Document:

Exhibit 10.22

 

RECORDING
REQUESTED BY 

AND WHEN RECORDED MAIL 

TO:

 

Berkshire
Mortgage Finance 

Limited Partnership

7575 Irvine Center Drive, 2nd Flr. 

Irvine, CA 92618 

 

E#:
2421-EH

FHLMC
#: 002669129

 

MULTIFAMILY DEED OF TRUST,

ASSIGNMENT OF RENTS,

SECURITY
AGREEMENT AND FIXTURE FILING 

(CALIFORNIA — REVISION DATE 3-17-03)

 

ATTENTION
COUNTY RECORDER: THIS INSTRUMENT IS INTENDED TO BE EFFECTIVE AS A FINANCING
STATEMENT FILED AS A FIXTURE FILING PURSUANT TO SECTION 9502 OF THE
CALIFORNIA COMMERCIAL CODE. PORTIONS OF THE GOODS COMPRISING A PART OF THE
MORTGAGED PROPERTY ARE OR ARE TO BECOME FIXTURES RELATED TO THE LAND DESCRIBED
IN EXHIBIT A HERETO. THIS INSTRUMENT IS TO BE FILED FOR RECORD IN THE RECORDS
OF THE COUNTY WHERE DEEDS OF TRUST ON REAL PROPERTY ARE RECORDED AND SHOULD BE
INDEXED AS BOTH A DEED OF TRUST AND AS A FINANCING STATEMENT COVERING FIXTURES.
THE ADDRESSES OF BORROWER (DEBTOR) AND LENDER (SECURED PARTY) ARE SPECIFIED IN
THE FIRST PARAGRAPH ON PAGE 1 OF THIS INSTRUMENT.

 

 

MULTIFAMILY DEED OF TRUST,

ASSIGNMENT OF RENTS,

SECURITY AGREEMENT AND

FIXTURE FILING

(CALIFORNIA — REVISION DATE 3-17-03)

 

THIS
MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE
FILING (the “Instrument”) is made to be
effective this 1st  day of April 2004, by Waterford
Place Apartments, LLC, a California limited liability company organized and
existing under the laws of CA, whose address is 655 Brea Canyon Road,
Walnut, CA 91788-,  as trustor (“Borrower”),  to
First American Title Insurance Company, as trustee (“Trustee”),  for the benefit of
Berkshire Mortgage Finance Limited Partnership organized and existing
under the laws of Massachusetts, whose address is 7575 Irvine Center
Drive, Suite 200, Irvine, CA 92618, as beneficiary (“Lender”).  Borrower’s
organizational identification number, if applicable, is 95-4869325.

 

Borrower,
in consideration of the Indebtedness and the trust created by this Instrument,
irrevocably grants, conveys and assigns to Trustee, in trust, with power of
sale, the Mortgaged Property, including the Land located in Alameda
County, State of California and described in Exhibit A attached to this
Instrument.

 

TO
SECURE TO LENDER the repayment of the Indebtedness evidenced by Borrower’s
Multifamily Note payable to Lender, dated as of the date of this Instrument,
and maturing on May 01, 2014 (the “Maturity
Date”),  in the principal amount of $52,000.000,
and all renewals, extensions and modifications of the Indebtedness, the payment
of all sums advanced by or on behalf of Lender to protect the security of this
Instrument under Section 12, and the performance of the covenants and
agreements of Borrower contained in the Loan Documents.

 

Borrower
represents and warrants that Borrower is lawfully seized of the Mortgaged
Property and has the right, power and authority to grant, convey and assign the
Mortgaged Property, and that the Mortgaged Property is unencumbered, except as
shown on the schedule of exceptions to coverage in the title policy issued to
and accepted by Lender contemporaneously with the execution and recordation of
this Instrument and insuring Lender’s interest in the Mortgaged Property (the “Schedule of Title Exceptions”).  Borrower
covenants that Borrower will warrant and defend generally the title to the
Mortgaged Property against all claims and demands, subject to any easements and
restrictions listed in the Schedule of Title Exceptions.

 

Covenants. In consideration of the
mutual promises set forth in this Instrument, Borrower and Lender covenant and
agree as follows:

 

1

 

1.             DEFINITIONS.
The following terms, when used in this Instrument (including when used
in the above recitals), shall have the following meanings:

 

(a)           “Attorneys’ Fees and Costs” means
(i) fees and out-of-pocket costs of Lender’s and Loan Servicer’s
attorneys, as applicable, including costs of Lender’s and Loan Servicer’s
in-house counsel, support staff costs, costs of preparing for litigation,
computerized research, telephone and facsimile transmission expenses, mileage,
deposition costs, postage, duplicating, process service, videotaping and
similar costs and expenses; (ii) costs and fees of expert witnesses,
including appraisers; and (iii) investigatory fees.

 

(b)           “Borrower” means all
persons or entities identified as “Borrower” in the first paragraph of this
Instrument, together with their successors and assigns.

 

(c)           “Collateral Agreement” means any
separate agreement between Borrower and Lender for the purpose of establishing
replacement reserves for the Mortgaged Property, establishing a fund to assure
the completion of repairs or improvements specified in that agreement, or
assuring reduction of the outstanding principal balance of the Indebtedness if
the occupancy of or income from the Mortgaged Property does not increase to a
level specified in that agreement, or any other agreement or agreements between
Borrower and Lender which provide for the establishment of any other fund,
reserve or account.

 

(d)           “Controlling Entity” means
an entity  which owns,
directly or indirectly through one or more intermediaries, (i) a general
partnership interest or a Controlling Interest of the limited partnership
interests in Borrower (if Borrower is a partnership or joint venture),
(ii) a manager’s interest in Borrower or a Controlling Interest of the
ownership or membership interests in Borrower (if Borrower is a limited
liability company), (iii) a Controlling Interest of any class of voting
stock of Borrower (if Borrower is a corporation), or (iv) a trustee’s interest
or a Controlling Interest of the beneficial interests in Borrower.

 

(e)           “Controlling Interest” means
(i) 51 percent or more of the ownership interests in an entity, or
(ii) a percentage ownership interest in an entity of less than 51 percent,
if the owner(s) of that interest actually direct(s) the business and
affairs of the entity without the requirement of consent of any other party.
The Controlling Interest shall be deemed to be 51 percent unless otherwise
stated in Exhibit B.

 

(f)            “Environmental Permit”
means any permit,  license, or
other authorization issued under any Hazardous Materials Law with respect to
any activities or businesses conducted on or in relation to the Mortgaged
Property.

 

(g)           “Event of Default” means the
occurrence of any event listed in Section 22.

 

2

 

(h)             “Fixtures”  -means all property owned by Borrower which is so
attached to the Land or the Improvements as to constitute a fixture under
applicable law, including: machinery, equipment, engines, boilers,
incinerators, installed building materials; systems and equipment for the
purpose of supplying or distributing heating, cooling, electricity, gas, water,
air, or light; antennas, cable, wiring and conduits used in connection with
radio, television, security, fire prevention, or fire detection or otherwise
used to carry electronic signals; telephone systems and equipment; elevators
and related machinery and equipment; fire detection, prevention and
extinguishing systems and apparatus; security and access control systems and
apparatus; plumbing systems; water heaters, ranges, stoves, microwave ovens,
refrigerators, dishwashers, garbage disposers, washers, dryers and other
appliances; light fixtures, awnings, storm windows and storm doors; pictures,
screens, blinds, shades, curtains and curtain rods; mirrors; cabinets,
paneling, rugs and floor and wall coverings; fences, trees and plants; swimming
pools; and exercise equipment.

 

(i)            “Governmental Authority”
means any board, commission, department or body of any municipal,
county, state or federal governmental unit, or any subdivision of any of them,
that has or acquires jurisdiction over the Mortgaged Property or the use,
operation or improvement of the Mortgaged Property.

 

(j)            “Hazard Insurance”
is defined in Section 19.

 

(k)           “Hazardous Materials”
means petroleum and petroleum products and compounds containing them,
including gasoline, diesel fuel and oil; explosives; flammable materials;
radioactive materials; polychlorinated biphenyls (“PCBs”) and compounds
containing them; lead and lead-based paint; asbestos or asbestos-containing
materials in any form that is or could become friable; underground or
above-ground storage tanks, whether- empty or containing any substance; any
substance the presence of which on the Mortgaged Property is prohibited by any
federal, state or local authority; any substance that requires special handling
and any other material or substance now or in the future that (i) is
defined as a “hazardous substande,” “hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” by or
within the meaning of any Hazardous Materials Law, or (ii) is regulated in
any way by or within the meaning of any Hazardous Materials Law.

 

(l)            “Hazardous Materials Laws”
means all federal, state, and local laws, ordinances and regulations
and standards, rules, policies and other governmental requirements,
administrative rulings and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous Materials or the
protection of human health or the environment and apply to Borrower or to the
Mortgaged Property. Hazardous Materials Laws include, but are not limited to,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, et seq., the Resource
Conservation and 

 

3

 

Recovery
Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic
Substance Control Act, 15 U.S.C. Section 2601, et
seq., the Clean Water Act, 33 U.S.C. Section 1251, et
seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
Section 5101 et seq., and their state
analogs.

 

(m)          “Impositions”
and “Imposition Deposits” are defined in
Section 7(a).

 

(n)           “Improvements”
means the buildings, structures, improvements, and alterations now constructed
or at any time in the future constructed or placed upon the Land, including any
future replacements and additions.

 

(o)           “Indebtedness”
means the principal of, interest at the fixed or variable rate set forth in the
Note on, and all other amounts due at any time under, the Note, this Instrument
or any other Loan Document, including prepayment premiums, late charges,
default interest, and advances as provided in Section 12 to protect the
security of this Instrument.

 

(p)           “Initial Owners”
means, with respect to Borrower or any other entity, the persons or entities
that (i) on the date of the Note, or (ii) on the date of a Transfer
to which Lender has consented, own in the aggregate 100 percent of the
ownership interests in Borrower or that entity.

 

(q)           “Land” means
the land described in Exhibit A.

 

(r)            “Leases” means
all present and future leases, subleases, licenses, concessions or grants or
other possessory interests now or hereafter in force, whether oral or written,
covering or affecting the Mortgaged Property, or any portion of the Mortgaged
Property (including proprietary leases or occupancy agreements if Borrower is a
cooperative housing corporation), and all modifications, extensions or
renewals.

 

(s)           “Lender” means
the entity identified as “Lender” in the first paragraph of this Instrument, or
any subsequent holder of the Note.

 

(t)            “Loan Documents”
means the Note, this Instrument, all guaranties, all indemnity agreements, all
Collateral Agreements, O&M Programs, and any other documents now or in the
future executed by Borrower, any guarantor or any other person in connection
with the loan evidenced by the Note, as such documents may be amended from time
to time.

 

(u)           “Loan Servicer”
means the entity that from time to time is designated by Lender to collect
payments and deposits and receive Notices under the Note, this Instrument and
any other Loan Document, and otherwise to service the loan evidenced by the
Note for the benefit of Lender. Unless Borrower receives Notice to the
contrary, the Loan Servicer is the entity identified as “Lender” in the first
paragraph of this Instrument.

 

4

 

(v)           “Mortgaged Property”
means all of Borrower’s present and future right, title and interest in and to
all of the following:

 

(i)            the Land;

 

(ii)           the
Improvements;

 

(iii)          the Fixtures;

 

(vi)          the Personalty;

 

(v)           all current and
future rights, including air rights, development rights, zoning rights and
other similar rights or interests, easements, tenements, rights-of-way, strips
and gores of land, streets, alleys, roads, sewer rights, waters, watercourses,
and appurtenances related to or benefiting the Land or the Improvements, or
both, and all rights-of-way, streets, alleys and roads which may have been or
may in the future be vacated;

 

(vi)          all proceeds
paid or to be paid by any insurer of the Land, the Improvements, the Fixtures,
the Personalty or any other part of the Mortgaged Property, whether or not
Borrower obtained the insurance pursuant to Lender’s requirement;

 

(vii)         all awards,
payments and other compensation made or to be made by any municipal, state or
federal authority with respect to the Land, the Improvements, the Fixtures, the
Personalty or any other part of the Mortgaged Property, including any awards or
settlements resulting from condemnation proceedings or the total or partial
taking of the Land, the Improvements, the Fixtures, the Personalty or any other
part of the Mortgaged Property under the power of eminent domain or otherwise
and including any conveyance in lieu thereof;

 

(viii)        all contracts,
options and other agreements for the sale of the Land, the Improvements, the
Fixtures, the Personalty or any other part of the Mortgaged Property entered
into by Borrower now or in the future, including cash or securities deposited
to secure performance by parties of their obligations;

 

5

 

(ix)           all proceeds
from the conversion, voluntary or involuntary, of any of the above into cash or
liquidated claims, and the right to collect such proceeds;

 

(x)            all Rents and
Leases;

 

(xi)           all earnings,
royalties, accounts receivable, issues and profits from the Land, the
Improvements or any other part of the Mortgaged Property, and all undisbursed
proceeds of the loan secured by this Instrument and, if Borrower is a
cooperative housing corporation, maintenance charges or assessments payable by
shareholders or residents;

 

(xii)          all Imposition
Deposits;

 

(xiii)         all refunds or
rebates of Impositions by any municipal, state or federal authority or
insurance company (other than refunds applicable to periods before the real
property tax year in which this Instrument is dated);

 

(xiv)        all tenant
security deposits which have not been forfeited by any tenant under any Lease
and any bond or other security in lieu of such deposits; and

 

(xv)         all names under
or by which any of the above Mortgaged Property may be operated or known, and all
trademarks, trade names, and goodwill relating to any of the Mortgaged
Property.

