Document:

exhibit10-2.htm

    TANDY
LEATHER FACTORY, INC.

    AMENDMENT
TO

    2007
DIRECTOR NON-QUALIFIED STOCK OPTION PLAN

    

    This
Amendment (this “Amendment”), was
adopted by the Board of Directors (the “Board”) of Tandy
Leather Factory, Inc., a Delaware corporation (the “Company”), as of May
3, 2010 (the “Effective Date”) and
amends the 2007 Director Non-qualified Stock Option Plan of the Company dated as
of March 22, 2007 (the “Original
Plan”).

     

    Recitals

     

    A.           The
Company adopted the Original Plan as of March 22, 2007.

     

    B.           On
May 22, 2007, at a duly held meeting of the stockholders of the Company, the
stockholders ratified and affirmed the Original Plan.

     

    C.           Notwithstanding
the Stock Option grant schedule set forth in Article 4 of the Original Plan, the
Board has deemed it to be in its best interest of the Company not to grant the
Stock Options according to such schedule.

     

    D.           As
of the Effective Date, no Options have been granted under the Plan.

     

    E.           Article
10 of the Original Plan provides that the Original Plan may be amended by the
Board without the approval of the stockholders of the Company with certain
exceptions.

     

    F.           The
Original Plan is being amended to set forth a new Stock Option grant schedule as
more particularly set forth below.

     

    Amendment

     

    The
Original Plan is hereby amended as follows:

     

    1.           Definitions.  Unless
otherwise defined herein, terms utilized herein which are defined in the
Original Plan shall have the meanings ascribed to them in the Original
Plan.

     

    2.   Amendment to Article 4 of the Original
Plan.  The first paragraph of Article 4 of the Original Plan is
hereby amended to read in its entirety as follows:

     

    The
Committee shall grant Stock Options as follows: (i) on May 28, 2010, a Stock
Option for 3,000 shares of Common Stock shall be granted to each individual who
is serving as an outside director of the Company or any Subsidiary on that date;
(ii) on March 22 of each calendar year thereafter, a Stock Option for 3,000
shares of Common Stock shall be granted to each individual who is serving as an
outside director of the Company or any Subsidiary on that date; and (iii) if an
individual first becomes an outside director of the Company or any Subsidiary
within six months after March 22 of a year, such individual shall be granted a
Stock Option for 3,000 shares of Common Stock immediately upon becoming an
outside director.  Notwithstanding the foregoing, the Committee may
elect to delay any Stock Option grant date under this Article 4 up to the end of
any applicable calendar year (but not beyond March 22, 2017) if the Committee
deems such delay to be in the best interests of the Company.  The
Committee shall not grant Stock Options under any other
circumstances.

     

    3.           Effective
Date.  This Amendment shall become effective as of the
Effective Date.

     

    4.           No Other
Amendments.  Except as expressly amended hereby, the Original
Plan shall continue in full force and effect in accordance with the terms and
provisions thereof.

     

    5.           Headings.  The
headings of the various sections of this Amendment are for convenience of
reference only and do not constitute a part hereof and shall not be interpreted
or construed to affect the meanings or construction of any provision
hereof.

     

    6.           Governing
Law.  This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
conflict-of-laws principles.

     

     

    IN WITNESS WHEREOF, the
undersigned has executed this Amendment as of the Effective Date.

    

    
      	
               
      

            	
              TANDY
      LEATHER FACTORY, INC.

            

    

    

    

    By:   /s/ Shannon L.
Greene

    Shannon L. Greene,

    Chief
Financial Officer and Treasurer

    

    ATTEST:

    

    /s/ William M.
Warren

    

    William
M. Warren,

    General
Counsel and Secretaryfredaecwellsagreement

 

 

 

 

AGREEMENT REGARDING MASTER FINANCING AGREEMENT

THIS
AGREEMENT REGARDING MASTER FINANCING AGREEMENT (“Agreement”) is made as of December
__, 2009 by and between WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association (“Lender”) and ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation (the “Sponsor”) provides as
follows:

RECITALS

A.                
Lender is prepared
to enter into a certain Master Financing Agreement dated as of even date
herewith (the “Master Financing Agreement”).

B.                
Once the Master Financing
Agreement is fully executed, Lender and the Sponsor have agreed that the Sponsor
(or a Borrower, as defined in the Master Financing Agreement) may request that Lender
make Mortgages pursuant to the Master Financing Agreement and Lender has agreed
to make Mortgages pursuant to the Master Financing Agreement as set forth
herein.

C.                
Lender’s execution
of the Master Financing Agreement is conditioned upon the Sponsor’s execution
of this Agreement and payment of (i) the Transaction Fee in the amount of
$100,000.00 as set forth in Section 7.5.1 of the Master Financing Agreement
(the “Transaction Fee”) and (ii) a Facility Processing Fee of $50,000 as
set froth in the application letter dated December 2, 2009 between the parties
(the “Facility Processing Fee”).

D.                
All capitalized
but otherwise undefined terms set forth herein shall have the same meaning as
set forth in the Master Financing Agreement.

AGREEMENT

NOW THEREFORE, for and in
consideration of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

1.                 
The parties hereby
incorporate the covenants, terms and conditions of the Master Financing Agreement
into this Agreement by reference.

2.                 
The Sponsor agrees
to pay (i) the Transaction Fee and (ii) the Facility Processing Fee, each in
accordance with the wiring instructions set forth below upon execution of this
Agreement.  The Sponsor further agrees to perform the covenants and observe the
terms and conditions set forth in the Master Financing Agreement, including,
without limitation, those covenants as set forth in Sections 7.5.2, 7.5.3,
7.5.4, 7.7.1.a, 8.2, 10.1 and specifically acknowledges the circumstances
described in Sections 7.2, 7.3, 7.4 and 7.7.1.b.; provided, however, the
Sponsor shall have no obligation to perform covenants in the Master Financing
Agreement that are personal to Lender and that by their nature cannot be
performed by the Sponsor.  The wiring instructions are as follows:

 

 

Bank:    
Wells Fargo Bank, N.A.

ABA:     
121000

Credit:   
Wells Fargo Bank, N.A.

               
McLean, VA

                                Acct
#:   412-1489116

            Ref:             AEC Credit Facility

 

3.                 
Upon Lender’s
receipt of a copy of this Agreement executed by the Sponsor, along with payment
in immediately available funds sufficient to pay the Transaction Fee and the
Facility Processing Fee, Lender shall execute the Master Financing Agreement
and deliver an executed copy to Freddie Mac, and thereafter Lender agrees (i) to
process, underwrite, document and fund Mortgages to Borrowers in accordance
with and subject to the covenants, terms and conditions set forth in the Master
Financing Agreement, and (ii) not to modify the Master Financing Agreement in
any way that would adversely affect the interests of the Sponsor in the way
that Lender processes, underwrites, documents and funds the Mortgages without
the prior written consent of the Sponsor.

4.                 
The Sponsor agrees
to pay reasonable attorney’s fees of Freddie Mac’s counsel and the Lender’s counsel
in connection with the Master Financing Agreement and this Agreement.

5.                 
In addition to the
fees and costs set forth in the Master Financing Agreement, each application
and commitment with respect to a proposed Mortgage or a proposed Substitution
shall provide that the applicable Borrower (i) shall pay, at the time of the
application, a review fee to Lender in the amount of $5,000.00, (ii) shall
deposit, at the time of application, an amount equal to the estimated costs of
the out-of-pocket expenses in connection with the processing of the proposed
Mortgage, including the cost of the appraisal, engineering reports, audit
checks and other third party expenses, (iii) shall pay reasonable legal
expenses in connection with the proposed Mortgage, whether or not the Mortgage
closes and (iv) shall pay, at the time a Mortgage closes, an origination fee in
an amount based on the applicable percentage of the amount of the Mortgage,
such applicable percentage being 0.60% (60 bps) on the first $30,000,000.00 of
Mortgages, 0.55% (55 bps) on the next $30,000,000.00 of Mortgages, and 0.50 (50
bps) on the amount of Mortgages over $60,000,000.00.

6.                 
This Agreement
shall terminate upon the earlier of (i) the termination of the Master Financing
Agreement in accordance with the terms of the Master Financing
Agreement or (ii) a termination of this Agreement as set forth in Section
7 below.

7.                 
The liability of
the Sponsor under this Agreement shall be limited to the payment of the
Transaction Fee, the Facility Processing Fee, any fee expressly set forth in an
application or commitment executed by the Sponsor or its Borrower affiliate for
a proposed Mortgage and all actual out-of-pocket costs 9including
reasonable legal fees) incurred by Freddie Mac or Lender in connection with the
Master Financing Agreement or this Agreement. Lender’s sole remedy for the
Sponsor’s breach of any other provision of this Agreement (not involving the
payment of the amounts set forth in the preceding sentence) shall be to
terminate this Agreement.

2

 

 

 

 

 

IN WITNESS WHEREOF, the
parties have executed this Agreement pursuant to due authorization.

WELLS FARGO BANK,
NATIONAL ASSOCIATION

 

 

 

By:
 /s/ Mia T. Bergen 

Name:  Mia T. Bergen

Title:     Assistant Vice President

 

 

 

3

 

 

 

 

 

 

 

ASSOCIATED ESTATES REALTY CORPORATION, an Ohio corporation 

 

 

By:  
/s/ Lou Fatica

Name: Lou Fatica

Title:  
Vice President and CFO

 

4

 

 

 

 

 

MASTER
FINANCING AGREEMENT

BY AND BETWEEN

WELLS FARGO BANK, NATIONAL ASSOCIATION

AND

FEDERAL HOME LOAN MORTGAGE CORPORATION

 

December 22, 2009

 

 

 

 

 

TABLE OF
CONTENTS

Page

RECITALS. 1

1.    DEFINITIONS. 1

1.1.           Definitions. 1

1.2.           Terms
not Defined Herein. 9

1.3.           Construction. 10

1.3.1.   Number;
Inclusion. 10

1.3.2.   Determination. 10

1.3.3.   Freddie
Mac's Discretion and Consent; References to Freddie Mac's Requirements. 10

1.3.4.   Documents
Taken as a Whole. 10

1.3.5.   Headings. 10

1.3.6.   Implied
References to this Agreement. 10

1.3.7.   Persons. 10

1.3.8.   Modifications
to Documents. 11

1.3.9.   From,
To and Through. 11

1.3.10. Conflicts with Other Loan Documents. 11

1.4.           Accounting
Principles. 11

2.    COMMITMENT. 11

2.1.           Amount
of Commitment. 11

2.2.           Application
Period. 12

2.3.           Good
Faith Deposit. 12

2.4.           Breakage
Provisions. 12

2.4.           Nondelivery. 12

 

i.

