at which either interest is payable thereon to a level
below the rate at which the participant is entitled to receive interest in
respect of such participation, (v) except as provided in the Basic Documents,
release or otherwise terminate the Lien on any of the Collateral or (vi) except
as provided in the Guarantee Agreements, terminate a Guarantee Agreement or
release any Guarantor from its obligations thereunder.

     (d) Subject to Section 10.14, the Lender may furnish any information
concerning the Guarantors, the Borrower, Ambassador or any of their respective
Subsidiaries in the possession of the Lender from time to time to assignees and
participants (including prospective assignees and participants); provided that
any such prospective assignees and participants shall agree in writing to be
bound by the provisions of Section 10.14.

     10.07  Survival.  The obligations of the Borrower under Sections 5.01,
5.04 and 10.03 shall survive the repayment of the Mortgage Loans and the
termination or expiration of the Commitment and any Addition or Release of the
Collateral pursuant to the Basic Documents (including, without limitation,
pursuant to Sections 2.08 and 2.09).  In addition, each representation and
warranty made, or deemed to be made by a notice of borrowing of any Mortgage
Loan, hereunder shall survive the making of such Mortgage Loan and the Lender
shall not be deemed to have waived, by reason of making such Mortgage Loan, any
Default or Event of Default which may arise by reason of such representation or
warranty proving to have been false or misleading, notwithstanding that the
Lender may have had notice or knowledge or reason to know that such
representation or warranty was false or misleading at the time such Mortgage
Loan was made.



                                    - 67 -

<PAGE>   72

     10.08  Captions.  The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.

     10.09  Counterparts.  This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

     10.10  Governing Law; Submission to Jurisdiction.  This Agreement and the
Note shall be governed by, and construed in accordance with, the law of the
State of New York.  The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State Court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby.  The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such 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.

     10.11  Waiver of Jury Trial.  THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     10.12  Marshalling; Recapture.  The Lender shall not be under any
obligation to marshall any assets in favor of the Borrower, Ambassador or any
Guarantor.  To the extent the Lender receives any payment by or on behalf of
the Borrower, Ambassador or any Guarantor, which payment or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to the Borrower, Ambassador or any Guarantor or their
respective estate, trustee, receiver, custodian 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 repayment, the obligation or part thereof which
has been paid, reduced or satisfied by the amount so repaid shall be reinstated
by the amount so repaid and shall be included within the liabilities of the
Borrower, Ambassador or any such Guarantor to the Lender as of the date such
initial payment, reduction or satisfaction occurred.

     10.13  Cross Collateralization.  The Borrower represents, warrants and 
covenants that in the case of an Event of Default (i) the Lender shall have 
the right to pursue all of its rights and remedies in one proceeding, or
separately and independently in separate proceedings from time to time, as the
Lender, in its sole and absolute discretion, shall determine from time to time,
(ii) the Lender is not required to either marshall assets, sell Collateral in
any inverse order of alienation, or be subject to any "one action" or
"election of remedies" law or rule, (iii) the exercise by the Lender of any
remedies against any one item of Collateral will not impede the Lender


                                    - 68 -

<PAGE>   73
      
from subsequently or simultaneously exercising remedies against any other item
of Collateral, and (iv) all Liens and other rights, remedies or privileges
provided to the Lender shall remain in full force and effect until the
Lender has exhausted all of its remedies against the Collateral and all
Collateral has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Mortgage Loans.