 

(w)          “Note” means the
Multifamily Note described on page 1
of this Instrument, including all schedules, riders, allonges and
addenda, as such Multifamily Note may be amended from time to time.

 

(x)            “O&M Program” is defined in
Section 18(d).

 

(y)           “Personalty”
means all

 

(i)                                     accounts (including deposit
accounts);

 

(ii)                                  equipment and inventory
owned by Borrower, which are used now or in the future in connection with the
ownership, management or operation of the Land or Improvements or are located
on the Land or Improvements, including furniture, furnishings, machinery,
building materials, goods,

 

6

 

supplies,
tools, books, records (whether in written or electronic form), computer
equipment (hardware and software);

 

(iii)                               other tangible personal
property including ranges, stoves, microwave ovens, refrigerators, dishwashers,
garbage disposers, washers, dryers and other appliances (other than Fixtures);

 

(iv)                              any operating agreements
relating to the Land or the Improvements;

 

(v)                                 any surveys, plans and
specifications and contracts for architectural, engineering and construction
services relating to the Land or the Improvements;

 

(vi)                              all other intangible
property, general intangibles and rights relating to the operation of, or used
in connection with, the Land or the Improvements, including all governmental
permits relating to any activities on the Land and including subsidy or similar
payments received from any sources, including a governmental authority; and

 

(vii)                           any rights of Borrower in or
under letters of credit.

 

(z)                                   “Property Jurisdiction” is defined in
Section 30(a).

 

(aa)         “Rents” means
all rents (whether from residential or non-residential space), revenues and
other income of the Land or the Improvements, parking fees, laundry and vending
machine income and fees and charges for food, health care and other services
provided at the Mortgaged Property, whether now due, past due, or to become
due, and deposits forfeited by tenants.

 

(bb)
        “Taxes”
means all taxes, assessments, vault rentals and other charges, if any, whether
general, special or otherwise, including all assessments for schools, public
betterments and general or local improvements, which are levied, assessed or
imposed by any public authority or quasi-public authority, and which, if not
paid, will become a lien on the Land or the Improvements.

 

(cc)         “Transfer” is
defined in Section 21.

 

2.             UNIFORM COMMERCIAL CODE
SECURITY AGREEMENT.

 

(a)           This Instrument is also a security
agreement under the Uniform Commercial Code for any of the Mortgaged Property
which, under applicable law, may be subjected to a security

 

7

 

interest
under the Uniform Commercial Code, whether such Mortgaged Property is owned now
or acquired in the future, and all products and cash and non-cash proceeds
thereof (collectively, “UCC Collateral”),
and Borrower hereby grants to Lender a security interest in the UCC Collateral.
Borrower hereby authorizes Lender to prepare and file financing statements,
continuation statements and financing statement amendments in such form as
Lender may require to perfect or continue the perfection of this security
interest and Borrower agrees, if Lender so requests, to execute and deliver to
Lender such financing statements, continuation statements and amendments.
Borrower shall pay all filing costs and all costs and expenses of any record
searches for financing statements and/or amendments that Lender may require.
Without the prior written consent of Lender, Borrower shall not create or
permit to exist any other lien or security interest in any of the UCC
Collateral.

 

(b)              Unless Borrower
gives Notice to Lender within 30 days after the occurrence of any of the
following, and executes and delivers to Lender modifications or supplements of
this Instrument (and any financing statement which may be filed in connection
with this Instrument) as Lender may require, Borrower shall not (i) change
its name, identity, structure or jurisdiction of organization; (ii) change the
location of its place of business (or chief executive office if more than one
place of business); or (iii) add to or change any location at which any of
the Mortgaged Property is stored, held or located.

 

(c)               If an Event of
Default has occurred and is continuing, Lender shall have the remedies of a
secured party under the Uniform Commercial Code, in addition to all remedies
provided by this Instrument or existing under applicable law. In exercising any
remedies, Lender may exercise its remedies against the UCC Collateral
separately or together, and in any order, without in any way affecting the
availability of Lender’s other remedies.

 

(d)              This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property that is or may become a Fixture, if permitted by applicable law.

 

3.             ASSIGNMENT OF RENTS; APPOINTMENT OF
RECEIVER; LENDER IN POSSESSION.

 

(a)           As part of the consideration for the
Indebtedness, Borrower absolutely and unconditionally assigns and transfers to
Lender all Rents. It is the intention of Borrower to establish a present,
absolute and irrevocable transfer and assignment to Lender of all Rents and to
authorize and empower Lender to collect and receive all Rents without the
necessity of further action on the part of Borrower. Promptly upon request by
Lender, Borrower agrees to execute and deliver such further assignments as
Lender may from time to time require. Borrower and Lender intend this
assignment of Rents to be immediately effective and to constitute an absolute
present assignment and not an assignment for additional security only. For
purposes of giving effect to this absolute assignment of Rents, and for no
other purpose, Rents shall not be deemed

 

8

 

to
be a part of the Mortgaged Property. However, if this present, absolute and
unconditional assignment of Rents is not enforceable by its terms under the
laws of the Property Jurisdiction, then the Rents shall be included as a part
of the Mortgaged Property and it is the intention of the Borrower that in this
circumstance this Instrument create and perfect a lien on Rents in favor of
Lender, which lien shall be effective as of the date of this Instrument.

 

(b)             After the
occurrence of an Event of Default, Borrower authorizes Lender to collect, sue
for and compromise Rents and directs each tenant of the Mortgaged Property to
pay all Rents to, or as directed by, Lender. However, until the occurrence of
an Event of Default, Lender hereby grants to Borrower a revocable license to
collect and receive all Rents, to hold all Rents in trust for the benefit of
Lender and to apply all Rents to pay the installments of interest and principal
then due and payable under the Note and the other amounts then due and payable
under the other Loan Documents, including Imposition Deposits, and to pay the
current costs and expenses of managing, operating and maintaining the Mortgaged
Property, including utilities, Taxes and insurance premiums (to the extent not
included in Imposition Deposits), tenant improvements and other capital
expenditures. So long as no Event of Default has occurred and is continuing;
the Rents remaining after application pursuant to the preceding sentence may be
retained by Borrower free and clear of, and released from, Lender’s rights with
respect to Rents under this Instrument. From and after the occurrence of an
Event of Default, and without the necessity of Lender entering upon and taking
and maintaining control of the Mortgaged Property directly, or by a receiver,
Borrower’s license to collect Rents shall automatically terminate and Lender
shall without Notice be entitled to all Rents as they become due and payable,
including Rents then due and unpaid. Borrower shall pay to Lender upon demand
all Rents to which Lender is entitled. At any time on or after the date of
Lender’s demand for Rents, (i) Lender may give, and Borrower hereby
irrevocably authorizes Lender to give, notice to all tenants of the Mortgaged
Property instructing them to pay all Rents to Lender, (ii) no tenant shall
be obligated to inquire further as to the occurrence or continuance of an Event
of Default, and (iii) no tenant shall be obligated to pay to Borrower any
amounts which are actually paid to Lender in response to such a notice.- Any such notice by Lender shall be delivered
to each tenant personally, by mail or by delivering such demand to each rental
unit. Borrower shall not interfere with and shall cooperate with Lender’s
collection of such Rents.

 

(c)             Borrower
represents and warrants to Lender that Borrower has not executed any prior
assignment of Rents (other than an assignment of Rents securing any prior
indebtedness that is being assigned to Lender, or paid off and discharged with
the proceeds of the loan evidenced by the Note), that Borrower has not
performed, and Borrower covenants and agrees that it will not perform, any acts
and has not executed, and shall not execute, any instrument which would prevent
Lender from exercising its rights under this Section 3, and that at the
time of execution of this Instrument there has been no anticipation or
prepayment of any Rents for more than two months prior to the due dates of such
Rents. Borrower shall not collect or accept payment of any Rents more than two
months prior to the due dates of such Rents.

 

9

 

(d)             If an Event of
Default has occurred and is continuing, Lender may, regardless of the adequacy
of Lender’s security or the solvency of Borrower and even in the absence of
waste, enter upon and take and maintain full control of the Mortgaged
Property in order to perform all acts that Lender in its discretion determines
to be necessary or desirable for the operation and maintenance of the Mortgaged
Property, including the execution, cancellation or modification of Leases, the
collection of all Rents, the making of repairs to the Mortgaged Property and
the execution or termination of contracts providing for the management,
operation or maintenance of the Mortgaged Property, for the purposes of
enforcing the assignment of Rents pursuant to Section 3(a), protecting the
Mortgaged Property or the security of this Instrument, or for such other
purposes as Lender in its discretion may deem necessary or desirable.
Alternatively, if an Event of Default has occurred and is continuing,
regardless of the adequacy of Lender’s security, without regard to Borrower’s
solvency and without the necessity of giving prior notice (oral or written) to
Borrower, Lender may apply to any court having jurisdiction for the appointment
of a receiver for the Mortgaged Property to take any or all of the actions set
forth in the preceding sentence. If Lender elects to seek the appointment of a
receiver for the Mortgaged Property at any time after an Event of Default has
occurred and is continuing, Borrower, by its execution of this Instrument,
expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte if permitted by
applicable law. Lender or the receiver, as the case may be, shall be entitled
to receive a reasonable fee for managing the Mortgaged Property. Immediately
upon appointment of a receiver or immediately upon the Lender’s entering upon
and taking possession and control of the Mortgaged Property, Borrower shall
surrender possession of the Mortgaged Property to Lender or the receiver, as the
case may be, and shall deliver to Lender or the receiver, as the case may be,
all documents, records (including records on electronic or magnetic media),
accounts, surveys, plans, and specifications relating to the Mortgaged Property
and all security deposits and prepaid Rents. In the event Lender takes
possession and control of the Mortgaged Property, Lender may exclude Borrower
and its representatives from the Mortgaged Property. Borrower acknowledges and
agrees that the exercise by Lender of any of the rights conferred under this
Section 3 shall not be construed to make Lender a mortgagee-in-possession
of the Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and Improvements.

 

(e)             If Lender enters
the Mortgaged Property, Lender shall be liable to account only to Borrower and
only for those Rents actually received. Except to the extent of Lender’s gross
negligence or willful misconduct, Lender shall not be liable to Borrower,
anyone claiming under or through Borrower or anyone having an interest in the
Mortgaged Property, by reason of any act or omission of Lender under
Section 3(d), and Borrower hereby releases and discharges Lender from any
such liability to the fullest extent permitted by law.

 

(f)              If the Rents are
not sufficient to meet the costs of taking control of and managing the
Mortgaged Property and collecting the Rents, any funds expended by Lender for
such purposes shall become an additional part of the Indebtedness as provided
in Section 12.

 

10

 

(g)           Any entering upon and taking of
control of the Mortgaged Property by Lender or the receiver, as the case may
be, and any application of Rents as provided in this Instrument shall not cure
or waive any Event of Default or invalidate any other right or remedy of Lender
under applicable law or provided for in this Instrument.

 

4.             ASSIGNMENT OF LEASES; LEASES
AFFECTING THE MORTGAGED PROPERTY.

 

(a)           As part of the consideration for the
Indebtedness, Borrower absolutely and unconditionally assigns and transfers to
Lender all of Borrower’s right, title and interest in, to and under the Leases,
including Borrower’s right, power and authority to modify the terms of any such
Lease, or extend or terminate any such Lease. It is the intention of Borrower
to establish a present, absolute and irrevocable transfer and assignment to
Lender of all of Borrower’s right, title and interest in, to and under the
Leases. Borrower and Lender intend this assignment of the Leases to be
immediately effective and to constitute an absolute present assignment and not
an assignment for additional security only. For purposes of giving effect to
this absolute assignment of the Leases, and for no other purpose, the Leases
shall not be deemed to be a part of the Mortgaged Property. However, if this
present, absolute and unconditional assignment of the Leases is not enforceable
by its terms under the laws of the Property Jurisdiction, then the Leases shall
be included as a part of the Mortgaged Property and it is the intention of the
Borrower that in this circumstance this Instrument create and perfect a lien on
the Leases in favor of Lender, which lien shall be effective as of the date of
this Instrument.

 

(b)           Until Lender gives Notice to Borrower
of Lender’s exercise of its rights under this Section 4, Borrower shall
have all rights, power and authority granted to Borrower under any Lease
(except as otherwise limited by this Section or any other provision of
this Instrument), including the right, power and authority to modify the terms
of any Lease or extend or terminate any Lease. Upon the occurrence of an Event
of Default, the permission given to Borrower pursuant to the preceding sentence
to exercise all rights, power and authority under Leases shall automatically
terminate. Borrower shall comply with and observe Borrower’s obligations under
all Leases, including Borrower’s obligations pertaining to the maintenance and
disposition of tenant security deposits.

 

(c)           Borrower acknowledges and agrees that
the exercise by Lender, either directly or by a receiver, of any of the rights
conferred under this Section 4 shall not be construed to make Lender a
mortgagee-in-possession of the Mortgaged Property so long as Lender has not
itself entered into actual possession of the Land and the Improvements. The
acceptance by Lender of the assignment of the Leases pursuant to
Section 4(a) shall not at any time or in any event obligate Lender to
take any action under this Instrument or to expend any money or to incur any
expenses. Except to the extent of Lender’s gross negligence or willful
misconduct, Lender shall not be liable in any way for any injury or damage to
person or property sustained by any person or persons, firm or corporation in
or about the Mortgaged Property. Prior to Lender’s actual entry

 

11

 

into
and taking possession of the Mortgaged Property, Lender shall not (i) be
obligated to perform any of the terms, covenants and conditions contained in any
Lease (or otherwise have any obligation with respect to any Lease);
(ii) be obligated to appear in or defend any action or proceeding relating
to the Lease or the Mortgaged Property; or (iii) be responsible for the
operation, control, care, management or repair of the Mortgaged Property or any
portion of the Mortgaged Property. The execution of this Instrument by Borrower
shall constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Mortgaged Property is and shall be
that of Borrower, prior to such actual entry and taking of possession.