 

3.    MORTGAGE
TERMS APPLICABLE TO ALL MORTGAGES. 12

3.1.           Mortgage
Amount 12

3.1.1.   Minimum
and Maximum Mortgage Amount. 12

3.1.2.   Determination
of Loan Amount for Fixed Rate Loans and Fixed to Float Loans. 13

3.2.           Borrower. 14

3.2.1.   Type
of Borrower. 14

3.2.2    Ownership
and Control. 14

3.2.3.   Single
Asset Entity. 14

3.3.           Properties. 14

3.3.1.   Property
Fundamentals. 15

3.3.2.   Occupancy. 15

3.4.           Property
Management 15

3.5.           Rate-Lock. 15

3.6.           Amortization;
Interest Calculation Convention. 15

3.6.1.   Amortization
Period. 15

3.6.2.   Interest
Calculation. 15

3.7.           Guaranties. 15

3.8.           Escrows. 16

3.9.           Replacement
Reserves. 16

3.10.         Repairs. 16

3.10.1. Repair and Escrow Agreement 16

3.10.2. Repair Escrow Fund. 16

3.10.3. Immediate Repairs. 16

3.11.         Transfers/Assumptions. 16

3.11.1. Variable Rate Loans subject to Third Party Cap Agreement 17

ii

 

3.11.2. All Other Loans. 17

3.12.         Third-Party
Subordinate Financing. 17

3.13.         Substitution
Rights. 17

3.13.1  Substitution
Agreement 17

3.14.         Reporting
Requirements. 17

3.15.         Supplemental
Financing. 18

3.16.         Moisture
Management Plan. 18

4.    FIXED
RATE LOANS. 18

4.1.           Loan
Term. 18

4.2.           Fixed
Interest Rate. 18

4.3.           Fixed
Rate Prepayment Premium.. 18

5.    FIXED
RATE LOANS. 18

5.1.           Loan
Term. 18

5.2.           Interest
Rates. 18

5.2.1.   Fixed
Rate Period. 18

5.2.2.   Extension
Period. 19

5.3.           Fixed
to Float Prepayment Premium.. 19

6.    VARIABLE
RATE LOANS. 19

6.1.           Loan
Term. 19

6.2.           Interest
Rates. 19

6.3.           Third
Party Cap Agreements. 19

6.3.1.   Interest
Rate Cap Required. 19

6.3.2.   Third
Party Cap Agreement Terms. 20

6.3.3.   Replacement
Cap Escrow. 20

6.3.4.  
Third Party Cap Agreement Guaranty. 20

iii

 

6.4.           Variable
Rate Prepayment Premium. 20

6.5.           Conversion
of Variable Rate Mortgages. 21

7.    ADDITIONAL
TERMS. 21

7.1.           Loan
Applications under this Agreement. 21

7.2.           Multifamily
Seller/Servicer Guide, Commitment and Loan Documents. 21

7.3.           Servicing
of Mortgage. 21

7.4.           Replacement
of Seller. 22

7.5.           Fees
and Expenses. 22

7.5.1.   Fees
and Expenses Due on the Closing Date. 22

7.5.2.   Fees
Due in Connection with the Issuance of each Commitment 22

7.5.3.   Substitution
Fees. 23

7.5.4.   Annual
Servicing Fee. 23

7.6.           Use
of Proceeds. 23

7.7.           Material
Adverse Change. 23

7.7.1.   Reporting
Requirements. 23

7.7.2.   Monitoring
Compliance. 24

7.7.3.   Consequences
of a Material Adverse Change. 24

7.8.           No
Renewal or Extension Options. 24

7.9.           Term. 24

8.    ACKNOWLEDGEMENTS
BY SELLER. 24

8.1.           Insurance. 24

8.2.           Further
Documentation. 24

9.    RIGHT
OF TERMINATION.. 24

9.1.           Termination
Events. 24

9.1.1.   Default
under this Agreement. 24

iv

 

9.1.2.   Event
of Default under the Loan Documents. 25

9.1.3.   Nondelivery
of Mortgage. 25

9.1.4.   Insolvency. 25

9.1.5.   Cessation
of Business. 25

9.1.6.   Bankruptcy
and Other Proceedings. 25

9.1.7.   Material
Adverse Change. 25

9.1.8.   Preservation
of Existence. 25

9.1.9.   Liquidations,
Mergers, Consolidations, Acquisitions. 25

9.2.           Consequences
of Termination Event. 26

10.  MISCELLANEOUS. 26

10.1.         Cooperation
by the Sponsor and Borrower; the Sponsor's Obligations. 26

10.2.         Successors
and Assigns. 26

10.3.         No
Agency. 26

10.4.         Modifications,
Amendments or Waivers. 26

10.5.         Remedies
Cumulative. 26

10.6.         Notices. 27

10.7.         Severability. 27

10.8.         Governing
Law; Consent to Jurisdiction and Venue. 28

10.9.         Prior
Understanding. 28

10.10.       Disclosure
of Information. 28

10.11.       No
Third Parties Benefited. 28

10.12.       Advertising. 28

10.13.      
Time of Essence. 28

10.14.       Counterparts. 28

10.15.       WAIVER
OF TRIAL BY JURY. 29

v

 

 

 

 

 

MASTER Financing AGREEMENT

 

 

THIS
MASTER FINANCING AGREEMENT ("Agreement")
is dated as of December 22, 2009, and is made between WELLS FARGO BANK,
NATIONAL ASSOCIATION, having an address at 2010 Corporate Ridge, Suite 1000, McLean, Virginia 22102 (the "Lender", the "Seller"
or the "Servicer"), and FEDERAL HOME LOAN MORTGAGE
CORPORATION, a federally chartered corporation organized and existing under
the laws of the United States of America having an address at 8100 Jones Branch
Drive, McLean, Virginia 22102 ("Freddie Mac").

 

RECITALS

 

A.        Associated Estates Realty Corporation, an Ohio corporation (the "Sponsor"), has requested that
the Seller make fixed and adjustable interest rate loans in the aggregate
amount of up to $100,000,000 to single asset entities majority owned and
controlled, directly or indirectly, by the Sponsor.

B.         The Sponsor has offered to
cause such entities to grant to the Seller a security interest in real property
and other assets owned or to be acquired by such entities as security for such
entities' repayment of such loans.  (Any such entity is a "Borrower"
and all such entities are, collectively, the "Borrowers".)

C.        The Seller is willing to make
the above-described loans to the Borrowers secured by an interest in such real
property and other assets.

D.        In order to finance such loans
to the Borrowers, the Seller desires to obtain from Freddie Mac an agreement
pursuant to which Freddie Mac will purchase such loans from the Seller.

 

AGREEMENT

1.         DEFINITIONS.

1.1.      Definitions.  In addition to words and terms defined elsewhere in
this Agreement, the following words and terms shall have the following
meanings, respectively, unless the context hereof clearly requires otherwise:

"Acquisition Loan" shall
mean a Loan for which the proceeds will be used to purchase the Property
securing the Borrower's repayment of such Loan.

 

1.

 

 

 

 

 

"Affiliate" or "Affiliates"
as to any Person shall mean any other Person (i) which directly or indirectly
Controls, is Controlled by, or is under common Control with such Person, (ii)
which beneficially owns or holds 5% or more of any class of the voting or other
equity interests of such Person, or (iii) 5% or more of any class of voting
interests or other equity interests of which is beneficially owned or held,
directly or indirectly, by such Person.

"Aggregate Commitment Available"
shall mean the maximum aggregate original principal amounts of Mortgages that
may be purchased from time to time pursuant to the terms of this Agreement,
which amount is set forth in Section 2.1.  

"Agreement" shall mean
this Master Financing Agreement, as the same may be supplemented or amended
from time to time, including all schedules and exhibits attached hereto. 

"Amortizing DCR" shall
mean DCR calculated based upon debt service payments of principal and interest
on a 30-year amortization schedule.

"Amortizing Loan" shall
mean a Loan that will be amortized on a thirty (30) year basis.

"Anniversary Date Financial
Documentation" shall have the meaning set forth in Section 7.7.1
of this Agreement.

"Anniversary Delivery Date"
shall have the meaning set forth in Section 7.7.1 of this Agreement.

"Application" shall mean
any application between the Seller and a Borrower, evidencing such Borrower's
request for a Mortgage from the Seller.

"Application Due Date"
shall mean the date that is thirty (30) days prior to the Expiration Date.

"Application Fee" shall
have the meaning set forth in Section 7.5.2 of this Agreement.

"Authorized Representative"
shall mean, (i) with respect to any
Person that is not an individual, such individuals duly authorized to execute
documents on behalf of, and legally bind, such Person and (ii) with respect to
any Person that is an individual, such individual himself or herself, as
applicable.

"Borrower" shall have
the meaning set forth in the Recitals of this Agreement.

"Business Day" shall
mean any day on which Freddie Mac is open for business.  

2

 

 

 

 

 

"Cash Out Refinance Loan"
shall mean a Loan, the Loan Amount of which is greater than the sum of (i) the
unpaid principal balance (the "UPB") of any existing mortgage
or mortgages on the applicable Property (an "Existing Mortgage")
being paid off with the proceeds of such Loan, (ii) any prepayment costs and/or
premiums paid by the Borrower in connection with the payoff of the Existing
Mortgage, (iii) closing costs paid by the Borrower in connection with the
payoff of the Existing Mortgage that are acceptable to Freddie Mac, (iv) two
percent (2%) of the UPB of the Existing Mortgage, and (v) the amount that
Freddie Mac requires to be placed into escrow for repairs to the applicable
Property, as determined by Freddie Mac in its discretion.

"Closing Date" shall
mean the first date on which this Agreement has been fully executed.

"Collateral Agreements"
shall mean (i) any agreements between a Borrower and the Seller for the purpose
of establishing reserves for the Properties or a particular Property, including
(a) agreements establishing a fund to assure the completion of repairs or
improvements specified in any such agreement, or (b) agreements assuring a
reduction of the outstanding principal balance of the Mortgage if the occupancy
percentage or income from a Property does not increase to a level specified in
such agreement, and (ii) any other agreement or agreements between a Borrower
and the Seller which provide for the establishment of any other fund, reserve
or account, all of the foregoing to be imposed only pursuant to an express
written agreement between such Borrower and the Seller entered into on an
Origination Date in connection with a Mortgage.

"Commitment" shall mean
Freddie Mac's written indication that Freddie Mac (i) has made an offer to the
Seller to purchase a Mortgage pursuant to a letter of commitment or (ii) has
accepted the Seller's offer to sell to Freddie Mac any Mortgage pursuant to an
early rate-lock application or early spread-lock application issued by the
Seller to Freddie Mac.  The Commitment and any adjustment letters and
amendments thereto shall set forth all of the terms and conditions of any
Mortgage purchase.

"Control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person whether through ownership
of voting securities, beneficial interests, by contract or otherwise.  The definition is to be construed to apply equally to
variations of the word "Control," including "Controlled," "Controlling" or "Controlled by."