     10.14  Confidentiality.  The Lender agrees (on behalf of itself and each
of its Affiliates, directors, officers, agents, employees and representatives)
to use reasonable precautions to keep confidential, in accordance with its
customary procedures for handling confidential information of this nature and
in accordance with safe and sound practices, any non-public information
supplied to it by the Borrower or its agents or any other Person pursuant to
the negotiation or performance of this Agreement and further agrees that it
shall not use any such non-public information in a manner which would violate
and federal or state securities laws; provided that nothing herein shall limit
the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for the Lender, (iii) to
examiners, auditors or accountants, (iv) in connection with any litigation to
which the Lender is a party, or (v) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) first agrees to be bound by these
provisions; provided, further, that, unless specifically prohibited by
applicable law or court order, the Lender shall, prior to disclosure thereof,
notify the Borrower of any request for disclosure of any such non-public
information (x) by any governmental agency or representative thereof (other
than any such request in connection with an examination of the financial
condition of the Lender by such governmental agency) or (y) pursuant to legal
process; and provided finally that in no event shall the Lender be obligated or
required to return any materials furnished by the Borrower.  The Borrower
agrees (on behalf of itself and each of its Affiliates, officers, agents,
employees and representatives) that it will not, and will not permit any of its
Affiliates to, issue any press release or make any public statement or disclose
any information to the public about the Mortgage Loan or the transactions 
contemplated by the Basic Documents without the prior written consent of the 
Lender in each instance.

     10.15  Appointment of Servicer.  The Lender may from time to time appoint
a servicer ("Servicer") to administer the Mortgage Loans on behalf of the
Lender, which Servicer shall have the power and authority to exercise all the
rights and remedies of the Lender hereunder and under the other Basic Documents
and to act as agent of the Lender hereunder and under the other Basic
Documents.  Once notified in writing of the appointment of a Servicer, the
Borrower shall recognize the Servicer as the agent of the Lender and shall make
all payments and deliver all notices as directed by the Servicer and accept all
notices from the Servicer hereunder and under the other Basic Documents until
otherwise instructed in writing by the Lender.

                                    - 69 -


<PAGE>   74
      


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

                                  BORROWER:


                                  AMBASSADOR II, L.P.


                                  By:  Ambassador II, Inc.,
                                       its General Partner


                                       By:
                                          ------------------------
                                          Adam D. Peterson
                                          Executive Vice President

                                  Address for Notices:

                                       77 West Wacker Drive, Suite 4040
                                       Chicago, Illinois  60601
                                       Attention:  President
                                       Telecopier No.:  (312) 917-0910

                                       with a copy to:

                                       Greenberg Traurig Hoffman
                                          Lipoff Rosen & Quentel
                                       One Commerce Square, Suite 2050
                                       2005 Market Street
                                       Philadelphia, Pennsylvania  19103
                                       Attention: Dianne Coady Fisher, Esq.
                                       Telecopier No: (215) 988-7801


                                  LENDER:

                                  NOMURA ASSET CAPITAL CORPORATION


                                  By:
                                     --------------------------
                                       John Burke
                                       Vice President

                                       Address for Notices:

                                       2 World Financial Center
                                       Building B
                                       New York, New York 10281
                                       Attention:  Sheryl McAfee
                                       Telecopier No.:  (212) 667-1206
                                       and
                                       Attention:  Barry Funt