 

(d)           Upon delivery of Notice by Lender to
Borrower of Lender’s exercise of Lender’s rights under this Section 4 at
any time after the occurrence of an Event of Default, and without the necessity
of Lender entering upon and taking and maintaining control of the Mortgaged
Property directly, by a receiver, or by any other manner or proceeding
permitted by the laws of the Property Jurisdiction, Lender immediately shall
have all rights, powers and authority granted to Borrower under any Lease,
including the right, power and authority to modify the terms of any such Lease,
or extend or terminate any such Lease.

 

(e)               Borrower shall,
promptly upon Lender’s request, deliver to Lender an executed copy of each
residential Lease then in effect. All Leases for residential dwelling units
shall be on forms approved by Lender, shall be for initial terms of at least
six months and not more than two years, and shall not include options to
purchase. If Borrower is a cooperative housing corporation, association or
other validly organized entity under municipal, county, state or federal law,
notwithstanding anything to the contrary contained in this subsection, so long
as Borrower is not in breach of any covenant of this Instrument, Lender hereby
consents to the execution of leases of apartments for a term in excess of two
years from Borrower to a tenant shareholder of Borrower, to the surrender or
termination of such leases of apartments where the surrendered or terminated
lease is immediately replaced or where the Borrower makes its best efforts to
secure such immediate replacement by a newly executed lease of the same
apartment to a tenant shareholder of the Borrower. However, no consent is
hereby given by Lender to any execution, surrender, termination or assignment
of a lease under terms that would waive or reduce the obligation of the
resulting tenant shareholder under such lease to pay cooperative assessments in
full when due or the obligation of the former tenant shareholder to pay any
unpaid portion of such assessments.

 

(f)            Borrower shall not lease any portion
of the Mortgaged Property for non-residential use except with the prior written
consent of Lender and Lender’s prior written approval of the Lease agreement.
Borrower shall not modify the terms of, or extend or terminate, any Lease for
non-residential use (including any Lease in existence on the date of this
Instrument) without the prior written consent of Lender. However, Lender’s
consent shall not be required for the modification or extension of a
non-residential Lease if such modification or extension is on terms at least as
favorable to Borrower as those customary at that time in the applicable market
and the

 

12

 

income
from the extended or modified Lease will not be less than the income received
from the Lease as of the date of this-Instrument. Borrower shall, without request by
Lender, deliver an executed copy of each non-residential Lease to Lender
promptly after such Lease is signed. All non-residential Leases, including
renewals or extensions of existing Leases, shall specifically provide that
(i) such Leases are subordinate to the lien of this Instrument; (ii) the
tenant shall atom to Lender and any purchaser at a foreclosure sale, such
attornment to be self-executing and effective upon acquisition of title to the
Mortgaged Property by any purchaser at a foreclosure sale or by Lender in any
manner; (iii) the tenant agrees to execute such further evidences of
attornment as Lender or any purchaser at a foreclosure sale may from time to
time request; (iv) the Lease shall not be terminated by foreclosure or any
other transfer of the Mortgaged Property; (v) after a foreclosure sale of
the Mortgaged Property, Lender or any other purchaser at such foreclosure sale
may, at Lender’s or such purchaser’s option, accept or terminate such Lease;
and (vi) the tenant shall, upon receipt after the occurrence of an Event
of Default of a written request from Lender, pay all Rents payable under the
Lease to Lender.

 

(g)           Borrower shall not receive or accept
Rent under any Lease (whether residential or non-residential) for more than two
months in advance.

 

5.             PAYMENT OF INDEBTEDNESS;
PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM.  Borrower shall
pay the Indebtedness when due in accordance with the terms of the Note and the
other Loan Documents and shall perform, observe and comply with all other
provisions of the Note and the other Loan Documents. Borrower shall pay a
prepayment premium in connection with certain prepayments of the Indebtedness,
including a payment made after Lender’s exercise of any right of acceleration
of the Indebtedness, as provided in the Note.

 

6.             EXCULPATION.  Borrower’s
personal liability for payment of the Indebtedness and for performance of the
other obligations to be performed by it under this Instrument is limited in the
manner, and to the extent, provided in the Note.

 

7.             DEPOSITS FOR TAXES, INSURANCE AND
OTHER CHARGES.

 

(a)           Unless this requirement is waived in
writing by Lender, which waiver may be contained in this Section 7(a),
Borrower shall deposit with Lender on the day monthly installments of principal
or interest, or both, are due under the Note (or on another day
designated in writing by Lender), until the Indebtedness is paid in full, an
additional amount sufficient to accumulate with Lender the entire sum required
to pay, when due, the items marked “Collect” below. Lender will not require the
Borrower to make Imposition Deposits with respect to the items marked
“Deferred” below.

 

13

 

	
  [Deferred]

  	
   

  	
  Hazard
  Insurance premiums or other insurance premiums required by Lender under
  Section 19,

  
	
  [Deferred]

  	
   

  	
  Taxes,

  
	
  [Deferred]

  	
   

  	
  water
  and sewer charges (that could become a lien on the Mortgaged Property),

  
	
  [N/A]    ground
  rents,

  
	
  [Deferred]

  	
   

  	
  assessments
  or other charges (that could become a lien on the Mortgaged Property)

  

 

The
amounts deposited under the preceding sentence are collectively referred to in
this Instrument as the “Imposition Deposits.”
The obligations of Borrower for which the Imposition Deposits are required are
collectively referred to in this Instrument as “Impositions.”
The amount of the Imposition Deposits shall be sufficient to enable Lender to
pay each Imposition before the last date upon which such payment may be made
without any penalty or interest charge being added. Lender shall maintain
records indicating how much of the monthly Imposition Deposits and how much of
the aggregate Imposition Deposits held by Lender are held for the purpose of
paying Taxes, insurance premiums and each other Imposition.

 

(b)           Imposition Deposits shall be held in
an institution (which may be Lender, if Lender is such an institution) whose
deposits or accounts are insured or guaranteed by a federal agency. Lender
shall not be obligated to open additional accounts or deposit Imposition
Deposits in additional institutions when the amount of the Imposition Deposits
exceeds the maximum amount of the federal deposit insurance or guaranty. Lender
shall apply the Impositions Deposits to pay Impositions so long as no Event of
Default has occurred and is continuing. Unless applicable law requires, Lender
shall not be required to pay Borrower any interest, earnings or profits on the
Imposition Deposits. As additional security for all of Borrower’s obligations
under this Instrument and the other Loan Documents, Borrower hereby pledges and
grants to Lender a security interest in the Imposition Deposits and all
proceeds of, and all interest and dividends on, the Imposition Deposits. Any
amounts deposited with Lender under this Section 7 shall not be trust
funds, nor shall they operate to reduce the Indebtedness, unless applied by Lender
for that purpose under Section 7(e).

 

(c)           If Lender receives a bill or invoice
for an Imposition, Lender shall pay the Imposition from the Imposition Deposits
held by Lender. Lender shall have no obligation to pay any Imposition to the
extent it exceeds Imposition Deposits then held by Lender. Lender may pay an
Imposition according to any bill, statement or estimate from the appropriate
public office or insurance company without inquiring into the accuracy of the
bill, statement or estimate or into the validity of the Imposition.

 

14

 

(d)           If at any time the amount of the
Imposition Deposits held by Lender for payment of a specific Imposition exceeds
the amount reasonably deemed necessary by Lender, the excess shall be credited
against future installments of Imposition Deposits. If at any time the amount
of the Imposition Deposits held by Lender for payment of a specific Imposition
is less than the amount reasonably estimated by Lender to be necessary,
Borrower shall pay to Lender the amount of the deficiency within 15 days after
Notice from Lender.

 

(e)           If an Event of Default has occurred
and is continuing, Lender may apply any Imposition Deposits, in any amounts and
in any order as Lender determines, in Lender’s discretion, to pay any
Impositions or as a credit against the Indebtedness. Upon payment in full of
the Indebtedness, Lender shall refund to Borrower any Imposition Deposits held
by Lender.

 

(f)            If Lender does not collect an
Imposition Deposit with respect to an Imposition either marked “Deferred” in
Section 7(a) or pursuant to a separate written waiver by Lender, then
on or before the date each such Imposition is due, or on the date this
Instrument requires each such Imposition to be paid, Borrower must provide
Lender with proof of payment of each such Imposition for which Lender does not
require collection of Imposition Deposits. Lender may revoke its deferral or
waiver and require Borrower to deposit with Lender any or all of the Imposition
Deposits listed in Section 7(a), regardless of whether any such item is
marked “Deferred” in such section, upon Notice to Borrower, (i) if
Borrower does not timely pay any of the Impositions, (ii) if Borrower
fails to provide timely proof to Lender of such payment, or (iii) at any
time during the existence of an Event of Default.

 

(g)           In the event of a Transfer prohibited
by or requiring Lender’s approval under Section 21, Lender’s waiver of the
collection of any Imposition Deposit in this Section 7 may be modified or
rendered void by Lender at Lender’s option by Notice to Borrower and the
transferee(s) as a condition of Lender’s approval of such Transfer.

 

8.             COLLATERAL AGREEMENTS. Borrower shall
deposit with Lender such amounts as may be required by any Collateral Agreement
and shall perform all other obligations of Borrower under each Collateral
Agreement.

 

9.             APPLICATION OF PAYMENTS. If at any time
Lender receives, from Borrower or otherwise, any amount applicable to the
Indebtedness which is less than all amounts due and payable at such time, then
Lender may apply that payment to amounts then due and payable in any manner and
in any order determined by Lender, in Lender’s discretion. Neither Lender’s
acceptance of an amount that is less than all amounts then due and payable nor
Lender’s application of such payment in the manner authorized shall constitute
or be deemed to constitute either a waiver of the unpaid amounts or an accord
and satisfaction. Notwithstanding the application of any such amount to the
Indebtedness, Borrower’s obligations under this Instrument and the Note shall
remain unchanged.

 

15

 

10.          COMPLIANCE WITH LAWS.  Borrower shall
comply with all laws, ordinances, regulations and requirements of any Governmental
Authority and all recorded lawful covenants and agreements relating to or
affecting the Mortgaged Property, including all laws, ordinances, regulations,
requirements and covenants pertaining to health and safety, construction of
improvements on the Mortgaged Property, fair housing, disability accommodation,
zoning and land use, and Leases. Borrower also shall comply with all applicable
laws that pertain to the maintenance and disposition of tenant security
deposits. Borrower shall at all times maintain records sufficient to
demonstrate compliance with the provisions of this Section 10. Borrower
shall take appropriate measures to prevent, and shall not engage in or
knowingly permit, any illegal activities at the Mortgaged Property that could
endanger tenants or visitors, result in damage to the Mortgaged Property,
result in forfeiture of the Mortgaged Property, or otherwise materially impair
the lien created by this Instrument or Lender’s interest in the Mortgaged
Property. Borrower represents and warrants to Lender that no portion of the
Mortgaged Property has been or will be purchased with the proceeds of any
illegal activity.

 

11.          USE OF PROPERTY.  Unless required
by applicable law, Borrower shall not (a) allow changes in the use for which
all or any part of the Mortgaged Property is being used at the time this
Instrument was executed, except for any change in use approved by Lender, (b) convert
any individual dwelling units or common areas to commercial use,
(c) initiate a change in the zoning classification of the Mortgaged
Property or acquiesce without Notice to and consent of Lender in a change in
the zoning classification of the Mortgaged Property, (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property, (e) combine
all or any part of the Mortgaged Property with all or any part of a tax parcel
which is not part of the Mortgaged Property, or (f) subdivide or otherwise
split any tax parcel constituting all or any part of the Mortgaged Property
without the prior consent of Lender.

 

12.          PROTECTION OF LENDER’S SECURITY;
INSTRUMENT SECURES FUTURE ADVANCES.

 

(a)           If Borrower fails to perform any of
its obligations under this Instrument or any other Loan Document, or if any
action or proceeding is commenced which purports to affect the Mortgaged
Property, Lender’s security or Lender’s rights under this Instrument, including
eminent domain, insolvency, code enforcement, civil or criminal forfeiture,
enforcement of Hazardous Materials Laws, fraudulent conveyance or reorganizations
or proceedings involving a bankrupt or decedent, then Lender at Lender’s option
may make such appearances, file such documents, disburse such sums and take
such actions as Lender reasonably deems necessary to perform such obligations
of Borrower and to protect Lender’s interest, including (i) payment of
Attorneys’ Fees and Costs, (ii) payment of fees and out-of-pocket expenses
of accountants, inspectors and consultants, (iii) entry upon the Mortgaged
Property to make repairs or secure the Mortgaged

 

16

 

Property,
(iv) procurement of the insurance required by Section 19, and
(v) payment of amounts which Borrower has failed to pay under Sections 15
and 17.