"DCR" shall mean, at the
time of determination, the ratio of the NOI to the annualized debt service
payments as calculated by Freddie Mac in accordance with Section 3.1.2. 

"Dollar", "U.S. Dollars"
and the symbol $ shall mean lawful money of the United States of America.

"Expiration Date" shall
mean the earlier to occur of the following:  (i) the date a Termination Event
occurs and Freddie Mac terminates its obligations to issue Commitments as set
forth in Section 9.2 and (ii) December 21, 2011.

"Extension Period" shall
mean, for a Fixed to Float Loan, the twelve calendar month period ending on the
first anniversary of the scheduled initial maturity date of such Fixed to Float
Loan as set forth in the applicable Note.

3

 

 

 

 

 

"Fixed Interest Rate"
shall mean that certain annual fixed interest rate for a Fixed Rate Loan
applicable during the entire term of such Fixed Rate Loan or that certain
annual fixed interest rate for a Fixed to Float Loan applicable during the
entire term of such Fixed to Float Loan except during the Extension Period for
such Fixed to Float Loan, if applicable.  The Fixed Interest Rate for each
Fixed Rate Loan and Fixed to Float Loan will be established at Rate Lock for
such Fixed Rate Loan or Fixed to Float Rate Loan.

"Fixed Rate Loan" or
"Fixed Rate Mortgage" shall mean a Mortgage with a Fixed Interest
Rate during its entire term.

"Fixed Rate Period"
shall mean, for a Fixed to Float Loan, the period beginning on the date of the
Note for such Fixed to Float Loan through the day immediately preceding the
scheduled initial maturity date of such Fixed to Float Loan as set forth in the
applicable Note.

"Fixed to Float Loan"
shall mean a Mortgage with a Fixed Interest Rate during its entire term except
for the Extension Period, if applicable.

"Form ARM Note" shall
have the meaning set forth in Section 6.4 of this Agreement.

"Form Fixed Rate Note"
shall have the meaning set forth in Section 4.3 of this
Agreement.

"Form FTF Note" shall
have the meaning set forth in Section 5.3 of this Agreement.

"Form Loan Documents"
shall mean the documents required by Freddie Mac under Freddie Mac's
Conventional Cash Purchase Program, as such documents are amended or modified
pursuant to this Agreement.  The modifications approved by Freddie Mac for its
current form of loan documents are attached hereto as Exhibit A.

"Freddie Mac" shall mean
the Federal Home Loan Mortgage Corporation, a federally chartered corporation.

"GAAP" shall mean
generally accepted accounting principles as are in effect from time to time,
subject to the provisions of Section 1.4, and applied on a
consistent basis both as to classification of items and amounts.

"Guarantor" shall mean
the Sponsor or any other Person who executes a Guaranty.

"Guaranty" shall mean
any Freddie Mac Conventional Cash Purchase Program Guaranty executed by a
Guarantor in favor of the Seller as one of the Loan Documents, together with
any and all amendments, extensions, renewals or replacements thereof, in whole
or in part.

"Guide" shall mean the
then-current version of the Freddie Mac Multifamily Seller/Servicer Guide.

4

 

 

 

 

 

"Index" shall mean (i)
for each Variable Rate Loan, the one (1) month Reference Bills®
Security or, at the option of the Borrower, the British Bankers Association's (BBA)
one (1) month LIBOR Rate for United States Dollar deposits, as displayed on the
LIBOR Index Page used to establish the LIBOR Index Rate, at the time of Rate
Lock, as such terms are defined in, and as more fully described in, the Note
for the applicable Loan; and (ii) during the Extension Period, if applicable,
for each Fixed to Float Loan, the one (1) month LIBOR Rate; both subject to the
terms of the Note for the applicable Loan in the event an alternative Index is
required.

"Index Rate" for each
Mortgage shall have the meaning given to that term in the Note for such
Mortgage.

"Interest Only Loan"
shall mean a Loan that will require interest only debt service payments with no
amortization of principal prior to the Maturity Date (as defined in the applicable
Note).

"Law" shall mean any
applicable law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, ruling, order, injunction, writ, decree or award
of any Official Body.

"Lender" shall mean the
Seller and its successors and assigns as holder of a Note evidencing a
Mortgage.

"Loan" or "Mortgage"
shall mean any conventional, cash loan made to any Borrower by the Seller and
purchased by Freddie Mac pursuant to this Agreement.  

"Loan Amount" shall
mean, with respect to each Loan, the initial principal amount of the applicable
Mortgage.  The final Loan Amount for each Mortgage shall be set forth in the
Commitment related to such Mortgage.

"Loan Document" or
"Loan Documents" shall mean the then-current versions of the
Form Loan Documents, any indemnity agreements, Collateral Agreements, O&M
Programs, the MMP, opinions and any other documents now or in the future
executed and/or delivered by any Borrower or Guarantor or any other Person in
connection with a Mortgage, together with any and all amendments, extensions,
renewals or replacements thereof, in whole or in part.  This Agreement is not a
Loan Document.

"LTV" shall mean, with
respect to each Loan, the ratio, expressed as a percentage, of the Loan Amount
to Freddie Mac's underwritten value of the Property to serve as collateral for
such Loan.

"Margin" shall mean the
spread (expressed in percentage points and/or basis points) to be added to the
applicable Index Rate.

5

 

"Material
Adverse Change" shall mean (a) any set of circumstances or events
which, in Freddie Mac's reasonable discretion would have or is then reasonably
expected to have a material adverse effect on: (i) the validity or
enforceability of this Agreement, the Seller Master Financing Agreement,
Guaranty or any other Loan Document, (ii) the ability of the Sponsor, any
Borrower or Guarantor to duly and punctually pay or perform its respective
Obligations, or (iii) the financial condition or credit of the Sponsor, any
Borrower or Guarantor from that which was disclosed in writing to the Seller or
Freddie Mac, or (b) with respect to any Mortgage, a change in the direct or
indirect ownership of any Borrower or Guarantor (if such Guarantor is not a
natural person) prior to the Origination Date of such Mortgage from that identified
to the Seller or Freddie Mac as of the Closing Date, which results in a
structure in which (i) the Sponsor does not hold a direct or indirect majority
ownership interest in such Borrower or Guarantor; or (ii) the Sponsor does not
directly or indirectly exercise Control of such Borrower or Guarantor without
the requirement of consent of any other Person that is a Required Borrower
Principal unless such Required Borrower Principal has been reviewed and
approved by Freddie Mac prior to the Origination Date of such Mortgage based on
Freddie Mac's then-current credit and underwriting standards.

"MMP" shall mean, with
respect to each Mortgage, the moisture management plan to control water
intrusion and prevent the development of mold or moisture at a Property which
the applicable Borrower must implement as of the Origination Date of the
Mortgage for such Property and maintain throughout the term of such Mortgage.

"Mortgage Review Fee"
shall have the meaning set forth in Section 7.5.2 of this
Agreement.

"No Cash Out Refinance Loan"
shall mean (a) a Loan, the Loan Amount of which is less than or equal to the
sum of (i) the UPB of any Existing Mortgage to be paid off with the proceeds of
such Loan, (ii) any prepayment costs and/or premiums in connection with the payoff
of the Existing Mortgage, (iii) closing costs paid by the Borrower in
connection with the payoff of the Existing Mortgage that are acceptable to
Freddie Mac, (iv) two percent (2%) of the UPB of the Existing Mortgage, and (v)
the amount that Freddie Mac requires to be placed into escrow for repairs to
the applicable Property, as determined by Freddie Mac in its discretion, or (b)
a refinance Loan securing a Property that was purchased by the Sponsor or one
of its Affiliates not more than two (2) years prior to the Origination Date or
constructed not more than two (2) years prior to the Origination Date.

"NOI" shall mean an annualized dollar amount equal to the income from
the operation of a Property that is available for repayment of debt and return
of equity after deducting for economic vacancy and all expenses (exclusive of
debt service).  NOI shall be calculated by Freddie Mac for each individual
Property, in accordance with Freddie Mac's then-current methodology, consistently applied, excluding from
such calculation expenses from depreciation, amortization, interest expenses,
non-recurring items and capital expenses, but including in such calculation an
assumed capital expense reserve in an amount consistent with Freddie Mac's then-current
requirements for such capital reserves.

"Note" shall mean any
Freddie Mac Conventional Cash Purchase Program Multifamily Note executed by a
Borrower, individually or collectively, as the context may require, together
with any and all amendments, extensions, renewals or replacements thereof, in
whole or in part. 

"O&M Programs" shall
mean any written program of operations and maintenance for a Property approved
in writing by Freddie Mac.

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"Obligation" shall mean
any obligation or liability of the Sponsor, any Borrower or Guarantor to the
Seller or Freddie Mac, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due, under or in connection with this Agreement, the Seller Master Financing
Agreement, the Note or any other Loan Document.

"Official Body" shall
mean any applicable national, federal, state, local or other government or
political subdivision or any agency, authority, bureau, commission, department
or instrumentality of any national, federal, state, local or other government
or political subdivision, or any court, tribunal or grand jury, in each case
whether foreign or domestic (to the extent such court, tribunal or grand jury
has appropriate jurisdiction).

"Origination Date" shall
mean, with respect to any Mortgage, the date a Mortgage closes, which shall be
a Business Day.

"Partial Interest Only Loan"
shall mean a Loan that will require interest only debt service payments with no
amortization of principal for a period of up to two (2) years, as set forth in
the applicable Commitment, followed by an amortization period on a thirty (30)
year basis.

"Person" shall mean any
individual, corporation, partnership, limited liability company, association,
joint-stock company, trust, unincorporated organization, joint venture,
government or political subdivision or agency thereof, or any other entity.

"Property" shall mean
multifamily real property or properties, as the case may be, located in a State
and all other assets owned or to be acquired by a Borrower as collateral for a
Mortgage.  Each Property must have five or more apartment units.

"Rate Lock" shall mean
determining the fixed interest rate on a Fixed Rate Loan or Fixed to Float Loan
or the Index and the Margin on a Variable Rate Loan pursuant to this Agreement
and the applicable Commitment.

"Reference Bills®
Securities" shall mean the unsecured general obligations of Freddie
Mac designated by Freddie Mac as "Reference Bills®
Securities" and as more particularly described from time to time in the
Loan Documents.

"Repair and Escrow Agreement"
shall mean the Freddie Mac Conventional Cash Purchase Program agreement
executed by a Borrower to complete Repairs in accordance with the terms
thereof, which may or may not require a Repair Escrow, together with any and
all amendments, extensions, renewals or replacements thereof, in whole or in
part.

"Repair Escrow" shall
mean the escrow to be deposited into a Repair Escrow Fund and governed by the
applicable Repair and Escrow Agreement, if applicable, as determined by Freddie
Mac.

"Repair Escrow Fund"
shall mean the account established by the Repair and Escrow Agreement (if
applicable) into which the applicable Repair Escrow is deposited.