                                    - 70 -


<PAGE>   75
      
                                       Telecopy No.:  (212) 667-1547








                                    - 71 -

<PAGE>   76


                                                                      SCHEDULE I


                                  Indebtedness


                                      NONE



<PAGE>   77


                                                                     SCHEDULE II


                                   Litigation


                                      NONE







<PAGE>   78


                                                                    SCHEDULE III



                          Subsidiaries and Investments


                                      NONE



<PAGE>   79


                                                                     SCHEDULE IV

                               Initial Properties




1.   Heather Ridge Apartments, 4707 E. McDowell Road, Maricopa County,
     Phoenix, Arizona

2.   Pine Shadows Apartments, 4839 S. Darrow Drive, Maricopa County, Tempe,
     Arizona

3.   Orangewood Apartments, 444 West Orange Grove Road, Pima County, Tucson,
     Arizona

4.   Hidden Lakes Apartments, 2701 W. Waters Avenue,  Hillsborough County,
     Tampa, Florida

5.   Woodlands Apartments, 4714 N. Habana Avenue, Hillsborough County, Tampa,
     Florida


<PAGE>   80


                                                                      SCHEDULE V

             MATERIAL PROPERTY CONTRACTS FOR EACH INITIAL PROPERTY


1.    HIDDEN LAKES
      ALL AMERICAN COIN LAUNDRIES, INC. dated October 27, 1995 for commercial
      clothes washers and dryers lease
      ACCESS TO APARTMENTS dated May 16, 1996 for prospect resident referrals
      ASSOCIATED CREDIT & COLLECTION, INC. dated April 25, 1996 for unpaid
      accounts
      APARTMENTS FOR RENT dated August 18, 1995 for advertising agreement
      G&A VENDALL, INC. for soft drink vending machines
      HAAS PUBLISHING COMPANIES dated April 1, 1995 for advertising
      HERSH RECONSTRUCTION COMPANIES dated June 14, 1993 for carpentry and
      painting
      THE LAKE DOCTORS, INC. dated November 1, 1990 for manage of noxius
      aquatic weeds and algae of lakefront and two ponds
      LIVING PLANTS dated December 28, 1993 for maintenance service
      PARAGON CABLE for cable service
      SUNSHINE POOL SERVICE dated October 27, 1995 for service of two pools
      TAMPA BAY TOWING, INC. dated May 11, 1995 for towing service
      TAMPA ELECTRIC dated February 3, 1993 for outdoor lighting equipment
      TERMINIX for formosan termites
      VICKERS SECURITY SERVICE dated September 1, 1992 for security services
      VOICE-TEL dated February 1, 1996 for answering service contract

2.    THE WOODLANDS
      ALL AMERICAN COIN LAUNDRIES, INC. dated October 27, 1995 for commercial
      clothes washers and dryers lease
      COMMERCIAL POOL CLEANERS, INC. dated July 22, 1996 for pool maintenance
      COPYPRO, INC. dated May 18, 1996 for copier maintenance agreement
      TAMPA CABLE TELEVISION, INC. dated February 28, 1986
      TAMPA ELECTRIC dated June 21, 1993 for outdoor lighting equipment
      INTERNATIONAL SECURITY MANAGEMENT GROUP dated December 7, 1994 for
      security officer
      APARTMENTS FOR RENT dated April 26, 1996 for advertising agreement
      HAAS PUBLISHING COMPANIES dated March 19, 1996 for advertising
      GREENVIEW LANDSCAPING, INC. for landscape maintenance
      HAAS PUBLISHING COMPANIES dated May, 1991 for advertising
      THE LAKE DOCTORS, INC. dated March 8, 1996 for manage of noxius aquatic
      weeds and algae of lakefront and two ponds

3.    HEATHER RIDGE
      AMERICAN CABLE TELEVISION dated July 12, 1994 for cable service
      maintenance agreement
      ALL VALLEY IMPOUND dated September 28, 1995 for vehicle towing agreement
      APARTMENTS FOR RENT dated March 22, 1996 for advertising agreement
      ARIZONA COIN TELEPHONE, INC. dated November 30, 1994 for coin telephones
      BURNS PEST ELIMINATION dated January 2, 1996 for pest elimination
      DANKA INDUSTRIES, INC. dated May 13, 1995 for copier maintenance
      GOOD SHEPPARD EXTERMINATING CO., INC. dated May 3, 1995 for subterranean
      termite control
      WASTE MANAGEMENT OF PHOENIX dated December 18, 1995 for waste disposal
      service
      W&O SERVICE, INC. dated March 11, 1996 for landscape maintenance
      WACKENHUT dated February 1, 1996 for standard guard services
      WEB SERVICE CO. dated January 15, 1996 for commercial clothes washers and
      dryers lease


<PAGE>   81





                                                                      SCHEDULE V

            MATERIAL PROPERTY CONTRACTS FOR EACH COLLATERAL PROPERTY
                                  (continued)