 

(b)           Any amounts disbursed by Lender under
this Section 12, or under any other provision of this Instrument that
treats such disbursement as being made under this Section 12, shall be
secured by this Instrument, shall be added to, and become part of, the
principal component of the Indebtedness, shall be immediately due and payable
and shall bear interest from the date of disbursement until paid at the “Default
Rate,”  as defined in the Note.

 

(c)             Nothing in this
Section 12 shall require Lender to incur any expense or take any action.

 

13.          INSPECTION. Lender, its
agents, representatives, and designees may make or cause to be made entries
upon and inspections of the Mortgaged Property (including environmental
inspections and tests) during normal business hours, or at any other reasonable
time, upon reasonable notice to Borrower if the inspection is to include
occupied residential units (which notice need not be in writing). Notice to
Borrower shall not be required in the case of an emergency, as determined in
Lender’s discretion, or when an Event of Default has occurred and is
continuing.

 

14.          BOOKS AND RECORDS; FINANCIAL
REPORTING.

 

(a)           Borrower shall keep and maintain at
all times at the Mortgaged Property or the management agent’s office, and upon
Lender’s request shall make available at the Mortgaged Property (or, at
Borrower’s option, at the management agent’s office), complete and accurate
books of account and records (including copies of supporting bills and
invoices) adequate to reflect correctly the operation of the Mortgaged
Property, and copies of all written contracts, Leases, and other instruments
which affect the Mortgaged Property. The books, records, contracts, Leases and
other instruments shall be subject to examination and inspection by Lender at
any reasonable time.

 

(b)           Within 120 days after the end of each
fiscal year of Borrower, Borrower shall furnish to Lender a statement of income
and expenses for Borrower’s operation of the Mortgaged Property for that fiscal
year, a statement of changes in financial position of Borrower relating to the
Mortgaged Property for that fiscal year and, when requested by Lender, a
balance sheet showing all assets and liabilities of Borrower relating to the
Mortgaged Property as of the end of that fiscal year. If Borrower’s fiscal year
is other than the calendar year, Borrower must also submit to Lender a year-end
statement of income and expenses within 120 days after the end of the calendar
year.

 

17

 

(c)           Within 120 days after the end of each
calendar year, and at any other time, upon Lender’s request, Borrower shall
furnish to Lender each of the following. However, Lender shall not require any
of the following more frequently than quarterly except when there has been an
Event of Default and such Event of Default is continuing, in which case Lender
may, upon written request to Borrower, require Borrower to furnish any of the
following more frequently:

 

(i)                                     a rent schedule
for the Mortgaged Property showing the name of each tenant, and for each
tenant, the space occupied, the lease expiration date, the rent payable for the
current month, the date through which rent has been paid, and any related
information requested by Lender;

 

(ii)                                  an accounting
of all security deposits held pursuant to all Leases, including the name of the
institution (if any) and the names and identification numbers of the accounts
(if any) in which such security deposits are held and the name of the person to
contact at such financial institution, along with any authority or release
necessary for Lender to access information regarding such accounts; and

 

(iii)                               a statement
that identifies all owners of any interest in Borrower and any Controlling
Entity and the interest held by each (unless Borrower or any Controlling Entity
is a publicly-traded entity in which case such statement of ownership shall not
be required), if Borrower or a Controlling Entity is a corporation, all
officers and directors of Borrower and the Controlling Entity, and if Borrower
or a Controlling Entity is a limited liability company, all managers who are
not members.

 

(d)            At any time upon Lender’s request,
Borrower shall furnish to Lender each of the following. However, Lender shall
not require any of the following more frequently than quarterly except when
there has been an Event of Default and such Event of Default is continuing, in
which case Lender may require Borrower to furnish any of the following more
frequently:

 

(i)                                     a balance
sheet, a statement of income and expenses for Borrower and a statement of
changes in financial position of Borrower for Borrower’s most recent fiscal
year;

 

(ii)                                  a quarterly or
year-to-date income and expense statement for the Mortgaged Property; and

 

(iii)                               a monthly
property management report for the Mortgaged Property, showing the number of
inquiries made and rental applications received

 

18

 

from
tenants or prospective tenants and deposits received from tenants and any other
information requested by Lender.

 

(e)           Upon Lender’s request at any time
when an Event of Default has occurred and is continuing, Borrower shall furnish
to Lender monthly income and expense statements and rent schedules for the
Mortgaged Property.

 

(f)            An individual having authority to
bind Borrower shall certify each of the statements, schedules and reports
required by Sections 14(b) through 14(e) to be complete and accurate.
Each of the statements, schedules and reports required by Sections 14(b) through
14(e) shall be in such form and contain such detail as Lender may
reasonably require. Lender also may require that any of the statements,
schedules or reports listed in Section 14(b) and 14(c)(i) and
(ii) be audited at Borrower’s expense by independent certified public
accountants acceptable to Lender, at any time when an Event of Default has
occurred and is continuing or at any time that Lender, in its reasonable
judgment, determines that audited financial statements are required for an
accurate assessment of the financial condition of Borrower or of the Mortgaged
Property.

 

(g)           If Borrower fails to provide in a
timely manner the statements, schedules and reports required by Sections 14(b) through
(e), Lender shall give Borrower Notice specifying the statements, schedules and
reports required by Section 14(b) through (e) that Borrower has failed
to provide. If Borrower has not provided the required statements, schedules and
reports within 10 Business Days following such Notice, then Lender shall have
the right to have Borrower’s books and records audited, at Borrower’s expense,
by independent certified public accountants selected by Lender in order to
obtain such statements, schedules and reports, and all related costs and
expenses of Lender shall become immediately due and payable and shall become an
additional part of the Indebtedness as provided in Section 12. Notice to
Borrower shall not be required in the case of an emergency, as determined in
Lender’s discretion, or when an Event of Default has occurred and is
continuing.

 

(h)           If an Event of Default has occurred
and is continuing, Borrower shall deliver to Lender upon written demand all
books and records relating to the Mortgaged Property or its operation.

 

(i)            Borrower authorizes Lender to obtain
a credit report on Borrower at any time.

 

15.          TAXES; OPERATING EXPENSES.

 

(a)           Subject to the provisions of
Section 15(c) and Section 15(d), Borrower shall pay, or cause to
be paid, all Taxes when due and before the addition of any interest, fine,
penalty or cost for nonpayment.

 

19

 

(b)           Subject to the provisions of
Section 15(c), Borrower shall (i) pay the expenses of operating,
managing, maintaining and repairing the Mortgaged Property (including
utilities, repairs and replacements) before the last date upon which each such
payment may be made without any penalty or interest charge being added, and
(ii) pay insurance premiums at least 30 days prior to the expiration date
of each policy of insurance, unless applicable law specifies some lesser
period.

 

(c)           If Lender is collecting Imposition
Deposits, to the extent that Lender holds sufficient Imposition Deposits for
the purpose of paying a specific Imposition, then Borrower shall not be
obligated to pay such Imposition, so long as no Event of Default exists and
Borrower has timely delivered to Lender any bills or premium notices that it
has received. If an Event of Default exists, Lender may exercise any rights
Lender may have with respect to Imposition Deposits without regard to whether
Impositions are then due and payable. Lender shall have no liability to
Borrower for failing to pay any Impositions to the extent that (i) any
Event of Default has occurred and is continuing, (ii) insufficient
Imposition Deposits are held by Lender at the time an Imposition becomes due
and payable or (iii) Borrower has failed to provide Lender with bills and
premium notices as provided above.

 

(d)           Borrower, at its own expense, may
contest by appropriate legal proceedings, conducted diligently and in good
faith, the amount or validity of any Imposition other than insurance premiums,
if (i) Borrower notifies Lender of the commencement or expected
commencement of such proceedings, (ii) the Mortgaged Property is not in
danger of being sold or forfeited, (iii) if Borrower has not already paid
the Imposition, Borrower deposits with Lender reserves sufficient to pay the
contested Imposition, if requested by Lender, and (iv) Borrower furnishes
whatever additional security is required in the proceedings or is reasonably
requested by Lender.

 

(e)           Borrower shall promptly deliver to
Lender a copy of all notices of, and invoices for, Impositions, and if Borrower
pays any Imposition directly, Borrower shall furnish to Lender receipts
evidencing such payments on or before the date this Instrument requires such
Impositions to be paid.

 

16.          LIENS; ENCUMBRANCES.  Borrower
acknowledges that, to the extent provided in Section 21, the grant,
creation or existence of any mortgage, deed of trust, deed to secure debt,
security interest or other lien or encumbrance (a “Lien”)
on the Mortgaged Property (other than the lien of this Instrument) or on
certain ownership interests in Borrower, whether voluntary, involuntary or by
operation of law, and whether or not such Lien has priority over the lien of
this Instrument, is a “Transfer”  which constitutes an Event
of Default and subjects Borrower to personal liability under the Note.

 

20

 

17.          PRESERVATION, MANAGEMENT AND
MAINTENANCE OF MORTGAGED PROPERTY.

 

(a)           Borrower shall not commit waste or
permit impairment or deterioration of the Mortgaged Property.

 

(b)           Borrower shall not abandon the
Mortgaged Property.

 

(c)           Borrower shall restore or repair
promptly, in a good and workmanlike manner, any damaged part of the Mortgaged
Property to the equivalent of its original condition, or such other condition
as Lender may approve in writing, whether or not insurance proceeds or
condemnation awards are available to cover any costs of such restoration or
repair; however, Borrower shall not be obligated to perform such restoration or
repair if (i) no Event of Default has occurred and is continuing, and
(ii) Lender has elected to apply any available insurance proceeds and/or
condemnation awards to the payment of Indebtedness pursuant to Section 19(h)(ii),
(iii), (iv) or (v), or pursuant to Section 20.

 

(d)           Borrower shall keep the Mortgaged
Property in good repair, including the replacement of Personalty and Fixtures
with items of equal or better function and quality.

 

(e)           Borrower shall provide for professional
management of the Mortgaged Property by a residential rental property manager
satisfactory to Lender at all times under a contract approved by Lender in
writing, which contract must be terminable upon not more than 30 days notice
without the necessity of establishing cause and without payment of a penalty or
termination fee by Borrower or its successors.

 

(f)            Borrower shall give Notice to Lender
of and, unless otherwise directed in writing by Lender, shall appear in and
defend any action or proceeding purporting to affect the Mortgaged Property,
Lender’s security or Lender’s rights under this Instrument. Borrower shall not
(and shall not permit any tenant or other person to) remove, demolish or alter
the Mortgaged Property or any part of the Mortgaged Property, including any
removal, demolition or alteration occurring in connection with a rehabilitation
of all or part of the Mortgaged Property, except (i) in connection with
the replacement of tangible Personalty, (ii) if Borrower is a cooperative
housing corporation, to the extent permitted with respect to individual
dwelling units under the form of proprietary lease or occupancy agreement and
(iii) repairs and replacements in connection with making an individual
unit ready for a new occupant.

 

18.          ENVIRONMENTAL HAZARDS.

 

(a)           Except for matters described in
Section 18(b), Borrower shall not cause or
permit any of the following:

 

21

 

(i)            the presence,
use, generation, release, treatment, processing, storage (including storage in
above ground and underground storage tanks), handling, or disposal of any
Hazardous Materials on or under the Mortgaged Property or any other property of
Borrower that is adjacent to the Mortgaged Property;

 

(ii)           the
transportation of any Hazardous Materials to, from, or across the Mortgaged
Property;

 

(iii)          any occurrence
or condition on the Mortgaged Property or any other property of Borrower that
is adjacent to the Mortgaged Property, which occurrence or condition is or may
be in violation of Hazardous Materials Laws;

 

(iv)          any violation
of or noncompliance with the terms of any Environmental Permit with respect to
the Mortgaged Property or any property of Borrower that is adjacent to the
Mortgaged Property;

 

(v)           any violation
or noncompliance with the terms of any O&M Program as defined in subsection
(d).

 

The
matters described in clauses (i) through (v) above, except as
otherwise provided in Section 18(b), are referred to collectively in this
Section 18 as “Prohibited Activities or Conditions.”

 

(b)           Prohibited Activities and Conditions
shall not include lawful conditions permitted by an O&M Program or the safe
and lawful use and storage of quantities of (i) pre-packaged supplies,
cleaning materials and petroleum products customarily used in the operation and
maintenance of comparable multifamily properties, (ii) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by tenants and occupants of residential dwelling units in
the Mortgaged Property; and (iii) petroleum products used in the operation
and maintenance of motor vehicles from time to time located on the Mortgaged
Property’s parking areas, so long as all of the foregoing are used, stored,
handled, transported and disposed of in compliance with Hazardous Materials
Laws.

 

(c)           Borrower shall take all commercially
reasonable actions (including the inclusion of appropriate provisions in any
Leases executed after the date of this Instrument) to prevent its employees,
agents, and contractors, and all tenants and other occupants from causing or
permitting any Prohibited Activities or Conditions. Borrower shall not lease or
allow the sublease or use of all or any portion of the Mortgaged Property to
any tenant or subtenant for 

 

22

 

nonresidential
use by any user that, in the ordinary course of its business, would cause or
permit any Prohibited Activity or Condition.

 

(d)           As required by Lender, Borrower shall
also have established a written operations and maintenance program with respect
to certain Hazardous Materials. Each such operations and maintenance program
and any additional or revised operations and maintenance programs established
for the Mortgaged Property pursuant to Section 18(h) must be approved
by Lender and shall be referred to herein as an “O&M
Program.”  Borrower shall comply in a timely manner
with, and cause all employees, agents, and contractors of Borrower and any
other persons present on the Mortgaged Property to comply with each O&M
Program. Borrower shall pay all costs of performance of Borrower’s obligations
under any O&M Program, and Lender’s out-of-pocket costs incurred in
connection with the monitoring and review of each O&M Program and Borrower’s
performance shall be paid by Borrower upon demand by Lender. Any such
out-of-pocket costs of Lender that Borrower fails to pay promptly shall become
an additional part of the Indebtedness as provided in Section 12.