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"Repairs" shall mean any
remediation or repair or capital improvements to the land or improvements on a
Property required by Freddie Mac for such Property as set forth in the
applicable Commitment.

"Replacement Reserve Agreement"
shall mean the Freddie Mac Conventional Cash Purchase Program agreement
executed by a Borrower pursuant to which a Borrower agrees to deposit monthly
escrows for long term repairs and capital improvements to the applicable
Property, together with any and all amendments, extensions, renewals or
replacements thereof, in whole or in part.

"Required Borrower Principal"
shall mean, with respect to any Borrower, any Person that directly or
indirectly controls the Borrower including (i) any general partner of a general
partnership or limited partnership, (ii) any manager or a managing member of a
limited liability company, (iii) any joint venture partner of a joint venture,
(iv) any settler or grantor of a living trust, (v) any Person with a collective
equity interest in the Borrower equal to or exceeding twenty-five percent
(25%), but expressly excluding any publicly-traded shareholders of Sponsor,
(vi) any beneficiary with a twenty-five percent (25%) or more interest in a
testamentary or irrevocable trust, or (vii) a beneficiary with a twenty-five
percent (25%) or more interest an Illinois land trust.

"Security Instrument"
shall mean any Freddie Mac Conventional Cash Purchase Program mortgage, deed of
trust, or deed to secure debt encumbering any of the Properties, executed by a
Borrower as security for a Mortgage, together with any and all amendments,
extensions, renewals or replacements thereof, in whole or in part.

"Seismic Report Fee"
shall mean a nonrefundable fee equal to Freddie Mac’s out-of-pocket costs and
expenses incurred in connection with obtaining a seismic report and probable
maximum loss (PML) analysis with respect to any Property located in Seismic
Risk Zone 3 or 4, as set forth in the current edition of the Uniform Building
Code.

"Seller" shall mean
Wells Fargo Bank, National Association, a national banking association.

"Seller Master Financing
Agreement" shall mean the Agreement Regarding Master Financing
Agreement dated on or about the date hereof by and between the Sponsor and the
Seller.

"Servicer" shall mean
Wells Fargo Bank, National Association, or any subsequent independent
contractor appointed by Freddie Mac, at Freddie Mac's sole cost and expense, to
administer each Mortgage and the Loan Documents or otherwise perform certain
functions in connection therewith under the terms of the Guide or a Servicing
Agreement.  Pursuant to the terms of the Guide or any Servicing Agreement,
Freddie Mac may designate Servicer to perform some or all of Freddie Mac's
obligations under any Mortgage, Note or other Loan Documents.

"Servicing Agreement"
shall mean any agreement between Freddie Mac and an independent contractor
pursuant to which Freddie Mac appoints said independent contractor as Servicer
under each Mortgage, Note and other Loan Documents, together with any and all
amendments, extensions, renewals or replacements thereof, in whole or in part.

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"Solvent" shall mean,
with respect to any Person on a particular date, that on such date (i) the fair
value of the assets of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of such
Person, (ii) the present fair saleable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (iii) such Person
is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business, (iv) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability to pay as
such debts and liabilities mature, and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged.  In computing the amount of
contingent liabilities at any time, it is intended that such liabilities will
be computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability of such Person after giving effect to any
rights of contribution, subrogation or indemnification of such Person.

"Sponsor" shall mean
Associated Estates Realty Corporation.

"Substitution" shall
have the meaning set forth in Section 3.13.1 of this Agreement.

"Substitution Agreement"
shall have the meaning set forth in Section 3.13.1 of this
Agreement.

"Termination Event"
shall mean any of the events described in Section 9.1 or
otherwise referred to herein as a "Termination Event" or an
"Event of Default" in the Loan Documents.

"Third Party Cap Agreement"
shall mean an interest rate cap agreement described in Sections 6.3.1 and
6.3.2, together with any and all amendments, extensions, renewals or
replacements thereof, in whole or in part.

"Transaction Fee" shall
have the meaning set forth in Section 7.5.1 of this Agreement.

"Variable Rate Interest Rate"
shall mean an adjustable interest rate, equal to the Margin plus the Index, in
effect on a Variable Rate Loan during its term and on a Fixed to Float Loan
during the Extension Period for such Fixed to Float Loan, if applicable, that
periodically adjusts as set forth in the Note for such Loan.

"Variable Rate Loan" or
"Variable Rate Mortgage" shall mean a Mortgage with a Variable
Rate Interest Rate during its entire term.

1.2.      Terms Not Defined Herein.  Capitalized terms used but not defined in this
Agreement will have the meanings assigned to them by the Guide.

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1.3.      Construction.  Unless the context of this Agreement otherwise
clearly requires, the following rules of construction shall apply to this
Agreement:

1.3.1.   Number; Inclusion.  References to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning
represented by the phrase "and/or", and "including" has the
meaning represented by the phrase "including without limitation".

1.3.2.   Determination.  References to "determination" of or by
Freddie Mac shall be deemed to include good-faith estimates by Freddie Mac (in
the case of quantitative determinations) and good-faith beliefs by Freddie Mac
(in the case of qualitative determinations) and such determinations shall be
conclusive absent manifest error.

1.3.3.   Freddie Mac's Discretion and
Consent; References to Freddie Mac's Requirements.  Whenever Freddie Mac is granted the right herein to
act in its sole discretion or to grant or withhold consent, such right shall be
exercised in good faith, and whenever a reference is made to "Freddie
Mac's then-current requirements", "Freddie Mac's then-current
programs" or the like, such reference shall be deemed to mean such
requirements, programs and the like as are then in effect by Freddie Mac, as
such standards are generally reflected in the Guide.

1.3.4.   Documents Taken as a Whole.  The words "hereof," "herein,"
"hereunder," "hereto" and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement.

1.3.5.   Headings.  The section and other headings contained in this
Agreement and the Table of Contents preceding this Agreement are for reference
purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect.

1.3.6.   Implied References to this
Agreement.  Article, section, subsection, clause, schedule and
exhibit references are to this Agreement unless otherwise specified, and
schedules and exhibits attached hereto are incorporated herein by this
reference.

1.3.7.   Persons.  Reference to any Person includes such Person's
successors and assigns (but only if such successors and assigns are permitted
by this Agreement or such other Loan Document, as the case may be), and
reference to a Person in a particular capacity excludes such Person in any
other capacity.

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1.3.8.   Modifications to Documents.  Reference to any agreement (including this Agreement
and any Loan Document, together with any schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument
as amended, modified, replaced, substituted for, superseded or restated.

1.3.9.   From, To and Through.  Relative to the determination of any period of time,
"from" means "from and including", "to" means
"to but excluding", and "through" means "through and
including".

1.3.10. Conflicts with Other Loan
Documents.  In the event of any conflict between the terms and
provisions of this Agreement and any Loan Document, the terms and provisions of
the Loan Document shall prevail.

1.4.      Accounting Principles.  Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate) and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP.  In the event of any change after the
date hereof in GAAP, and if such change would result in the inability to
determine compliance with any financial covenants set forth herein, then the
parties hereto agree to endeavor, in good faith, to agree upon an amendment to
this Agreement that would adjust such financial covenants in a manner that
would not affect the substance thereof, but would allow compliance therewith to
be determined in accordance with Borrower's financial statements at that time.

2.         COMMITMENT.

2.1.      Amount of Commitment.  Subject to the terms and conditions hereof and
relying upon the representations and warranties set forth herein, if any,
Freddie Mac agrees to purchase from the Seller Mortgages with an aggregate Loan
Amount not to exceed One Hundred Million and 00/100 Dollars ($100,000,000.00)
(the "Aggregate Commitment Available") under and pursuant to
the Commitments executed by Freddie Mac pursuant to this Agreement at any time
or from time to time during the term hereof.  Subject to the provisions of Section
7.2 of this Agreement, (a) each Mortgage must be purchased pursuant to
and conform to Freddie Mac's Multifamily Conventional Cash Mortgage Purchase
Program, including without limitation all of Freddie Mac's then-current
internal underwriting standards for its borrowers, guarantors, and their
principals, and (b) except as expressly provided herein, all provisions of the
Guide shall apply to the underwriting and purchase of such Mortgages.  This
Agreement is not a revolving credit facility and Borrowers may not borrow,
repay and re-borrow with respect to this Agreement.

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            2.2.      Application
Period.  The Sponsor, or any Borrower, may present the Seller
with Applications for Mortgages on or before the Application Due Date.  So long
as Freddie Mac has received all documentation and information that it requires
to underwrite a Property from the Seller and/or from the applicable Borrower by
the Application Due Date, Freddie Mac will make reasonable efforts to
underwrite such Property and issue a Commitment prior to the Expiration Date. 
Until Freddie Mac issues a Commitment for a Property, Freddie Mac is not
obligated to purchase any Mortgage for which it has received an Application. 
The Seller must originate each Mortgage that Freddie Mac has agreed to purchase
as set forth in a Commitment by the date necessary to cause the Final Delivery
Package (as defined in the Guide) for such Mortgage to be received by Freddie
Mac by the Mandatory Delivery Date for such Mortgage as set forth in the
applicable Commitment.

 

2.3.      Good Faith Deposit.  With respect to any Loan subject to a Freddie Mac
early rate-lock application or early spread-lock application, the Seller must
deliver to Freddie Mac a good faith
deposit in the amount required by the Guide prior to Rate Lock for each such
Loan in accordance with the terms of the Commitment for such Loan.

2.4.      Breakage Provisions.  Neither the Seller nor the Sponsor nor any Borrower
will be liable for any breakage fee or unused facility fee for failing to
submit Applications for Mortgages.  Upon Rate Lock of a Mortgage pursuant to a
Freddie Mac early rate-lock application or early spread-lock application, the
Sponsor and the individual Borrower will be responsible (Freddie Mac and the
Seller hereby agreeing that the Seller will assign to Freddie Mac all of the
Seller's rights under the Seller's Application for the Mortgage for the
collection of the good faith deposit and Freddie Mac's then-current standard
floating or fixed rate borrower breakage fee, as applicable, in the manner
prescribed by Freddie Mac) for the payment of such good faith deposit and
Freddie Mac's then-current standard floating or fixed rate borrower breakage
fee, as applicable, with respect to such Mortgage as is set forth in the
Commitment for such Mortgage.  

2.5.      Nondelivery.  If after Rate Lock of a Mortgage pursuant to a
Freddie Mac Commitment issued under Freddie Mac's standard delivery process, a
nondelivery (as such term is used in the Guide) occurs, the Seller must pay or
cause to be paid to Freddie Mac a nondelivery fee in the amount of two percent
(2%) of the Loan Amount specified in the Commitment for such Mortgage in
accordance with the requirements of, and as more fully set forth in, the Guide.