4.    ORANGEWOOD
      APARTMENTS FOR RENT dated November 11, 1995 for advertising agreement
      ESSENTIAL TERMITE & PEST CONTROL dated June 20, 1990 for pest control
      HAAS PUBLISHING COMPANY, INC. dated June 30, 1994 for advertising
      agreement
      JONES INTERCABLE, INC. dated December 18, 1992 for cable television
      installation agreement
      DESERT ARROW LANDSCAPE MAINTENANCE dated August 14, 1995 for landscape
      maintenance
      WASTE MANAGEMENT OF TUCSON dated August 4, 1995 for waste disposal
      WEB SERVICE COMPANY, INC. dated July 30, 1990 for commercial clothes
      washers and dryers lease

5.    PINE SHADOWS
      APARTMENTS FOR RENT dated February 23, 1996 for advertising agreement
      ARIZONA TOWING dated June 1, 1994 for vehicle towing service
      ARIZONA COIN TELEPHONE, INC. dated June 30, 1994 for coin telephones
      BURNS PEST ELIMINATION dated May 10, 1996 for pest elimination
      DANKA INDUSTRIES, INC. dated May 13, 1995 for copier maintenance
      AUTOMATIC LAUNDRY COMPANY, LTD. dated July 19, 1994 commercial clothes
      washers and dryers lease
      W & O SERVICES, INC. June 6, 1994 for landscape maintenance
      WACKENHUT dated February 1, 1995 for standard guard services




                                    - 2 -


<PAGE>   82


                                                                     SCHEDULE VI

                               Property Condition


                 INTERNALLY PREPARED PROPERTY CONDITION REPORT
                           FOR EACH INITIAL PROPERTY

1.    HIDDEN LAKES

      Please refer to "Physical Inspection Summary" in the Board of Directors
      Submission Consent for Acquisition, dated October 3, 1996.

2.    THE WOODLANDS

      Please refer to "Physical Inspection Summary" in the Board of Directors
      Submission Consent for Acquisition, dated October 3, 1996.

3.    HEATHER RIDGE

      Please refer to "Physical Inspection Summary" in the Board of Directors
      Submission Consent for Acquisition, dated August 29, 1996.

4.    ORANGEWOOD

      Please refer to "Physical Inspection Summary" in the Board of Directors
      Submission Consent for Acquisition, dated April 12, 1996.

5.    PINE SHADOWS

      Please refer to "Physical Inspection Summary" in the Board of Directors
      Submission Consent for Acquisition, dated August 29, 1996



<PAGE>   83


                                                                    SCHEDULE VII

            List of Environmental Reports For Each Initial Property


1. Woodlands:  That certain Phase I Environmental Site Assessment of Woodlands
Apartments, 4714 N.Habana Avenue, Tampa Florida, 33614, dated October 1996, and
prepared by Adams Consulting Engineers, Inc. (Project No. 96-159).

2. Hidden Lake:  That certain Phase I Environmental Site Assessment of Hidden
Lake Apartments, 2701 Waters Avenue, Tampa, Florida, 33614, dated October 1996,
and prepared by Adams Consulting Engineers, Inc. (Project No. 96-160).

3. Pine Shadows:  That certain Phase I Environmental Site Assessment of Pine
Shadows Apartments, 4839 South Darrow Drive, Tempe, Arizona, 85282, dated
August 1996, and prepared by Adams Consulting Engineers, Inc. (Project No.
96-162).

4. Orangewood:  That certain Phase I Environmental Site Assessment of
Orangewood Apartments, 444 W. Orange Grove Road, Tucson, Arizona, 85074, dated
April 1996, and prepared by Adams Consulting Engineers, Inc. (Project No.
96-064).

5. Heather Ridge:  That certain Phase I Environmental Site Assessment of
Heather Ridge Apartments, 4707 East McDowell Road, Phoenix, Arizona, 85008,
dated August 1996, and prepared by Adams Consulting Engineers, Inc. (Project
No. 96-161).