 

(e)           Borrower represents and warrants to
Lender that, except as previously disclosed by Borrower to Lender in writing
(which written disclosure may be in certain environmental assessments and other
written reports accepted by Lender in connection with the funding of the
Indebtedness and dated prior to the date of this Instrument):

 

(i)              Borrower has
not at any time engaged in, caused or permitted any Prohibited Activities or
Conditions on the Mortgaged Property;

 

(ii)             to the best of
Borrower’s knowledge after reasonable and diligent inquiry, no Prohibited Activities
or Conditions exist or have existed on the Mortgaged Property;

 

(iii)            the Mortgaged
Property does not now contain any underground storage tanks, and, to the best
of Borrower’s knowledge after reasonable and diligent inquiry, the Mortgaged
Property has not contained any underground storage tanks in the past. If there
is an underground storage tank located on the Mortgaged Property that has been
previously disclosed by Borrower to Lender in writing, that tank complies with
all requirements of Hazardous Materials Laws;

 

(iv)            to the best of
Borrower’s knowledge after reasonable and diligent inquiry, Borrower has
complied with all Hazardous Materials Laws, including all requirements for
notification regarding releases of Hazardous Materials. Without limiting the
generality of the foregoing, Borrower has obtained all Environmental Permits
required for the operation of the Mortgaged

 

23

 

Property
in accordance with Hazardous Materials Laws now in effect and all such
Environmental Permits are in full force and effect;

 

(v)           to the best of
Borrower’s knowledge after reasonable and diligent inquiry, no event has
occurred with respect to the Mortgaged Property that constitutes, or with the
passing of time or the giving of notice would constitute, noncompliance with
the terms of any Environmental Permit;

 

(vi)          there are no
actions, suits, claims or proceedings pending or, to the best of Borrower’s
knowledge after reasonable and diligent inquiry, threatened that involve the
Mortgaged Property and allege, arise out of, or relate to any Prohibited
Activity or Condition;

 

(vii)         Borrower has not
received any written complaint, order, notice of violation or other
communication from any Governmental Authority with regard to air emissions,
water discharges, noise emissions or Hazardous Materials, or any other
environmental, health or safety matters affecting the Mortgaged Property or any
other property of Borrower that is adjacent to the Mortgaged Property; and

 

(f)            Borrower shall promptly notify
Lender in writing upon the occurrence of any of the following events:

 

(i)            Borrower’s
discovery of any Prohibited Activity or Condition;

 

(ii)           Borrower’s
receipt of or knowledge of any written complaint, order, notice of violation or
other communication from any tenant, management agent, Governmental Authority
or other person with regard to present or future alleged Prohibited Activities
or Conditions, or any other environmental, health or safety matters affecting
the Mortgaged Property or any other property of Borrower that is adjacent to
the Mortgaged Property;

 

(iii)          Borrower’s
breach of any of its obligations under this Section 18.

 

Any
such notice given by Borrower shall not relieve Borrower of, or result in a
waiver of, any obligation under this Instrument, the Note, or any other Loan
Document.

 

(g)           Borrower shall pay promptly the costs
of any environmental inspections, tests or audits, a purpose of which is to
identify the extent or cause of or potential for a Prohibited Activity or Condition
(“Environmental Inspections”), required
by Lender in connection with any foreclosure or deed in lieu of foreclosure, or
as a condition of Lender’s consent to any Transfer under Section 21, or
required by Lender following a reasonable determination by Lender

 

24

 

that
Prohibited Activities or Conditions may exist. Any such costs incurred by
Lender (including Attorneys’ Fees and Costs and the costs of technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) that Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12. As long as
(i) no Event of Default has occurred and is continuing, (ii) Borrower
has actually paid for or reimbursed Lender for all costs of any such
Environmental Inspections performed or required by Lender, and
(iii) Lender is not prohibited by law, contract or otherwise from doing
so, Lender shall make available to Borrower, without representation of any
kind, copies of Environmental Inspections prepared by third parties and
delivered to Lender. Lender hereby reserves the right, and Borrower hereby
expressly authorizes Lender, to make available to any party, including any
prospective bidder at a foreclosure sale of the Mortgaged Property, the results
of any Environmental Inspections made by or for Lender with respect to the
Mortgaged Property. Borrower consents to Lender notifying any party (either as
part of a notice of sale or otherwise) of the results of any Environmental
Inspections made by or for Lender. Borrower acknowledges that Lender cannot
control or otherwise assure the truthfulness or accuracy of the results of any
Environmental Inspections and that the release of such results to prospective
bidders at a foreclosure sale of the Mortgaged Property may have a material and
adverse effect upon the amount that a party may bid at such sale. Borrower
agrees that Lender shall have no liability whatsoever as a result of delivering
the results to any third party of any Environmental Inspections made by or for
Lender, and Borrower hereby releases and forever discharges Lender from any and
all claims, damages, or causes of action, arising out of, connected with or
incidental to the results of, the delivery of any of Environmental Inspections
made by or for Lender.

 

(h)           If any investigation, site
monitoring, containment, clean-up, restoration or other remedial work (“Remedial
Work”) is necessary to comply with any Hazardous Materials Law or order of any
Governmental Authority that has or acquires jurisdiction over the Mortgaged
Property or the use, operation or improvement of the Mortgaged Property, or is
otherwise required by Lender as a consequence of any Prohibited Activity or
Condition or to prevent the occurrence of a Prohibited Activity or Condition,
Borrower shall, by the earlier of (i) the applicable deadline required by
Hazardous Materials Law or (ii) 30 days after Notice from Lender demanding
such action, begin performing the Remedial Work, and thereafter diligently
prosecute it to completion, and shall in any event complete the work by the
time required by applicable Hazardous Materials Law. If Borrower fails to begin
on a timely basis or diligently prosecute any required Remedial Work, Lender
may, at its option, cause the Remedial Work to be completed, in which case
Borrower shall reimburse Lender on demand for the cost of doing so. Any
reimbursement due from Borrower to Lender shall become part of the Indebtedness
as provided in Section 12.

 

(i)            Borrower shall comply with all
Hazardous Materials Laws applicable to the Mortgaged Property. Without limiting
the generality of the previous sentence, Borrower shall (i) obtain and
maintain all Environmental Permits required by Hazardous Materials Laws and

 

25

 

comply
with all conditions of such Environmental Permits; (ii) cooperate with any
inquiry by any Governmental Authority; and (iii) comply with any governmental
or judicial order that arises from any alleged Prohibited Activity or
Condition.

 

(j)            Borrower shall indemnify, hold
harmless and defend (i) Lender, (ii) any prior owner or holder of the
Note, (iii) the Loan Servicer, (iv) any prior Loan Servicer,
(v) the officers, directors, shareholders, partners, employees and
trustees of any of the foregoing, and (vi) the heirs, legal
representatives, successors and assigns of each of the foregoing (collectively,
the “Indemnitees”) from and against all
proceedings, claims, damages, penalties and costs (whether initiated or sought
by Governmental Authorities or private parties), including Attorneys’ Fees and
Costs and remediation costs, whether incurred in connection with any judicial
or administrative process or otherwise, arising directly or indirectly from any
of the following:

 

(i)            any breach of
any representation or warranty of Borrower in this
Section 18;

 

(ii)           any failure by
Borrower to perform any of its obligations under this Section 18;

 

(iii)          the existence
or alleged existence of any Prohibited Activity or Condition;

 

(iv)          the presence or
alleged presence of Hazardous Materials on or under the Mortgaged Property or
in any of the Improvements or on or under any property of Borrower that is
adjacent to the Mortgaged Property; and

 

(v)           the actual or
alleged violation of any Hazardous Materials Law.

 

(k)           Counsel selected by Borrower to
defend Indemnitees shall be subject to the approval of those Indemnitees. In
any circumstances in which the indemnity under this Section 18 applies,
Lender may employ its own legal counsel and consultants to prosecute, defend or
negotiate any claim or legal or administrative proceeding and Lender, with the
prior written consent of Borrower (which shall not be unreasonably withheld,
delayed or conditioned) may settle or compromise any action or legal or
administrative proceeding. However, unless an Event of Default has occurred and
is continuing, or the interests of Borrower and Lender are in conflict, as
determined by Lender in its discretion, Lender shall permit Borrower to
undertake the actions referenced in this Section in accordance with this
Section and Section 18(1) so long as Lender approves such
action, which approval shall not be unreasonably withheld or delayed. Borrower
shall reimburse Lender upon demand for all costs and expenses incurred by
Lender, including all costs of settlements entered into in good faith,
consultants’ fees and Attorneys’ Fees and Costs.

 

26

 

(l)            Borrower shall not, without the
prior written consent of those Indemnitees who are named as parties to a claim
or legal or administrative proceeding (a “Claim”), settle or
compromise the Claim if the settlement (i) results in the entry of any
judgment that does not include as an unconditional term the delivery by the
claimant or plaintiff to Lender of a written release of those Indemnitees,
satisfactory in form and substance to Lender; or (ii) may materially and
adversely affect Lender, as determined by Lender in its discretion.

 

(m)          Borrower’s obligation to indemnify the
Indemnitees shall not be limited or impaired by any of the following, or by any
failure of Borrower or any guarantor to receive notice of or consideration for
any of the following:

 

(i)            any amendment
or modification of any Loan Document;

 

(ii)           any extensions of
time for performance required by any Loan Document;

 

(iii)          any provision
in any of the Loan Documents limiting Lender’s recourse to property securing
the Indebtedness, or limiting the personal liability of Borrower or any other
party for payment of all or any part of the Indebtedness;

 

(iv)          the accuracy or
inaccuracy of any representations and warranties made by Borrower under this
Instrument or any other Loan Document;

 

(v)           the release of
Borrower or any other person, by Lender or by operation of law, from
performance of any obligation under any Loan Document;

 

(vi)          the release or
substitution in whole or in part of any security for the Indebtedness; and

 

(vii)         Lender’s
failure to properly perfect any lien or security interest given as security for
the Indebtedness.

 

(n)           Borrower shall, at its own cost and
expense, do all of the following: 

 

(i)            pay or satisfy
any judgment or decree that may be entered against any Indemnitee or
Indemnitees in any legal or administrative proceeding incident to any matters
against which Indemnitees are entitled to be indemnified under this
Section 18;

 

27

 

(ii)           reimburse
Indemnitees for any expenses paid or incurred in connection with any matters
against which Indemnitees are entitled to be indemnified under this
Section 18; and

 

(iii)          reimburse
Indemnitees for any and all expenses, including Attorneys’ Fees and Costs, paid
or incurred in connection with the enforcement by Indemnitees of their rights
under this Section 18, or in monitoring and participating in any legal or
administrative proceeding.

 

(o)           The provisions of this
Section 18 shall be in addition to any and all other obligations and
liabilities that Borrower may have under applicable law or under other Loan
Documents, and each Indemnitee shall be entitled to indemnification under this
Section 18 without regard to whether Lender or that Indemnitee has
exercised any rights against the Mortgaged Property or any other security,
pursued any rights against any guarantor, or pursued any other rights available
under the Loan Documents or applicable law. If Borrower consists of more than
one person or entity, the obligation of those persons or entities to indemnify
the Indemnitees under this Section 18 shall be joint and several. The
obligation of Borrower to indemnify the Indemnitees under this Section 18
shall survive any repayment or discharge of the Indebtedness, any foreclosure
proceeding, any foreclosure sale, any delivery of any deed in lieu of
foreclosure, and any release of record of the lien of this Instrument.
Notwithstanding the foregoing, if Lender has never been a
mortgagee-in-possession of, or held title to, the Mortgaged Property, Borrower
shall have no obligation to indemnify the Indemnitees under this
Section 18 after the date of the release of record of the lien of this
Instrument by payment in full at the Maturity Date or by voluntary prepayment
in full.

 

19.          PROPERTY AND LIABILITY INSURANCE.

 

(a)           Borrower shall keep the Improvements
insured at all times against such hazards as Lender may from time to time
require, which insurance shall include but not be limited to coverage against
loss by fire and allied perils, general boiler and machinery coverage, rent
loss insurance and business income coverage. If Lender so requires, such
insurance shall also include sinkhole insurance, mine subsidence insurance,
earthquake insurance, and, if the Mortgaged Property does not conform to
applicable zoning or land use laws, building ordinance or law coverage.
Borrower acknowledges and agrees that Lender’s insurance requirements may
change from time to time throughout the term of the Indebtedness. If any of the
Improvements is located in an area identified by the Federal Emergency
Management Agency (or any successor to that agency) as an area having special
flood hazards, and if flood insurance is available in that area, Borrower shall
insure such Improvements against loss by flood. All insurance required pursuant
to this Section 19(a) shall be referred to as “Hazard
Insurance.”

 

28

 

(b)           All premiums on Hazard Insurance
policies required under Section 19(a) shall be paid in the manner
provided in Section 7, unless Lender has designated in writing another
method of payment. All such policies shall also be in a form approved by
Lender. All policies of property damage insurance shall include a
non-contributing, non-reporting mortgage clause in favor of, and in a form
approved by, Lender. Lender shall have the right to hold the original policies
or duplicate original policies of all Hazard Insurance required by
Section 19(a). Borrower shall promptly deliver to Lender a copy of all
renewal and other notices received by Borrower with respect to the policies and
all receipts for paid premiums. Borrower shall deliver to Lender the original
(or a duplicate original) of a renewal policy in form satisfactory to Lender at
least 30 days prior to the expiration date of a policy, unless applicable law
specifies some lesser period.