3.         MORTGAGE TERMS APPLICABLE TO ALL
MORTGAGES.

3.1.      Mortgage Amount.

3.1.1.   Minimum and Maximum Mortgage
Amount.  The minimum original Loan Amount of each Mortgage
shall be $10,000,000.  Notwithstanding the foregoing, the minimum original Loan
Amount of the proposed Mortgage to be secured by that certain property known as
Cambridge at Buckhead and assets related thereto may be less than $10,000,000,
but in no event less than $9,000,000.  Without the prior written consent of
Freddie Mac, the aggregate of the Loan Amounts of all Mortgages purchased
pursuant to this Agreement will not exceed the Aggregate Commitment Available.

12

 

 

 

 

 

3.1.2.   Determination of Loan Amount.  The Loan Amount for each Mortgage will be determined
by Freddie Mac.  Each Loan must satisfy Freddie Mac's refinance requirements
based on Freddie Mac's then-current underwriting and credit policies.  

For Fixed Rate Loans and Fixed to Float
Loans, the Fixed Interest Rate will be established at Rate Lock.  For purposes
of determining the Loan Amount, this Fixed Interest Rate will be the interest
rate that produces a minimum Amortizing DCR in accordance with the requirements
of subsection a.ii, b.ii, or cii set forth below, as applicable.

For Variable Rate Loans, the Loan Amount
will be based on the following two tests:  (a)  a comparable fixed rate note
rate, as determined by Freddie Mac, will be the interest rate that produces a minimum
Amortizing DCR in accordance with the requirements of subsection a.ii, b.ii, or
c.ii set forth below, as applicable, and (b) a maximum note rate or maximum
capped note rate, established at the time of Rate Lock, will be the interest
rate that produces a minimum Amortizing DCR in accordance with the requirements
of subsection a.ii, b.ii or c.ii set forth below, as applicable.

Notwithstanding the foregoing, Freddie Mac may adjust maximum LTV and minimum DCR for
softer markets as published by Freddie Mac from time to time in the online Multisuite Resource Center under "Multifamily Market Ratings."  If Freddie Mac
has determined, in its sole discretion, that no market adjustment is required,
the initial sizing of each Loan must comply with the following terms and
conditions (as also reflected in the
chart set forth in Exhibit C to this Agreement):

a.         Loan Terms of 5 years or 5
years plus Extension Period.  The following terms will apply to Loans with
a term of five (5) years or five (5) years plus an Extension Period:

i.          LTV.  For an
Acquisition Loan, the LTV for such Mortgage will not exceed 70%.  For a No Cash
Out Refinance Loan or a Cash Out Refinance Loan, the LTV for such Mortgage will
not exceed 65%.

ii.          DCR.  The Loan Amount
for Acquisition Loans and No Cash Out Refinance Loans will not exceed the
amount that produces: (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.30:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.05:1.0.  The Loan Amount for Cash Out Refinance Loans will not exceed
the amount that produces:  (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.35:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.10:1.0.

b.         Loan Term of 7 years, 6
years plus Extension Period or 7 years plus Extension Period.  The
following terms will apply to Loans with a term of seven (7) years, six (6)
years plus an Extension Period or seven (7) years plus an Extension Period:

i.          LTV.  For an
Acquisition Loan, the LTV for such Mortgage will not exceed 75%.  For a No Cash
Out Refinance Loan or a Cash Out Refinance Loan, the LTV for such Mortgage will
not exceed 70%.

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ii.          DCR.  The Loan Amount
for Acquisition Loans and No Cash Out Refinance Loans will not exceed the
amount that produces: (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.25:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.05:1.0.  The Loan Amount for Cash Out Refinance Loans will not exceed
the amount that produces:  (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.30:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.10:1.0.

c.         Loan Term of 10 years, 9
years plus Extension Period or 10 years plus Extension Period.  The
following terms will apply to Loans with a term of ten (10) years or nine (9)
years plus an Extension Period or ten (10) years plus an Extension Period:

i.          LTV.  For an
Acquisition Loan, No Cash Out Refinance Loan or a Cash Out Refinance Loan, the
LTV for such Mortgage will not exceed 75%.

ii.          DCR.  The Loan Amount
for Acquisition Loans and No Cash Out Refinance Loans will not exceed the
amount that produces: (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.25:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.05:1.0.  The Loan Amount for Cash Out Refinance Loans will not exceed
the amount that produces (i) for a Fixed Rate Loan or Fixed to Float Loan, an
Amortizing DCR of 1.30:1.0, and (ii) for a Variable Rate Loan, an Amortizing
DCR of 1.10:1.10.

3.2.      Borrower.

3.2.1.   Type of Borrower.  Each Borrower shall be an entity permitted pursuant
to the terms of the Guide and organized pursuant to state law.      

3.2.2    Ownership and Control.  The Sponsor must (i) have a direct or indirect
majority ownership interest in each Borrower and (ii) exercise Control of each Borrower without the
requirement of consent of any other Person that is a Required Borrower
Principal.  Subject to the following sentence, Freddie Mac will consider a
structure in which the Sponsor (i) has a direct or indirect majority ownership
interest in a Borrower and (ii) Controls such Borrower together with one or
more other Required Borrower Principals.  Notwithstanding the foregoing, any
Required Borrower Principals (other than the
Sponsor and any publicly-traded shareholders of the Sponsor) in the ownership structure of any Borrower must be
reviewed and approved by Freddie Mac prior to the Origination Date of the
applicable Mortgage based on Freddie Mac's then current credit and underwriting
standards.

3.2.3.   Single Asset Entity.  Each Borrower (a) shall be a single asset entity
throughout the term of the applicable Mortgage; (b) shall not own any real or
personal property other than the applicable Property securing the applicable
Mortgage and personal property related to the operation and maintenance of such
Property; (c) shall not operate any business other than the operation of
such Property; and (d) shall not maintain its assets in a way difficult to
segregate and identify.

3.3.      Properties.

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3.3.1.   Property Fundamentals.  The physical
condition, location, and other aspects of each Property, including but not
limited to environmental and zoning, and the conditions in the market where
each Property is located, must satisfy Freddie Mac's underwriting criteria in
effect from time to time.

3.3.2.   Occupancy.  On or
prior to the applicable Origination Date, each Property must be stabilized and
the ratio of units leased to tenants under leases meeting Freddie Mac's lease
requirements (as set forth in the applicable Security Instrument) over total
rentable units must satisfy Freddie Mac's then-current occupancy requirements.

3.4.      Property
Management.  With respect to each Property, the Sponsor, and/or the Sponsor's
existing subsidiary management company wholly owned and controlled by the
Sponsor and designated by the Sponsor as the property manager for the state
where the applicable Property is located, is/are approved as initial property
manager(s).

3.5.      Rate-Lock.  The interest rate or Margin, as the case may be, and
terms for each Mortgage will be set forth in the Commitment for such Mortgage
and will be fixed at Rate Lock except as otherwise set forth in the applicable
Commitment; provided, however, that without the approval of Freddie Mac and the
Seller (as evidenced by the execution and delivery by Freddie Mac and Seller of
any applicable Commitment or adjustment letter or amendment thereto), a Commitment
will not contain terms inconsistent with this Agreement.

 

3.6.      Amortization; Interest Calculation
Convention.

3.6.1.   Amortization Period.  Each Loan will be amortized on a thirty (30) year
basis; provided, however, at the Sponsor's request, Freddie Mac will consider
structuring a particular Loan as an Interest Only Loan or a Partial Interest
Only Loan provided that such Loan meets Freddie Mac's then-current underwriting
and credit requirements

                        3.6.2.   Interest
Calculation. At the Borrower's option, interest on each Loan shall
be calculated (i) on the basis of a 360-day year and the actual number of days
in the period for which interest is being calculated, or (ii) on the basis of a
360-day year and twelve (12) 30-day months.

3.7.      Guaranties.  A Guaranty will be required for each Mortgage.  Any
Guarantor must have a direct or indirect ownership interest in each Borrower. 
The "Base Recourse" under each Note and the "Base Guaranty"
under each Guaranty shall be zero percent (0%).

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3.8.      Escrows.  Collection of
monthly escrow deposits for the payment of real estate taxes will be required
for each Mortgage.  Collection of monthly escrow deposits for the payment of
fire, hazard and other insurance premiums will be required; provided, however,
Freddie Mac will consider deferring collection of such monthly escrow deposits
subject to an umbrella insurance policy acceptable to Freddie Mac. Collection
of monthly escrow deposits for water, sewer and other charges that could result
in a lien upon the applicable Property will be deferred.  Notwithstanding the
foregoing, (i) commencement of monthly escrow deposits for any charges for
which monthly escrow deposits have been deferred may be required for a Loan if
the Borrower does not timely pay any such charges, if the Borrower fails to
provide timely proof of payment of such charges or at any time during the
existence of an Event of Default (as defined in the applicable Loan Documents)
and (ii) the Borrower and Guarantor will be personally liable for the amount of
any loss or damage incurred by the Lender as a result of any unpaid charges for
which escrow deposits are deferred.

3.9.      Replacement Reserves.  Collection of monthly Replacement Reserve deposits
will be required with respect to each Mortgage.  Freddie Mac will determine in
its discretion the amount of any initial deposit and the monthly deposits under
each Replacement Reserve Agreement.  The amount of any initial deposit and the
monthly deposits under a Replacement Reserve Agreement shall be set forth in
the Commitment for such Mortgage.  Notwithstanding the foregoing, Freddie Mac
will consider deferring collection of monthly Replacement Reserve deposits on a
Loan by Loan basis, provided that such Loan meet Freddie Mac's then-current
underwriting and credit requirements for deferrals of Replacement Reserve
deposits.  As a condition of any such deferral, the applicable
Borrower will be obligated to make capital replacements to the applicable
Property, on an annual basis, in an amount not less than the engineer’s
recommended amount.

3.10     Repairs.

3.10.1. Repair and Escrow Agreement.  Freddie Mac may require a Repair and Escrow
Agreement for each Mortgage, as determined by Freddie Mac.  Freddie Mac must
approve, and each Commitment will include, a schedule of any required Repairs
to be completed for each Property.

3.10.2. Repair Escrow Fund.  If a Repair and Escrow Agreement is required for a
particular Property, and Freddie Mac requires a Repair Escrow, the applicable
Borrower must establish a Repair Escrow Fund in the amount required by the
Commitment, in accordance with the terms of the Commitment and the Repair and
Escrow Agreement.  After satisfactory completion of the Repairs, the Servicer,
on behalf of Freddie Mac, will return to such Borrower any funds remaining in
the Repair Escrow Fund.  

3.10.3. Immediate Repairs.  In addition to any Repairs required to be completed
pursuant to a Repair and Escrow Agreement, Freddie Mac may in its discretion
also require a Borrower to make immediate Repairs to a Property depending upon
the condition of such Property within a period of time prior to the Origination
Date.  Any immediate Repairs and the timeframe within which such immediate
Repairs must be completed will be set forth in the Commitment.  