<PAGE>   84





                                                                   SCHEDULE VIII


                                    Defaults

1. Default under Bank One, Arizona, N.A., Revolving Line of Credit Agreement
dated June 26, 1996 resulting from failure to maintain (a) interest coverage
ratio of 2.50 to 1.00, (b) debt service coverage ratio of 2.00 to 1.00, and (c)
liabilities to gross asset value ratio of .7 to 1.00.  Proceeds from the
initial funding of the Nomura Loan will be used to repay in full and cancel the
Bank One, Arizona, N.A. loan.


                                    - 2 -


<PAGE>   85


                                                                       EXHIBIT A



                           [Form of Promissory Note]




<PAGE>   86


                                                                       EXHIBIT B


                           [Form of Borrowing Notice]

                              NOTICE OF BORROWING



                             _______________, 1997



Nomura Asset Capital Corporation
311 South Wacker Drive
61st Floor
Chicago, Illinois  60606
Attention:  David M. Murdoch, Jr.


Ladies and Gentlemen:

     We refer to the Note Agreement dated as of June 22, 1997 (as amended or
otherwise modified from time to time, the "Note Agreement"), between the
undersigned (the "Borrower") and Nomura Asset Capital Corporation.

     Capitalized terms used herein but not defined herein are used herein with
the same meanings as are ascribed to them in the Note Agreement.

     The Borrower hereby gives the Lender notice pursuant to Section 4.05 of
the Note Agreement that the Borrower requests a Mortgage Loan under the Note
Agreement and, in that connection, sets forth below the information relating to
such proposed borrowing (the "Proposed Borrowing") as required by Section 4.05
of the Note Agreement.

     (i)  The aggregate principal amount of the Mortgage Loan is
$_______________, which, together with the aggregate principal amount of the
other Mortgage Loans outstanding ($_________) will not exceed the Available
Amount.

     (ii)  The Business Day of the Proposed Borrowing is ___________, 1997.

     (iii)  The Debt Service Ratio on the date hereof is ____________.

     (iv)  The Debt Service Ratio on the date immediately following the
Proposed Borrowing will be __________.

     The undersigned hereby certifies that it shall pay reasonably necessary
transaction costs incurred in connection with the Proposed Borrowing.

     The undersigned hereby certifies to the Lender that to the 

<PAGE>   87
      

best of [his/her] knowledge after due inquiry as of the date set forth above
(i) no  Default has occurred and is continuing, (ii) each representation and
warranty of the Borrower in Section 7 of the Note Agreement and in the other
Basic Documents and of each Guarantor in Section 3 of each Guarantee Agreement
and in the other Basic Documents and of Ambassador in Section 2 of the REIT
Agreement is true and correct in all material respects on and as of the date
set forth above as though made on as of such date; (iii) after giving effect to
the Proposed Borrowing (1) each of the Debt Service Ratio, the LP Debt Service
Ratio and the Ambassador Debt Service Ratio shall not be less than 1.40 to
1.00, and (2) the Total Market Value of all outstanding shares of common stock
of Ambassador plus all outstanding Common Units of Ambassador L.P. (other than
Common Units held by Ambassador) shall not be less than $75,000,000, and (iv)
the undersigned is the duly elected, qualified and acting __________________ of
the General Partner, and as such, is authorized to execute this Notice on its
behalf.


                                        
                                            Very truly yours,           
                                                                        
                                                                        
                                            AMBASSADOR II, L.P.         
                                                                        
                                            By:  Ambassador II, Inc.,   
                                            its General Partner         
                                                                        
                                            By:  __________________     
                                            Name:                       
                                            Title:                      
                                 
                                                                               
                                                                               
                                                                               
                                                                               
                                                                               



<PAGE>   88
                                                                     EXHIBIT C 
                                                                               
               FORM OF RESIDENTIAL LEASES FOR INITIAL PROPERTIES               
                                                                               
                                [to be attached]