 

(c)           Borrower shall maintain at all times
commercial general liability insurance, workers’ compensation insurance and
such other liability, errors and omissions and fidelity insurance coverages as
Lender may from time to time require.

 

(d)           All insurance policies and renewals
of insurance policies required by this Section 19 shall be in such amounts
and for such periods as Lender may from time to time require, and shall be
issued by insurance companies satisfactory to Lender.

 

(e)           Borrower shall comply with all
insurance requirements and shall not permit any condition to exist on the
Mortgaged Property that would invalidate any part of any insurance coverage
that this Instrument requires Borrower to maintain.

 

(f)            In the event of loss, Borrower shall
give immediate written notice to the insurance carrier and to Lender. Borrower
hereby authorizes and appoints Lender as attorney-in-fact for Borrower to make
proof of loss, to adjust and compromise any claims under policies of Hazard
Insurance, to appear in and prosecute any action arising from such Hazard
Insurance policies, to collect and receive the proceeds of Hazard Insurance,
and to deduct from such proceeds Lender’s expenses incurred in the collection
of such proceeds. This power of attorney is coupled with an interest and
therefore is irrevocable. However, nothing contained in this Section 19
shall require Lender to incur any expense or take any action. Lender may, at
Lender’s option, (i) hold the balance of such proceeds to be used to
reimburse Borrower for the cost of restoring and repairing the Mortgaged
Property to the equivalent of its original condition or to a condition approved
by Lender (the “Restoration”), or
(ii) apply the balance of such proceeds to the payment of the
Indebtedness, whether or not then due. To the extent Lender determines to apply
insurance proceeds to Restoration, Lender shall apply the proceeds in
accordance with Lender’s then-current policies relating to the restoration of
casualty damage on similar multifamily properties.

 

29

 

(g)                                 Notwithstanding
any provision to the contrary in this Section 19, as long as no Event of
Default, or any event which, with the giving of Notice or the passage of time,
or both, would constitute an Event of Default, has occurred and is continuing,

 

(i)            in
the event of a casualty resulting in damage to the Mortgaged Property which
will cost $10,000 or less to repair, the Borrower shall have the sole right to
make proof of loss, adjust and compromise the claim and collect and receive any
proceeds directly without the approval or prior consent of the Lender so long
as the insurance proceeds are used solely for the Restoration of the Mortgaged
Property; and

 

(ii)           in
the event of a casualty resulting in damage to the Mortgage Property which will
cost more than $10,000 but less than $50,000 to repair, the Borrower is
authorized to make proof of loss and adjust and compromise the claim without
the prior consent of Lender, and Lender shall hold the applicable insurance
proceeds to be used to reimburse Borrower for the cost of Restoration of the
Mortgaged Property and shall not apply such proceeds to the payment of sums due
under this Instrument.

 

(h)                                 Lender
will have the right to exercise its option to apply insurance proceeds to the payment
of the Indebtedness only if Lender determines that at least one of the
following conditions is met:

 

(i)            an
Event of Default (or any event which, with the giving of Notice or the passage
of time, or both, would constitute an Event of Default) has occurred and is
continuing;

 

(ii)           Lender
determines, in its discretion, that there will not be sufficient funds from
insurance proceeds, anticipated contributions of Borrower of its own funds or
other sources acceptable to Lender to complete the Restoration;

 

(iii)          Lender
determines, in its discretion, that the rental income from the Mortgaged
Property after completion of the Restoration will not be sufficient to meet all
operating costs and other expenses, Imposition Deposits, deposits to reserves
and loan repayment obligations relating to the Mortgaged Property; or

 

(iv)          Lender
determines, in its discretion, that the Restoration will not be completed at
least one year before the Maturity Date (or six months before the Maturity Date
if Lender determines in its discretion that re-leasing of the Mortgaged
Property will be completed within such six-month period); or

 

30

 

(v)                                 Lender
determines that the Restoration will not be completed within one year after the
date of the loss or casualty.

 

(i)                                     If
the Mortgaged Property is sold at a foreclosure sale or Lender acquires title
to the Mortgaged Property, Lender shall automatically succeed to all rights of
Borrower in and to any insurance policies and unearned insurance premiums and
in and to the proceeds resulting from any damage to the Mortgaged Property
prior to such sale or acquisition.

 

(j)                                     Unless
Lender otherwise agrees in writing, any application of any insurance proceeds
to the Indebtedness shall not extend or postpone the due date of any monthly
installments referred to in the Note, Section 7 of this Instrument or any
Collateral Agreement, or change the amount of such installments.

 

(k)                                  Borrower
agrees to execute such further evidence of assignment of any insurance proceeds
as Lender may require.

 

20.                               CONDEMNATION.

 

(a)                                  Borrower
shall promptly notify Lender in writing of any action or proceeding or notice
relating to any proposed or actual condemnation or other taking, or conveyance
in lieu thereof, of all or any part of the Mortgaged Property, whether direct
or indirect (a “Condemnation”). Borrower shall
appear in and prosecute or defend any action or proceeding relating to any
Condemnation unless otherwise directed by Lender in writing. Borrower
authorizes and appoints Lender as attorney-in-fact for Borrower to commence,
appear in and prosecute, in Lender’s or Borrower’s name, any action or
proceeding relating to any Condemnation and to settle or compromise any claim
in connection with any Condemnation, after consultation with Borrower and consistent
with commercially reasonable standards of a prudent lender. This power of
attorney is coupled with an interest and therefore is irrevocable. However,
nothing contained in this Section 20 shall require Lender to incur any
expense or take any action. Borrower hereby transfers and assigns to Lender all
right, title and interest of Borrower in and to any award or payment with
respect to (i) any Condemnation, or any conveyance in lieu of Condemnation, and
(ii) any damage to the Mortgaged Property caused by governmental action
that does not result in a Condemnation.

 

(b)           Lender
may apply such awards or proceeds, after the deduction of Lender’s expenses
incurred in the collection of such amounts (including Attorneys’ Fees and
Costs) at Lender’s option, to the restoration or repair of the Mortgaged
Property or to the payment of the Indebtedness, with the balance, if any, to
Borrower. Unless Lender otherwise agrees in writing, any application of any
awards or proceeds to the Indebtedness shall not extend or postpone the due
date of any monthly installments referred to in the Note, Section 7 of
this Instrument or any

 

31

 

Collateral Agreement, or change the amount of such installments.
Borrower agrees to execute such further evidence of assignment of any awards or
proceeds as Lender may require.

 

21.                               TRANSFERS
OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER. [RIGHT TO UNLIMITED
TRANSFERS — WITH LENDER APPROVAL].

 

(a)                                  “Transfer” means

 

(i)            a
sale, assignment, transfer or other disposition (whether voluntary, involuntary
or by operation of law);

 

(ii)           the
granting, creating or attachment of a lien, encumbrance or security interest
(whether voluntary, involuntary or by operation of law);

 

(iii)          the
issuance or other creation of an ownership interest in a legal entity,
including a partnership interest, interest in a limited liability company or
corporate stock;

 

(iv)          the
withdrawal, retirement, removal or involuntary resignation of a partner in a
partnership or a member or manager in a limited liability company; or

 

(v)           the
merger, dissolution, liquidation, or consolidation of a legal entity or the
reconstitution of one type of legal entity into another type of legal entity.

 

For purposes of defining the term “Transfer,” the term “partnership”
shall mean a general partnership, a limited partnership, a joint venture and a
limited liability partnership, and the term “partner” shall mean a general
partner, a limited partner and a joint venturer.

 

(b)                                 “Transfer”
does not include

 

(i)            a
conveyance of the Mortgaged Property at a judicial or non-judicial foreclosure
sale under this Instrument,

 

(ii)           the
Mortgaged Property becoming part of a bankruptcy estate by operation of law
under the United States Bankruptcy Code, or

 

(iii)          a
lien against the Mortgaged Property for local taxes and/or assessments not then
due and payable.

 

32

 

(c)                                  The occurrence of any of the following
Transfers shall not constitute an Event of Default under this Instrument, notwithstanding any provision of Section 21(e) to the contrary:

 

(i)            a Transfer to which Lender has consented;

 

(ii)           a Transfer that occurs in accordance with Section 21(d);

 

(iii)          the grant of a leasehold interest in an
individual dwelling unit for a term of two years or less not containing an
option to purchase;

 

(iv)          a Transfer of obsolete or worn out Personalty
or Fixtures that are contemporaneously replaced by items of equal or better
function and quality, which are free of liens, encumbrances and security
interests other than those created by the Loan Documents or consented to by
Lender;

 

(v)           the creation of a mechanic’s, materialman’s,
or judgment lien against the Mortgaged Property which is released of record or
otherwise remedied to Lender’s satisfaction within 60 days of the date of
creation;

 

(vi)          if Borrower is a housing cooperative, any
Transfer of the shares in the housing cooperative or any assignment of the
occupancy agreements or leases relating thereto by tenant shareholders of the
housing cooperative; and

 

(vii)         any Transfer of an interest in Borrower or
any interest in a Controlling Entity (which, if such Controlling Entity were
Borrower, would result in an Event of Default) listed in (A) through (F) below
(a “Preapproved Transfer”), under
the terms and conditions listed as items (1) through (7) below:

 

(A)          a sale or transfer to one or more of the
transferor’s immediate family members; or

 

(B)           a sale or transfer to any trust having as its
sole beneficiaries the transferor and/or one or more of the transferor’s
immediate family members; or

 

(C)           a sale or transfer from a trust to any one or
more of its beneficiaries who are immediate family members of Borrower or a
Controlling Entity; or

 

(D)          the substitution or replacement of the
trustee of any trust with a trustee who is an immediate family member of the
transferor; or

 

33

 

(E)                                 a sale or transfer to an entity owned and
controlled by the transferor or the transferor’s immediate family members; or

 

(F)                                 a sale or transfer to an individual or entity
that has an existing interest in the Borrower or in a Controlling Entity.

 

(1)                    Borrower shall provide Lender with prior written Notice of the proposed
Preapproved Transfer; which Notice must be accompanied by a
non-refundable review fee in the amount of $3,000.

 

(2)                    For the purposes of these Preapproved Transfers, a transferor’s
immediate family members will be deemed to include a spouse, parent, child or
grandchild of such transferor.

 

(3)                    Either directly or indirectly, N/A
shall retain at all times not less than a N/A percent interest in the
Borrower and a managing interest in the Borrower.

 

(4)                    At the time of the proposed Preapproved
Transfer, no Event of Default shall have occurred and be continuing and no
event or condition shall have occurred and be continuing that, with the giving
of Notice or the passage of time, or both, would become an Event of Default.

 

(5)                    Lender shall be entitled to collect all
costs, including the cost of all title searches, title insurance and recording
costs, and all Attorneys’ Fees and Costs.

 

(6)                    Lender shall not be entitled to collect a
transfer fee as a result of these Preapproved Transfers.

 

(7)                    In the event of a Transfer prohibited by or
requiring Lender’s approval under this Section 21, this Section (c)(vii) may be modified or
rendered void by Lender at Lender’s option by Notice to Borrower and the
transferee(s), as a condition of Lender’s consent.

 

34

 

(d)                                 The
occurrence of any of the following Transfers shall not constitute an Event of Default
under this Instrument, provided that Borrower has notified Lender in writing
within 30 days following the occurrence of any of the following, and such
Transfer does not constitute an Event of Default under any other Section of
this Instrument:

 

(i)            a
change of the Borrower’s name, provided that UCC financing statements and/or
amendments sufficient to continue the perfection of Lender’s security interest
have been properly filed and copies have been delivered to Lender;

 

(ii)           a
change of the form of the Borrower not involving a transfer of the Borrower’s
assets and not resulting in any change in liability of any Initial Owner,
provided that UCC financing statements and/or amendments sufficient to continue
the perfection of Lender’s security interest have been properly filed and
copies have been delivered to Lender;

 

(iii)          the
merger of the Borrower with another entity when the Borrowing entity is the
surviving entity

 

(iv)          a
Transfer that occurs by devise, descent, or by operation of law upon the death
of a natural person; and

 

(v)           the
grant of an easement, if before the grant Lender determines that the easement
will not materially affect the operation or value of the Mortgaged Property or
Lender’s interest in the Mortgaged Property, and Borrower pays to Lender, upon
demand, all costs and expenses, including Attorneys’ Fees and Costs, incurred
by Lender in connection with reviewing Borrower’s request.