3.11.    Transfers/Assumptions.

16

 

 

 

 

 

3.11.1. Variable Rate Loans subject to
Third Party Cap Agreement.  Each Security Instrument for a Variable Rate Loan
subject to a Third  Party Cap Agreement must contain the version of Section 21
entitled TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.  [NO
RIGHT TO TRANSFER.]  Variable Rate Loans subject to Third Party Cap Agreements
are not eligible for assumption.

3.11.2. All Other Loans.  Each Security Instrument for a Loan other than a
Variable Rate Loan subject to a Third Party Cap Agreement must contain the
version of Section 21 entitled TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS
IN BORROWER [RIGHT TO UNLIMITED TRANSFERS—WITH LENDER APPROVAL], subject to the
modifications set forth in Exhibit A.  In connection with a
transfer that requires approval by the Lender pursuant to the terms of the
Security Instrument, in addition to the terms and conditions set forth in such
version of Section 21 of the Security Instrument, each Security Instrument must
provide (i) that Freddie Mac must approve a third party transferee based on
Freddie Mac's underwriting standards customarily applied by Freddie Mac at the
time of the proposed transfer to the approval of borrowers in connection with
the origination or purchase of similar mortgages on multifamily properties and
(ii) that the Borrower must
pay to Freddie Mac a transfer fee equal to 1% of the outstanding principal
balance of the applicable Mortgage, a $3,000 review fee, and all costs and
expenses incurred in connection with the approval and implementation of any
transfer and assumption.  Each Security Instrument shall provide that the
Borrower must pay to Freddie Mac a $3,000 review fee, and all costs and
expenses incurred in connection with any transfer to a Person related to the
Sponsor in accordance with the terms of Section 21 of the Security Instrument;
provided, however, no transfer fee will be charged in connection therewith. 
The terms of any assumption will be set forth in Freddie Mac's assumption
approval.  The review fees and transfer fees shall be allocated between Freddie
Mac and the Seller as set forth in the Guide.  Any Loan that is assumed will not
be eligible for a Substitution (as defined below).

3.12.    Third-Party Subordinate
Financing.  No subordinate financing will be permitted,
including mezzanine financing, from a party other than the Seller/Freddie Mac. 

3.13.    Substitution
Rights.

3.13.1  Substitution Agreement.  The
Borrowers must enter into a Master Substitution Agreement in the form attached
hereto as Exhibit B (the "Substitution Agreement")
on or before the Expiration Date.  Subject to the terms and limitations of, and
as more fully set forth in, the Substitution Agreement, if Freddie Mac has
purchased at least two (2) of the Mortgages, each Borrower will have the right
from time to time after the Expiration Date to substitute the Property securing
such Borrower's Mortgage with another Property (a "Substitution"). 
If Freddie Mac does not receive a fully-executed Substitution Agreement on or
before the Expiration Date, no Substitutions of any of the Properties will be
permitted under any of the Mortgages.

3.14.    Reporting
Requirements.  The Loan Documents will provide for
periodic financial reporting for the Sponsor, each Borrower, each Guarantor and
each Property.

17

 

 

 

 

 

3.15.    Supplemental Financing.  Freddie
Mac will consider purchasing supplemental Mortgages in accordance with the
Supplemental Financing provision set forth in Exhibit A to this
Agreement, which will be included in Exhibit B to each Security Instrument.

3.16.    Moisture Management Plan.  A MMP
approved by Freddie Mac in its sole discretion will be required for each
Property throughout the term of the applicable Mortgage; provided, however,
Freddie Mac will consider, in its sole discretion, approving a Borrower’s
policies and procedures regarding moisture and mold as the required MMP subject
to Freddie Mac’s review and approval of such policies and procedures and the
Property Condition Report with respect to the applicable Property.

4.         FIXED RATE LOANS.

4.1.      Loan Term.  Each Fixed
Rate Loan will, at the Sponsor's option, have a term of five (5), seven (7) or
ten (10) years.

4.2.      Fixed Interest Rate.  At Rate Lock for a Fixed Rate Loan, Freddie Mac
will provide to the Seller and the Sponsor an interest rate quote for the Fixed
Interest Rate, which will be based upon a spread or margin, as determined by
Freddie Mac at Rate Lock, above the yield rate on the United States Treasury
Security applicable to the term of the Fixed Rate Loan.  Such United States
Treasury Security will also be referenced in the Note for the applicable
Mortgage for the purposes of calculating prepayment premiums.  Throughout the
term of the Fixed Rate Loan, interest on the principal balance of such Fixed
Rate Loan will accrue at such Fixed Interest Rate.

4.3.      Fixed
Rate Prepayment Premium.  Subject to Section 7.2 of
this Agreement, each Fixed Rate Loan shall be documented using Freddie Mac's
then-current form "Fixed Rate" Multifamily Note ("Form Fixed
Rate Note").  Each Fixed Rate Loan shall be subject to payment of a
prepayment premium upon prepayment prior to the last three (3) months of the
term of such Fixed Rate Loan as more fully described in the applicable Form
Fixed Rate Note.

5.         FIXED TO FLOAT LOANS.

5.1.      Loan Term.  Each Fixed to Float Loan will have, at the option of
the Sponsor, a term of five (5), six (6), seven (7), nine (9) or ten (10) years
plus the Extension Period, if applicable.

5.2.      Interest Rates.

5.2.1.   Fixed Rate Period.  At Rate Lock for a Fixed to Float Loan, Freddie Mac
will provide to the Seller an interest rate quote for the Fixed Interest Rate
to be applicable during the Fixed Rate Period, which will be based upon a
spread or margin, as determined by Freddie Mac at Rate Lock, above the yield
rate on the United States Treasury Security applicable to the term of the Fixed
Rate Period.  Such United States Treasury Security will also be referenced in
the Note for the applicable Mortgage for the purposes of calculating prepayment
premiums.  During the Fixed Rate Period, interest on the principal balance of
such Fixed to Float Loan will accrue at such Fixed Interest Rate.

18

 

 

 

 

 

5.2.2.   Extension Period.  If an Extension Period applies to a Fixed to Float
Loan, the interest rate shall convert to a Variable Rate Interest Rate on the
first day of the Extension Period.  During the Extension Period, the Variable
Rate Interest Rate shall adjust each calendar month so as to equal the Index
Rate plus a Margin as set forth in the Commitment.  The Margin applicable
during the Extension Period for such Fixed to Float Loan shall be determined by
Freddie Mac based on the then-current market level determined in its sole
discretion.

5.3.      Fixed to Float Prepayment
Premium.  Subject to Section 7.2 of this
Agreement, each Fixed to
Float Loan shall be documented using Freddie Mac's then-current form
"Fixed to Float" Multifamily Note ("Form FTF Note"). 
Each Fixed to Float Loan shall be subject to payment of a prepayment premium
upon prepayment prior to the Extension Period, if applicable, of such Fixed to
Float Loan as more fully described in the applicable Form FTF Note.

6.         VARIABLE RATE LOANS.

6.1.      Loan Term.  Each Variable Rate Loan will have, at the option of
the Sponsor, a term of five (5), seven (7) or ten (10) years.

6.2.      Interest Rates.  At Rate Lock for a Variable Rate Loan the Seller, in
consultation with the Sponsor or Borrower, shall select as the Index either the
one (1) month Reference Bills® Security or the one (1) month LIBOR
Rate, and Freddie Mac will determine the Margin.  The Variable Rate Interest
Rate will adjust each interest adjustment period (each one calendar month
period) so as to equal the Index Rate plus the Margin. The Margin for a
Variable Rate Loan will remain constant during the entire term of such Variable
Rate Loan.  The Index for such Variable Rate Loan shall be selected by the
Borrower as provided for by this Agreement, and the Margin for such Variable
Rate Loan shall be determined by Freddie Mac based on the then-current market
level determined in its sole discretion.

6.3.      Third Party Cap Agreements.  

                        6.3.1.   Interest
Rate Cap Required.  Unless Freddie Mac determines in its sole discretion
that a Property's LTV is less than or equal to 60%, or unless the Commitment
for a Variable Rate Loan provides for an "internal" interest rate cap
(the cost of which will be included in the Margin), the Borrower of each
Variable Rate Loan must maintain in effect during the entire term of such Variable
Rate Loan a Third Party Cap Agreement.  Each Third Party Cap Agreement shall
have a notional amount equal to the Loan Amount and a term in accordance with
the following requirements:

19

 

 	
   TERM OF LOAN

   	
   LTV

   	
   MINIMUM TERM OF THIRD PARTY CAP AGREEMENT

   
	
  5
  years

  	
  At
  maximum allowed under §3.1.2

  	
  5
  years

  
	
  5
  years

  	
  At
  least 5% less than maximum allowed under §3.1.2

  	
  3
  years with escrow

  
	
  7
  years

  	
  At
  maximum allowed under §3.1.2

  	
  7
  years

  
	
  7
  years

  	
  At
  least 5% less than maximum allowed under §3.1.2

  	
  4
  years with escrow

  
	
  10
  years

  	
  At
  maximum allowed under §3.1.2

  	
  10
  years

  
	
  10
  years

  	
  At
  least 5% less than maximum allowed under §3.1.2

  	
  5
  years with escrow

  

 

6.3.2.   Third Party Cap Agreement
Terms. Each Third Party Cap Agreement shall be with a rate
cap provider approved by Freddie Mac as an acceptable interest rate cap
provider at such time, and shall be on a form previously agreed upon by Freddie
Mac and such provider.  Each Third Party Cap Agreement shall have a strike rate
or cap rate that produces an Amortizing DCR in accordance with the requirements
of Section 3.1.2 of this Agreement.

6.3.3.   Replacement Cap Escrow.  With respect to each Variable Rate Mortgage for
which a Third Party Cap Agreement is required but the term of such Third Party
Cap Agreement may be less than the term of the Variable Rate Mortgage pursuant
to Section 6.3.1 of this Agreement, the Security Instrument will
provide that if at any time the term of the Third Party Cap Agreement then in
place is less than the remaining term of the applicable Variable Rate Mortgage,
the Borrower shall escrow monthly deposits to allow for the purchase of a
replacement Third Party Cap Agreement.  Freddie Mac will determine the amount
of the escrow based upon 125% of the projected costs of the existing cap rate,
using the original strike rate.  The Security Instrument will also provide that
the Lender may adjust the amount of such monthly deposits annually, except
during the twelve (12) calendar month period immediately prior to the
expiration date of the Third Party Cap Agreement then in place, during which
twelve (12) month period Lender may adjust the amount of such monthly deposits
as frequently as monthly.

6.3.4.   Third Party Cap Agreement
Guaranty.  The Loan Documents for each Variable Rate Mortgage
for which a Third Party Cap Agreement is required will provide that Borrower
and Guarantor will be personally liable to Freddie Mac for failure to maintain
a Third Party Cap Agreement at any time during the term of a Variable Rate
Mortgage that does not provide for an internal interest rate cap. 