 

(e)                                  The
occurrence of any of the following Transfers shall constitute an Event of Default
under this Instrument:

 

(i)            a
Transfer of all or any part of the Mortgaged Property or any interest in the
Mortgaged Property;

 

(ii)           if
Borrower is a limited partnership, a Transfer of (A) any general
partnership interest, or (B) limited partnership interests in Borrower
that would cause the Initial Owners of Borrower to own less than a Controlling
Interest of all limited partnership interests in Borrower;

 

(iii)          if
Borrower is a general partnership or a joint venture, a Transfer of any general
partnership or joint venture interest in Borrower;

 

35

 

(iv)          if
Borrower is a limited liability company, (A) a Transfer of any membership
interest in Borrower which would cause the Initial Owners to own less than a
Controlling Interest of all the membership interests in Borrower, (B) a
Transfer of any membership or other interest of a manager in Borrower that
results in a change of manager or (C) a change in a nonmember manager;

 

(v)           if
Borrower is a corporation (A) the Transfer of any voting stock in Borrower
which would cause the Initial Owners to own less than a Controlling Interest of
any class of voting stock in Borrower or (B) if the outstanding voting
stock in Borrower is held by 100 or more shareholders, one or more Transfers by
a single transferor within a 12-month period affecting an aggregate of 5
percent or more of that stock;

 

(vi)          if
Borrower is a trust, (A) a Transfer of any beneficial interest in Borrower
which would cause the Initial Owners to own less than a Controlling Interest of
all the beneficial interests in Borrower, (B) the termination or
revocation of the trust, or (C) the removal, appointment or substitution
of a trustee of Borrower;

 

(vii)         a
Transfer of any interest in a Controlling Entity which, if such Controlling
Entity were Borrower, would result in an Event of Default under any of Sections
21(e)(i) through (vi) above.

 

Lender shall not be required to demonstrate any actual impairment of
its security or any increased risk of default in order to exercise any of its
remedies with respect to an Event of Default under this Section 21.

 

(f)                                    Lender
shall consent, without any adjustment to the rate at which the Indebtedness secured
by this Instrument bears interest or to any other economic terms of the
Indebtedness set forth in the Note, to a Transfer that would otherwise violate
this Section 21 if, prior to the Transfer, Borrower has satisfied each of
the following requirements:

 

(i)            the
submission to Lender of all information required by Lender to make the
determination required by this Section 21(f);

 

(ii)           the
absence of any Event of Default;

 

(iii)          the
transferee meets all of the eligibility, credit, management and other standards
(including but not limited to any standards with respect to previous
relationships between Lender and the transferee) customarily

 

36

 

applied by Lender 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;

 

(iv)                              the
transferee’s organization, credit and experience in the management of similar
properties are deemed by the Lender, in its discretion, to be appropriate to
the overall structure and documentation of the existing financing;

 

(v)                                 the
Mortgaged Property, at the time of the proposed Transfer, meets all standards
as to its physical condition, occupancy, net operating income and the
collection of reserves that are customarily applied by Lender at the time of
the proposed Transfer to the approval of properties in connection with the
origination or purchase of similar mortgages on multifamily properties;

 

(vi)                              in
the case of a Transfer of all or any part of the Mortgaged Property, (A) the
execution by the transferee of Lender’s then-standard assumption agreement
that, among other things, requires the transferee to perform all obligations of
Borrower set forth in the Note, this Instrument and any other Loan Documents,
and may require that the transferee comply with any provisions of this
Instrument or any other Loan Document which previously may have been waived or
modified by Lender, (B) if Lender requires, the transferee causes one or
more individuals or entities acceptable to Lender to execute and deliver to
Lender a guaranty in a form acceptable to Lender, and (C) the transferee
executes such additional Collateral Agreements as Lender may require;

 

(vi)                              in
the case of a Transfer of any interest in a Controlling Entity, if a guaranty
has been executed and delivered in connection with the Note, this Instrument or
any of the other Loan Documents, the Borrower causes one or more individuals or
entities acceptable to Lender to execute and deliver to Lender a guaranty in a
form acceptable to Lender; and

 

(vii)                           Lender’s
receipt of all of the following:

 

(A)          a
review fee in the amount of $3,000;

 

(B)           a
transfer fee in an amount equal to 1 percent of the unpaid principal
balance of the Indebtedness immediately before the applicable Transfer; and

 

37

 

(C)                                the
amount of Lender’s out-of-pocket costs (including reasonable Attorneys’ Fees
and Costs) incurred in reviewing the Transfer request.

 

22.          EVENTS
OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default under this Instrument:

 

(a)           any
failure by Borrower to pay or deposit when due any amount required by the Note,
this Instrument or any other Loan Document;

 

(b)           any
failure by Borrower to maintain the insurance coverage required by Section 19;

 

(c)           any
failure by Borrower to comply with the provisions of Section 33;

 

(d)           fraud
or material misrepresentation or material omission by Borrower, any of its
officers, directors, trustees, general partners or managers or any guarantor in
connection with (i) the application for or creation of the Indebtedness, (ii) any
financial statement, rent schedule, or other report or information provided to
Lender during the term of the Indebtedness, or (iii) any request for
Lender’s consent to any proposed action, including a request for disbursement
of funds under any Collateral Agreement;

 

(e)           any
failure to comply with the provisions of Section 20;

 

(f)            any
Event of Default under Section 21;

 

(g)           the
commencement of a forfeiture action or proceeding, whether civil or criminal,
which, in Lender’s reasonable judgment, could result in a forfeiture of the
Mortgaged Property or otherwise materially impair the lien created by this
Instrument or Lender’s interest in the Mortgaged Property;

 

(h)           any
failure by Borrower to perform any of its obligations under this Instrument
(other than those specified in Sections 22(a) through (g)), as and when
required, which continues for a period of 30 days after Notice of such failure
by Lender to Borrower. However, if Borrower’s failure to perform its
obligations as described in this Section 22(h) is of the nature that
it cannot be cured within the 30 day grace period but reasonably could be cured
within 90 days, then Borrower shall have additional time as determined by
Lender in its discretion, not to exceed an additional 60 days, in which to cure
such default, provided that Borrower has diligently commenced to cure such
default during the 30-day grace period and diligently pursues the cure of such
default. However, no such Notice or grace periods shall apply in the case of
any such failure which could, in Lender’s judgment, absent immediate exercise
by Lender of a right

 

38

 

or remedy under this Instrument, result in harm to Lender, impairment
of the Note or this Instrument or any other security given under any other Loan
Document;

 

(i)            any
failure by Borrower to perform any of its obligations as and when required under
any Loan Document other than this Instrument which continues beyond the
applicable cure period, if any, specified in that Loan Document;

 

(j)            any
exercise by the holder of any other debt instrument secured by a mortgage, deed
of trust or deed to secure debt on the Mortgaged Property of a right to declare
all amounts due under that debt instrument immediately due and payable;

 

(k)           Borrower
voluntarily 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 Borrower by any creditor (other than Lender) of Borrower
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
90 days after filing; and

 

(l)            any
of Borrower’s representations and warranties in this Instrument is false or
misleading in any material respect.

 

23.          REMEDIES CUMULATIVE. Each right and remedy provided in
this Instrument is distinct from all other rights or remedies under this
Instrument or any other Loan Document or afforded by applicable law, and each
shall be cumulative and may be exercised concurrently, independently, or
successively, in any order.

 

24.          FORBEARANCE.

 

(a)           Lender
may (but shall not be obligated to) agree with Borrower, from time to time, and
without giving notice to, or obtaining the consent of, or having any effect
upon the obligations of, any guarantor or other third party obligor, to take
any of the following actions: extend the time for payment of all or any part of
the Indebtedness; reduce the payments due under this Instrument, the Note, or
any other Loan Document; release anyone liable for the payment of any amounts
under this Instrument, the Note, or any other Loan Document; accept a renewal
of the Note; modify the terms and time of payment of the Indebtedness; join in
any extension or subordination agreement; release any Mortgaged Property; take
or release other or additional security; modify the rate of interest or period
of amortization of the Note or change the amount of the monthly installments
payable under the Note; and otherwise modify this Instrument, the Note, or any
other Loan Document.

 

39

 

(b)           Any
forbearance by Lender in exercising any right or remedy under the Note, this Instrument,
or any other Loan Document or otherwise afforded by applicable law, shall not
be a waiver of or preclude the exercise of any other right or remedy, or the
subsequent exercise of any right or remedy. The acceptance by Lender of payment
of all or any part of the Indebtedness after the due date of such payment, or
in an amount which is less than the required payment, shall not be a waiver of
Lender’s right to require prompt payment when due of all other payments on
account of the Indebtedness or to exercise any remedies for any failure to make
prompt payment. Enforcement by Lender of any security for the Indebtedness
shall not constitute an election by Lender of remedies so as to preclude the
exercise of any other right available to Lender. Lender’s receipt of any awards
or proceeds under Sections 19 and 20 shall not operate to cure or waive any
Event of Default.

 

25.          LOAN CHARGES. If any applicable law limiting the
amount of interest or other charges permitted to be collected from Borrower is
interpreted so that any charge provided for in any Loan Document, whether
considered separately or together with other charges levied in connection with
any other Loan Document, violates that law, and Borrower is entitled to the
benefit of that law, that charge is
hereby reduced to the extent necessary to eliminate that violation. The
amounts, if any, previously paid to Lender in excess of the permitted amounts
shall be applied by Lender to reduce the principal of the Indebtedness. For the
purpose of determining whether any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower has been
violated, all Indebtedness which constitutes interest, as well as all other
charges levied in connection with the Indebtedness which constitute interest,
shall be deemed to be allocated and spread over the stated term of the Note.
Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest so computed is
uniform throughout the stated term of the Note.

 

26.          WAIVER OF STATUTE OF
LIMITATIONS. Borrower
hereby waives the right to assert any statute of limitations as a bar to the enforcement
of the lien of this Instrument or to any action brought to enforce any Loan
Document.

 

27.          WAIVER OF
MARSHALLING. Notwithstanding
the existence of any other security interests in the Mortgaged Property held by
Lender or by any other party, Lender shall have the right to determine the
order in which any or all of the Mortgaged Property shall be subjected to the
remedies provided in this Instrument, the Note, any other Loan Document or
applicable law. Lender shall have the right to determine the order in which any
or all portions of the Indebtedness are satisfied from the proceeds realized
upon the exercise of such remedies. Borrower and any party who now or in the
future acquires a security interest in the Mortgaged Property and who has
actual or constructive notice of this Instrument waives any and all right to
require the marshalling of assets or to require that any of the Mortgaged
Property be sold in the inverse order of alienation or that any of the
Mortgaged Property be sold in parcels or as an

 

40

 

entirety in connection with the exercise of any of the remedies
permitted by applicable law or provided in this Instrument.

 

28.          FURTHER
ASSURANCES. Borrower shall execute, acknowledge, and
deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements or amendments,
transfers and assurances as Lender may require from time to time in order to
better assure, grant, and convey to Lender the rights intended to be granted,
now or in the future, to Lender under this Instrument and the Loan Documents.

 

29.          ESTOPPEL
CERTIFICATE. Within 10 days after a request from
Lender, Borrower shall deliver to Lender a written statement, signed and acknowledged
by Borrower, certifying to Lender or any person designated by Lender, as of the
date of such statement, (i) that the Loan Documents are unmodified and in
full force and effect (or, if there have been modifications, that the Loan
Documents are in full force and effect as modified and setting forth such
modifications); (ii) the unpaid principal balance of the Note; (iii) the
date to which interest under the Note has been paid; (iv) that Borrower is
not in default in paying the Indebtedness or in performing or observing any of
the covenants or agreements contained in this Instrument or any of the other
Loan Documents (or, if the Borrower is in default, describing such default in
reasonable detail); (v) whether or not there are then existing any setoffs
or defenses known to Borrower against the enforcement of any right or remedy of
Lender under the Loan Documents; and (vi) any additional facts requested
by Lender.

 

30.          GOVERNING
LAW; CONSENT TO JURISDICTION AND VENUE.

 

(a)           This Instrument, and any Loan Document which
does not itself expressly identify the law that is to apply to it, shall be
governed by the laws of the jurisdiction in which the Land is located (the “Property Jurisdiction”).

 

(b)           Borrower agrees that any controversy
arising under or in relation to the Note, this Instrument, or any other Loan
Document may be litigated in the Property Jurisdiction. The state and federal
courts and authorities with jurisdiction in the Property Jurisdiction shall
have jurisdiction over all controversies that shall arise under or in relation
to the Note, any security for the Indebtedness, or any other Loan Document.
Borrower 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. However, nothing in this Section 30
is intended to limit Lender’s right to bring any suit, action or proceeding
relating to matters under this Instrument in any court of any other jurisdiction.

 

31.          NOTICE.

 

(a)           All
Notices, demands and other communications (“Notice”) under
or concerning this Instrument shall be in writing. Each Notice shall be
addressed to the intended recipient at its

 

41

 

address set forth in this Instrument, and shall be deemed given on the
earliest to occur of (i) the date when the Notice is received by the
addressee; (ii) the first Business Day after the Notice is delivered to a
recognized overnight courier service, with arrangements made for payment of
charges for next Business Day delivery; or (iii) the third Business Day
after the Notice is deposited in the United States mail with postage prepaid,
certified mail, return receipt requested. As used in this Section 31, the
term “Business Day” means any day other than
a Saturday, a Sunday or any other day on which Lender is not open for business.

 

(b)           Any
party to this Instrument may change the address to which Notices intended for
it are to be directed by means of Notice given to the other party in accordance
with this Section 31. Each party agrees that it will not refuse or reject
delivery of any Notice given in accordance with this Section 31, that it
will acknowledge, in writing, the receipt of any Notice upon request by the
other party and that any Notice rejected or refused by it shall be deemed for
purposes of this Section 31 to have been received by the rejecting party
on the date so refused or rejected, as conclusively established by the records
of the U.S. Postal Service or the courier service.

 

(c)           Any
Notice under the Note and any other Loan Document that does not specify how
Notices are to be given shall be given in accordance with this Section 31.