6.4.      Variable Rate Prepayment
Premium.  Subject to Section 7.2 of this
Agreement, each Variable Rate Loan shall be documented using Freddie Mac's
then-current form "Adjustable Rate" Multifamily Note ("Form
ARM Note").  Each Variable Rate Loan shall be subject to a prepayment premium
upon prepayment prior to the last three (3) months of the term of such Variable
Rate Loan as more fully described in the applicable Commitment and Form ARM
Note.  Variable Rate Loans may be subject to a lockout period equal to the
twelve (12) month period following the date of the first monthly installment of
interest payable under the Note for such Variable Rate Loan.  If applicable, no
prepayment may be made during such lockout period.

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            6.5.      Conversion of Variable Rate
Mortgages.  The Borrower of a Variable Rate Loan may convert
such Variable Rate Loan to a Fixed Rate Loan or Fixed to Float Loan at any time
during the term of the Variable Rate Loan in accordance with Freddie Mac's
Streamlined Refinance Mortgage Purchase Product as then in effect.  The Fixed
Rate Loan or Fixed to Float Loan resulting from a conversion of a Variable Rate
Loan shall not be counted against the Aggregate Commitment Available or
otherwise subject to the terms of this Agreement.

7.         ADDITIONAL TERMS.

7.1.      Loan
Applications under this Agreement.  The Seller may from time to time prior to the
Expiration Date request Freddie Mac to purchase Mortgages under the terms of
this Agreement.  Each such request will be made in accordance with Freddie
Mac's application process in effect from time to time.

7.2.      Multifamily Seller/Servicer
Guide, Commitment and Loan Documents.  From time to time, Freddie Mac in its sole
discretion revises the Guide, the form Commitment and the Form Loan Documents
to add, delete or change requirements, conditions and form documents.  As the
Guide, the form Commitment and the Form Loan Documents are revised, such
revised documents shall be used for each Mortgage for which a Commitment has
not yet been issued.  If a conflict develops between this Agreement and the
revised form of the Guide, form Commitment or Form Loan Documents, the revised
form of the Guide, form Commitment or Form Loan Documents shall govern, except
for the general terms of Sections 2, 3, 4, 5 and 6 of this
Agreement.  (For example, as the form Guaranty is revised, the terms of such
revised Guaranty shall apply to each Mortgage for which a Commitment has not
yet been issued by Freddie Mac and accepted by the Seller; however, the
"Base Guaranty" shall remain at zero percent (0%) as set forth in Section
3.7.1 of this Agreement.  As a further example, if Freddie Mac revises
its underwriting or credit policies, such revised underwriting or credit
policies shall apply to each Mortgage for which a Commitment has not yet been
issued by Freddie Mac and accepted by the Seller, except as explicitly set
forth in Sections 2 through 6 of this Agreement). 
Except to the extent that revisions to the Guide, the Form Loan Documents or
Freddie Mac’s policies or procedures necessitate a change to the Modifications of
Form Loan Documents set forth in Exhibit A to this Agreement, as
determined by Freddie Mac in its reasonable discretion, the Modifications of
Form Loan Documents set forth in Exhibit A to this Agreement will
apply to any revised Form Loan Documents.

If this Agreement is silent with respect to any
subject that is covered by provisions set forth in the Guide or in any
Commitment, the provisions of the Guide and Commitment, respectively, will
govern.

 

7.3.      Servicing of Mortgage.  The Servicer shall service each Mortgage pursuant to
the requirements of the Guide.  In addition, if this Agreement or any Loan
Documents provide additional servicing requirements, the Servicer shall perform
such additional servicing requirements without payment of any additional
servicing fee, except as otherwise agreed in writing by Freddie Mac and the
Servicer.

21

 

 

 

 

 

7.4.      Replacement of Seller.  The Seller is an approved Freddie Mac Program Plus
Seller/Servicer as of the date of this Agreement.  If at any time the Seller is
no longer an approved Program Plus Seller/Servicer, Freddie Mac may replace the
Seller with another seller/servicer under this Agreement without payment of any
fee or penalty to the Seller.  Notwithstanding the foregoing, so long as no
Termination Event has occurred and is continuing, the Sponsor shall have the
right to approve any replacement of such Seller, such approval to not be
unreasonably withheld, conditioned or delayed; provided, however, if the
Sponsor does not approve any such replacement, Freddie Mac will have the right
to terminate this Agreement.  Any Servicer terminated
hereunder must transfer the servicing of any Mortgage in accordance with the
Guide to a replacement Servicer selected by Freddie Mac.

7.5.      Fees
and Expenses.

7.5.1.   Fees and Expenses Due on the
Closing Date.  The Seller shall remit to Freddie Mac on the Closing
Date, as further consideration for Freddie Mac's agreements hereunder, a
non-refundable fee equal to one tenth of one percent (0.10%) of the Aggregate
Commitment Available ("Transaction Fee").  In addition, the
Seller shall cause the Sponsor to pay or reimburse the Seller and Freddie Mac
for their respective expenses, including legal fees incurred in connection with
this Agreement and any other documents related hereto.

7.5.2.   Fees
Due in Connection with the Issuance of each Commitment.

a.         With respect to each Loan, the
Seller must remit to Freddie Mac, as additional consideration for Freddie Mac's
costs in underwriting the transactions contemplated hereby, a non-refundable
fee in the amount of Five Thousand and 00/100 Dollars ($5,000.00) (the "Mortgage
Review Fee") and a Seismic Report Fee, as applicable.  The Mortgage
Review Fee and a Five Hundred and 00/100 Dollar ($500.00) deposit for the
Seismic Report Fee, if applicable, shall be paid at the same time as the
Application Fee pursuant to the terms of the Guide.

b.         With respect to each Loan, the
Seller must remit to Freddie Mac a non-refundable application fee equal to the
greater of Two Thousand and 00/100 Dollars ($2,000.00) or one-tenth of one
percent (0.10%) of the proposed Loan Amount (the "Application Fee"). 
For a Loan under Freddie Mac's standard delivery process, the Seller must remit
the Application Fee to Freddie Mac with the full underwriting package in
accordance with the Guide.  For a Loan under Freddie Mac's early rate-lock
delivery process, the Application Fee is deemed earned by Freddie Mac upon Rate
Lock and the Seller must remit the Application Fee to Freddie Mac in accordance
with the terms of the Commitment.  

c.         In addition to the fees and
costs set forth in subsections a. and b. above, the Seller shall pay or
reimburse, or cause the Borrowers to pay or reimburse, Freddie Mac for its
other actual third party costs and expenses, including costs and expenses for
thirty party reports and reasonable legal fees for outside counsel, incurred in
connection with each Loan.

22

 

 

 

 

 

d.         The fees payable to Freddie
Mac hereunder are in addition to any fees, expenses and deposits required to be
paid by a Borrower to the Seller pursuant to an Application.

            7.5.3.   Substitution Fees.  In
connection with any Substitution, the applicable Borrower must pay the
applicable Substitution fees pursuant to the terms of the Substitution
Agreement.

            7.5.4.   Annual Servicing
Fee.  With respect to each Loan, the Servicer will
receive an annual servicing fee in an amount permitted under the Guide but in
no event in excess of one-tenth of one percent (0.10%) or ten (10) basis points
of the original Mortgage Loan Amount, such fee to be included in the Fixed
Interest Rate for Fixed Rate Loans and Fixed to Float Loans and in the Margin
for Variable Rate Loans.  

7.6.      Use of Proceeds.  The proceeds of any Mortgage may be used for any
lawful purpose.

7.7.      Material
Adverse Change.

7.7.1.   Reporting
Requirements.

a.         The Seller Master Financing
Agreement must require the Sponsor to deliver the following to the Seller no
later than sixty (60) days prior to the anniversary of the Closing Date (the
"Anniversary Delivery Date"):

i.          The Sponsor's and, if the
Guarantor is a Person other than the Sponsor, the Guarantor's most recent Form
10-K and Form 10-Q; and

ii.          a complete Freddie Mac Form
1115 dated within ninety (90) days of the anniversary of the Closing Date.

b.         The Seller must review and
analyze the documentation required by subsection (a) above (collectively, the
"Anniversary Date Financial Documentation") and, no later than
thirty (30) days prior to the anniversary of the Closing Date, deliver to
Freddie Mac (i) all such Anniversary Date Financial Documentation, (ii) the
Seller’s analysis thereof, and (iii) a certification from the Seller that the
Seller has reviewed the Anniversary Date Financial Documentation and (A) the
Seller has determined that the Sponsor's and, if the Guarantor is a Person
other than the Sponsor, the Guarantor's current financial position is equal to
or better than such party’s financial position as of the Closing Date, or (B)
the Seller has determined that either the Sponsor' or, if the Guarantor is a
Person other than the Sponsor, the Guarantor's current financial position is
not equal to or better than such party’s financial position as of the Closing
Date, together with the percentage by which such party’s net worth, liquidity
and/or contingent liabilities have changed since the Closing Date.

23

 

 

 

 

 

7.7.2.   Monitoring Compliance.  The Seller shall monitor compliance with the
requirements described in this Section 7.7, collect and review
any documentation described herein and immediately report to Freddie Mac any
violations of the requirements described above or any other violations of the
Obligations.

7.7.3.   Underwriting Mortgages.  In addition to
Freddie Mac’s assessment of the Anniversary Date Financial Documentation,
Freddie Mac may determine that a Material Adverse Change has occurred based on
its review and underwriting in connection with each Mortgage.

7.7.4.   Consequences of a Material
Adverse Change.  If a Material
Adverse Change has occurred, Freddie Mac may, at its option and in its sole and
absolute discretion, declare a Termination Event and exercise any of its rights
and remedies under Section 9.2 of this Agreement.

7.8.      No Renewal or Extension
Options.  Neither the Sponsor nor any Borrower shall have any
right to renew or extend the terms of this Agreement.

7.9.      Term.  The term of this Agreement shall commence on the
Closing Date and terminate on the Expiration Date unless otherwise terminated
earlier pursuant to the provisions hereof.

8.         ACKNOWLEDGEMENTS BY SELLER.

The Seller
acknowledges to Freddie Mac as follows:

8.1.      Insurance.  The Seller acknowledges that Freddie Mac, from time
to time, revises its insurance requirements as set forth in the Guide and in
each Commitment and that compliance with all revised insurance requirements is
required by Freddie Mac during the term of this Agreement.

8.2.      Further Documentation.  In the event Freddie Mac requires any further
documentation or information with respect to a Mortgage prior to the
Origination Date of such Mortgage or with respect to the Sponsor or Guarantor
to carry out the intent of this Agreement, the Seller shall provide, or the
Seller shall cause any applicable Borrower, the Sponsor or Guarantor, as the
case may be, to provide, or cause to be provided to Freddie Mac at the Seller's
or Borrower's, the Sponsor's and Guarantor's sole cost and expense.

9.         RIGHT OF TERMINATION.

9.1.      Termination Events.  The occurrence or existence of any one or more of
the following events or conditions (whatever the reason therefor and whether
voluntary, involuntary or effected by operation of Law) shall be a "Termination
Event":

9.1.1.   Default under this Agreement.  The Seller shall be in default under this Agreement.

24

 

 

 

 

 

9.1.2.   Event of Default under the
Loan Documents.  Any Borrower shall be in default under any Security
Instrument or other Loan Document, beyond any applicable cure period or any
Guarantor shall be in default under any Guaranty beyond any applicable cure period.

9.1.3.   Nondelivery of Mortgage.  A nondelivery (as such term is used in the Guide) of
any Mortgage shall have occurred, as determined by Freddie Mac.

9.1.4.   Insolvency.  The Sponsor or Guarantor ceases to be Solvent or
admits in writing its inability to pay its debts as they mature.

9.1.5.   Cessation of Business.  The Sponsor or Guarantor ceases to conduct the business
of the Sponsor or Guarantor, respectively, or the Sponsor or Guarantor is
enjoined, restrained or in any way prevented by court order from conducting all
or any material part of the business of the Sponsor or Guarantor, respectively,
and such injunction, restraint or other preventive order is not stayed or
dismissed within twenty (20) Business Days after the entry thereof.

9.1.6.   Bankruptcy and Other
Proceedings.  The Sponsor or Guarantor files for bankruptcy
protection under the United States Bankruptcy Code or voluntarily becomes
subject to any reorganization, receivership, insolvency proceeding or other
similar proceeding pursuant to any other federal or state Law affecting debtor
and creditor rights, or an involuntary case is commenced against the Sponsor or
Guarantor by any creditor (other than the Seller or Freddie Mac) of the Sponsor
or Guarantor, respectively, pursuant to the United States Bankruptcy Code or
other federal or state Law affecting debtor and creditor rights and is not
dismissed or discharged within sixty (60) days after filing.

9.1.7.   Material Adverse Change.  A Material Adverse Change shall have occurred.

9.1.8.   Preservation of Existence.  Any Guarantor that is a corporation, general or
limited partnership or limited liability company fails to maintain its legal
existence as a corporation, general or limited partnership or limited liability
company, as the case may be, and its license or qualification and good standing
in each jurisdiction in which its ownership or lease of a Property or the
nature of its business makes such license or qualification necessary or desirable,
as applicable.

9.1.9.   Liquidations, Mergers,
Consolidations, Acquisitions.  Except for transfers permitted by Section 3.11 and
Exhibit A, any Guarantor that is not a natural person dissolves, liquidates or
winds-up its affairs, or becomes a party to any merger or consolidation, or
acquires by purchase, lease or otherwise all or substantially all of the assets
or capital stock of any other Person.

25

 

 

 

 

 

9.2.      Consequences of Termination
Event.  Upon the occurrence of a Termination Event under Section
9.1, Freddie Mac shall be entitled at its sole and exclusive option, to
terminate its obligations to issue Commitments; it being understood and agreed
that if a Termination Event shall also constitute a default or event of default
by Borrower under any Loan Document, then the provisions of this Section
9.2 shall not be deemed to preclude Freddie Mac from exercising all of
its rights and remedies provided for under such applicable Loan Document. 
Notwithstanding the foregoing, Freddie Mac also shall be entitled at its option
not to terminate its obligations to issue Commitments and to elect to modify
the terms set forth in this Agreement under which Freddie Mac will agree to
issue additional Commitments under this Agreement.

10.       MISCELLANEOUS.

10.1.    Cooperation by the Sponsor and
Borrower; the Sponsor's Obligations.  The Sponsor must grant to Freddie Mac the right to
distribute on a confidential basis financial and other information concerning
the Sponsor, Guarantor, each Borrower, each indemnitor, other Person, the
Properties, and other pertinent information with respect to any Mortgage to any
party purchasing securities issued by Freddie Mac.

10.2.    Successors and Assigns.  This Agreement shall be binding upon and shall inure
to the benefit of Freddie Mac, the Seller and their respective successors and
assigns, except that the Seller may not assign or transfer any of its rights or
obligations hereunder or any interest herein, except (i) pursuant to any written
agreement among Freddie Mac, Sponsor (as long as no Termination Event has
occurred and is continuing) and the Seller permitting such assignment or
transfer, or (ii) as otherwise approved in writing by Freddie Mac and Sponsor
(as long as no Termination Event has occurred and is continuing); provided,
however, that if the Sponsor does not approve any such assignment, Freddie Mac
shall have the right to terminate this Agreement.

10.3.    No Agency.  The Seller is not an agent of Freddie Mac.

10.4.    Modifications, Amendments or
Waivers.  Freddie Mac and the Seller may from time to time
enter into written agreements amending or changing any provision of this Agreement
or the rights of Freddie Mac or the Seller hereunder, or may grant written
waivers or consents to a departure from the due performance of the obligations
of the Seller or Freddie Mac hereunder.  Any such written agreement, waiver or
consent shall be effective to bind Freddie Mac and the Seller.

10.5.    Remedies Cumulative.  Each right and remedy provided in this Agreement is
distinct from all other rights or remedies under this Agreement or any Loan
Document or afforded by applicable Law, and each shall be cumulative and may be
exercised concurrently, independently, or successively, in any order.

26

 

 

 

 

 

10.6.    Notices.  All notices, requests, demands, directions and other
communications given to or made upon any party hereto under the provisions of
this Agreement shall be in writing unless otherwise expressly provided
hereunder and shall be delivered or sent by telex, facsimile, certified mail or
hand delivery if to Freddie Mac or to the Seller, to each of them at the
addresses and numbers set forth below, or in accordance with any subsequent
unrevoked written direction from any party to the others.  All such notices
shall, except as otherwise expressly herein provided, be effective (a) in the
case of telex or facsimile, when received, (b) in the case of hand-delivered
notice, when hand-delivered, (c) if given by certified mail, three (3) days
after such communication is deposited in the mail with first-class postage
prepaid, return receipt requested, and (d) if given by any other means
(including by air courier), when delivered; provided, that all such
notices to Freddie Mac shall not be effective until received.

Freddie
Mac's Notice Address:

Freddie Mac

M.S. B-4F

8100 Jones Branch Drive

McLean, Virginia  22102

Attention:
Multifamily Business Initiatives Director

 

with a
copy to:

Freddie Mac

M.S. B-4B

8100 Jones Branch Drive

McLean, Virginia  22102

Attention: 
Conventional Structured Transactions Director

 

Seller's
Notice Address:

Wells Fargo Bank, National Association

2010 Corporate Ridge, Suite 1000

McLean, Virginia  22102

Attention: 
Servicing/Asset Management Department

Fax No. (866) 359-6885

 

 

10.7.    Severability.  The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision, and all other provisions shall remain in full force and effect. 
This Agreement and the Guide contain the entire agreement between the parties as
to the rights granted and the obligations assumed in this Agreement.  This
Agreement may not be amended or modified except by a writing signed by the
party against whom enforcement is sought.

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10.8.    Governing Law; Consent to
Jurisdiction and Venue.  The Laws of the Commonwealth of Virginia shall govern this Agreement.  The Seller agrees that any controversy arising under or
in relation to this Agreement shall be litigated exclusively in the courts of
the Commonwealth of Virginia; provided, however, the Loan Documents shall be
governed by the Laws of the jurisdiction specified therein.  The state and
federal courts and authorities with jurisdiction in the Commonwealth of Virginia shall have exclusive jurisdiction over all controversies that shall arise under or in
relation to this Agreement.  The Seller irrevocably consents to service,
jurisdiction, and venue of such courts for any such litigation and waives any
other venue to which it might be entitled by virtue of domicile, habitual
residence or otherwise. 

10.9.    Prior Understanding.  This Agreement and the other Loan Documents
supersede all prior understandings and agreements, whether written or oral,
between the parties hereto and thereto relating to the transactions provided
for herein and therein, including any prior term sheets.

10.10.  Disclosure of Information.  Freddie Mac may furnish information regarding the
Seller, the Sponsor, any Borrower or any Property to third parties with an
existing or prospective interest in the servicing, enforcement, evaluation,
performance, purchase or securitization of a Mortgage, including but not
limited to Freddie Mac's regulators, accountants, trustees, master servicers,
special servicers, rating agencies, and organizations maintaining databases on
the underwriting and performance of multifamily mortgage loans.

10.11.  No Third Parties Benefited.  No creditor of any party to this Agreement and no
other person shall be a third party beneficiary of this Agreement or any Loan
Document.  Without limiting the generality of the preceding sentence, (i) an
agreement, if any, including any Servicing Agreement, between Freddie Mac and
the Seller for purchases of Mortgages shall constitute a contractual obligation
of the Seller that is independent of the obligation of Borrower for the payment
of a Mortgage, (ii) neither the Sponsor nor any Borrower shall be a third party
beneficiary of this Agreement, and (iii) no payment by the Seller under any
such agreement will reduce the outstanding principal amount of a Mortgage or
any interest accrued thereon.

10.12.  Advertising.  Freddie Mac may include the name of the Seller, any
Borrower, the Sponsor, the name and location of any Property, the Loan Amount
and the number of apartment units contained in any Property on Freddie Mac's
client list and in any typical advertisement.  

10.13.  Time of Essence.  Time is of the essence with respect to each
obligation of the Seller and Freddie Mac hereunder.

10.14.  Counterparts.  This Agreement may be executed by different parties
hereto on any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.

 

[Section 10.16 and signatures follow on subsequent
pages]

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10.15.  WAIVER OF TRIAL BY JURY.  THE SELLER AND FREDDIE MAC EACH (A) COVENANTS AND
AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF
THIS AGREEMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS THE SELLER AND
FREDDIE MAC UNDER THIS AGREEMENT THAT IS TRIABLE OF RIGHT BY A JURY AND (B)
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT
ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE.  THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE
BENEFIT OF COMPETENT LEGAL COUNSEL.

/s/ F.U.                                                                           
   

Initials of the Authorized Officer of
Seller and Freddie Mac

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

29

 

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto, by
their officers thereunto duly authorized, have executed this Agreement as of
the day and year first above written.

SELLER:

 

WELLS
  FARGO BANK, NATIONAL ASSOCIATION

 

 

 

By: 
/s/ Mia T. Bergen 

Name: 
Mia T. Bergen

Title:    
Assistant Vice President

 

30

 

 

 

 

 

 

FREDDIE
MAC:

 

FEDERAL
HOME LOAN MORTGAGE CORPORATION, a
federally chartered corporation

 

 

 

By   /s/  Filiz Unal

Name: 
Filiz Unal

Title:    
Home Office U W Director

31

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