 

32.          SALE
OF NOTE; CHANGE IN SERVICER; LOAN SERVICING. The Note or
a partial interest in the Note (together with this Instrument and the other
Loan Documents) may be sold one or more times without prior Notice to Borrower.
A sale may result in a change of the Loan Servicer. There also may be one or
more changes of the Loan Servicer unrelated to a sale of the Note. If there is
a change of the Loan Servicer, Borrower will be given Notice of the change. All
actions regarding the servicing of the loan evidenced by the Note, including
the collection of payments, the giving and receipt of Notice, inspections of
the Property, inspections of books and records, and the granting of consents
and approvals, may be taken by the Loan Servicer unless Borrower receives
Notice to the contrary. If Borrower receives conflicting Notices regarding the
identity of the Loan Servicer or any other subject, any such Notice from Lender
shall govern.

 

33.          SINGLE
ASSET BORROWER. Until the Indebtedness is paid in
full, Borrower (a) shall not own any real or personal property other than
the Mortgaged Property and personal property related to the operation and
maintenance of the Mortgaged Property; (b) shall not operate any business
other than the management and operation of the Mortgaged Property; and (c) shall
not maintain its assets in a way difficult to segregate and identify.

 

34.          SUCCESSORS
AND ASSIGNS BOUND. This Instrument shall bind, and the
rights granted by this Instrument shall inure to, the respective successors and
assigns of Lender and Borrower. However, a Transfer not permitted by Section 21
shall be an Event of Default.

 

42

 

35.          JOINT AND SEVERAL LIABILITY. If more than one person or entity
signs this Instrument as Borrower, the obligations of such persons and entities
shall be joint and several.

 

36.          RELATIONSHIP
OF PARTIES; NO THIRD PARTY BENEFICIARY.

 

(a)           The
relationship between Lender and Borrower shall be solely that of creditor and
debtor, respectively, and nothing contained in this Instrument shall create any
other relationship between Lender and Borrower.

 

(b)           No
creditor of any party to this Instrument and no other person shall be a third
party beneficiary of this Instrument or any other Loan Document. Without
limiting the generality of the preceding sentence, (i) any arrangement (a “Servicing Arrangement”) between
the Lender and any Loan Servicer for loss sharing or interim advancement of
funds shall constitute a contractual obligation of such Loan Servicer that is
independent of the obligation of Borrower for the payment of the Indebtedness, (ii)
Borrower shall not be a third party beneficiary of any Servicing Arrangement,
and (iii) no payment by the Loan Servicer under any Servicing Arrangement
will reduce the amount of the Indebtedness.

 

37.      SEVERABILITY; AMENDMENTS. The
invalidity or unenforceability of any provision of this Instrument shall not
affect the validity or enforceability of any other provision, and all other
provisions shall remain in full force and effect. This Instrument contains the
entire agreement among the parties as to the rights granted and the obligations
assumed in this Instrument. This Instrument may not be amended or modified
except by a writing signed by the party against whom enforcement is sought;
provided, however, that in the event of a Transfer prohibited by or requiring
Lender’s approval under Section 21, any or some or all of the
Modifications to Instrument set forth in Exhibit B (if any) may be modified or rendered
void by Lender at Lender’s option by Notice to Borrower and the transferee(s).

 

38.          CONSTRUCTION.
The captions and headings of the Sections of this Instrument
are for convenience only and shall be disregarded in construing this
Instrument. Any reference in this Instrument to an “Exhibit” or a “Section”
shall, unless otherwise explicitly provided, be construed as referring,
respectively, to an Exhibit attached to this Instrument or to a Section of
this Instrument. All Exhibits attached to or referred to in this Instrument are
incorporated by reference into this Instrument. Any, reference in this
Instrument to a statute or regulation shall be construed as referring to that
statute or regulation as amended from time to time. Use of the singular in this
Agreement includes the plural and use of the plural includes the singular. As
used in this
Instrument, the term “including” means “including, but not limited to.”

 

43

 

39.          DISCLOSURE
OF INFORMATION. Lender may furnish information
regarding Borrower or the  Mortgaged
Property to third parties with an existing or prospective interest in the
servicing, enforcement, evaluation, performance, purchase or securitization of
the Indebtedness, including but not limited to trustees, master servicers,
special servicers, rating agencies, and organizations maintaining databases on
the underwriting and performance of multifamily mortgage loans. Borrower
irrevocably waives any and all rights it may have under. applicable law to prohibit such disclosure,
including but not limited to any right of privacy.

 

40.          NO
CHANGE IN FACTS OR CIRCUMSTANCES. Borrower warrants
that (a) all information in the application for the loan submitted to
Lender (the “Loan Application”) and in all financial statements,
rent schedules, reports, certificates and other documents submitted in connection
with the Loan Application are complete and accurate in all material respects;
and (b) there has been no material adverse change in any fact or
circumstance that would make any such information incomplete or inaccurate.

 

41.          SUBROGATION.
If, and  to the extent that, the proceeds of
the loan evidenced by the Note are used to pay, satisfy or discharge any
obligation of Borrower for the payment of money that is secured by a
pre-existing mortgage, deed of trust or other lien encumbering the Mortgaged
Property (a “Prior Lien”), such loan proceeds shall be deemed
to have been advanced by Lender at Borrower’s request, and Lender shall
automatically, and without further action on its part, be subrogated to the
rights, including lien priority, of the owner or holder of the obligation
secured by the Prior Lien, whether or not the Prior Lien is released.

 

42.          ADJUSTABLE
RATE MORTGAGE - THIRD PARTY CAP AGREEMENT “CAP COLLATERAL.”

 

(a)           If
the Note provides for interest to accrue at an adjustable or variable interest
rate (other than during the “Extension Period,” as defined in the Note, if
applicable), then the definition of “Mortgaged Property” shall include the “Cap Collateral.” The “Cap Collateral”
shall mean

 

(i)            any
interest rate cap agreement, interest rate swap agreement, or other interest
rate hedging contract or agreement obtained by Borrower as a requirement of any
Loan Document or as a condition of Lender’s making the Loan (a “Cap Agreement”);

 

(ii)           any
and all moneys (collectively, “Cap Payments”) payable pursuant  to any Cap Agreement by the interest rate cap provider
or other counterparty to a Cap Agreement or any guarantor of the obligations of
any such cap provider or counterparty (a “Cap
Provider”);

 

44

 

(iii)          all
rights of Borrower under any Cap Agreement and all rights of Borrower to all
Cap Payments, including contract rights and general intangibles, whether
existing now or arising after the date of this Instrument;

 

(iv)          all
rights, liens and security interests or guaranties granted by a Cap Provider or
any other person to secure or guaranty payment of any Cap Payment whether
existing now or granted after the date of this Instrument;

 

(v)           all
documents, writings, books, files, records and other documents arising from or
relating to any of the foregoing, whether existing now or created after the
date of this Instrument; and

 

(vi)          all
cash and non-cash proceeds and products of (ii) – (v) above.

 

 

(b)           As
additional security for Borrower’s obligation under the Loan Documents,
Borrower hereby assigns and pledges to Lender all of Borrower’s right, title
and interest in and to the Cap Collateral. Borrower has instructed and will
instruct each Cap Provider and any guarantor of a Cap Provider’s obligations to
make Cap Payments directly to Lender or to Loan Servicer on behalf of Lender.

 

(c)           So
long as there is no Event of Default, Lender or Loan Servicer will remit to
Borrower each Cap Payment received by Lender or Loan Servicer with respect to
any month for which Borrower has paid in full the monthly installment of
principal and interest or interest only, as applicable, due under the Note.
Alternatively, at Lender’s option so long as there is no Event of Default,
Lender may apply a Cap Payment received by Lender or Loan Servicer with respect
to any month to the applicable monthly payment of accrued interest due under
the Note if Borrower has paid in full the remaining portion of such monthly
payment of principal and interest or interest only, as applicable.

 

(d)           Following
an Event of Default, in addition to any other rights and remedies Lender may
have, Lender may retain any Cap Payments and apply them to the Indebtedness in
such order and amounts as Lender determines. Neither the existence of a Cap
Agreement nor anything in this Instrument shall relieve Borrower of its primary
obligation to timely pay in full all amounts due under the Note and otherwise
due on account of the Indebtedness.

 

(e)           If
the Note does not provide for interest to accrue at an adjustable or variable
interest rate (other than during the Extension Period) then this Section 42
shall be of no force or effect.

 

43.          ACCELERATION;
REMEDIES. If an Event of Default has occurred and is
continuing, Lender, at Lender’s option, may declare the Indebtedness to be immediately
due and payable without further demand, and may invoke the power of sale and
any other remedies

 

45

 

permitted by California law or provided in this Instrument or in any
other Loan Document. Borrower acknowledges that the power of sale granted in
this Instrument may be exercised by Lender without prior judicial hearing.
Lender shall be entitled to collect all costs and expenses incurred in pursuing
such remedies, including attorneys’ fees, costs of documentary evidence,
abstracts and title reports.

 

If the power of sale is invoked, Lender shall
execute a written notice of the occurrence of an Event of Default and of
Lender’s election to cause the Mortgaged Property to be sold and shall cause
the notice to be recorded in each county in which the Mortgaged Property or
some part of the Mortgaged Property is located. Trustee shall give notice of
default and notice of sale and shall sell the Mortgaged Property according to
California law. Trustee may sell the Mortgaged Property at the time and place
and under the terms designated in the notice of sale in one or more parcels and
in such order as Trustee may determine. Trustee may postpone the sale of all or
any part of
the Mortgaged Property by public announcement at the time and place of any
previously scheduled sale. Lender or Lender’s designee may purchase the
Mortgaged Property at any sale.

 

Trustee shall deliver to the purchaser at the
sale, within a reasonable time after the sale, a deed conveying the Mortgaged
Property so sold without any express or implied covenant or warranty. The
recitals in Trustee’s deed shall be prima facie evidence of the truth of the
statements made in those recitals. Trustee shall apply the proceeds of the sale
in the following order: (a) to all costs and expenses of the sale,
including Trustee’s fees not to exceed 5% of the gross sales price, attorneys’
fees and costs of title evidence; (b) to the Indebtedness in such order as
Lender, in Lender’s discretion, directs; and (c) the excess, if any, to
the person or persons legally entitled to the excess.

 

44.          RECONVEYANCE. Upon payment of the Indebtedness,
Lender shall request Trustee to reconvey the Mortgaged Property and shall
surrender this Instrument and the Note to Trustee. Trustee shall reconvey the
Mortgaged Property without warranty to the person or persons legally entitled
to the Mortgaged Property. Such person or persons shall pay Trustee’s
reasonable costs incurred in so reconveying the Mortgaged Property.

 

45.          SUBSTITUTE TRUSTEE. Lender, at Lender’s option, may from
time to time, by a written instrument, appoint a successor trustee, which
instrument, when executed and acknowledged by Lender and recorded in the office
of the Recorder of the county or counties where the Mortgaged Property is
situated, shall be conclusive proof of proper substitution of the successor
trustee. The successor trustee shall, without conveyance of the Mortgaged Property, succeed to all the title,
power and duties conferred upon the Trustee in this Instrument and by
California law. The instrument of substitution shall contain the name of the
original Lender, Trustee and Borrower under this Instrument, the book and page where
this Instrument is recorded, and the name and address of the successor trustee.
If notice of default has been recorded, this power of substitution cannot be
exercised until after the costs, fees and expenses of

 

46

 

the then acting Trustee have been paid to such Trustee, who shall endorse
receipt of those costs, fees and expenses upon the instrument of substitution.
The procedure provided for substitution of trustee in this Instrument shall
govern to the exclusion of all other provisions for substitution, statutory or
otherwise.

 

46.           STATEMENT
OF OBLIGATION. Lender may collect a fee not to exceed the
maximum allowed by applicable law for furnishing the statement of obligation as
provided in Section 2943 of the Civil Code of California.

 

47.           SPOUSE’S
SEPARATE PROPERTY. Each Borrower who is a married person
expressly agrees that recourse may be had against his or her separate property.

 

48.           FIXTURE
FILING. This Instrument is also a fixture filing under the
Uniform Commercial Code of California.

 

49.           ADDITIONAL
PROVISION REGARDING APPLICATION OF PAYMENTS. In addition to
the provisions of Section 9, Borrower further agrees that, if Lender
accepts a guaranty of only a portion of the Indebtedness, Borrower waives its
right under California Civil Code Section 2822(a), to designate the
portion of the Indebtedness which shall be satisfied by a guarantor’s partial
payment.

 

50.           WAIVER OF MARSHALLING; OTHER WAIVERS. To the extent
permitted by law, Borrower waives (i) the benefit of all present or future
laws providing for any appraisement before sale of any portion of the Mortgaged
Property, (ii) all rights of redemption, valuation, appraisement, stay of
execution, notice of election to mature or declare due the whole of the
Indebtedness and marshalling in the event of foreclosure of the lien created by
this Instrument, (iii) all rights and remedies which Borrower may have or
be able to assert by reason of the laws of the State of California pertaining
to the rights and remedies of sureties, (iv) the right to assert any
statute of limitations as a bar to the enforcement of the lien of this
Instrument or to any action brought to enforce the Note or any other obligation
secured by this Instrument, and (v) any rights, legal or equitable, to
require marshalling of assets or to require upon foreclosure sales in a
particular order, including any rights under California Civil Code Sections
2899 and 3433. Lender shall have the right to determine the order in which any
or all of the Mortgaged Property shall be subjected to the remedies provided by
this Instrument. Lender shall have the right to determine the order in which
any or all portions of the Indebtedness are satisfied from the proceeds
realized upon the exercise of the remedies provided by this Instrument. By
signing this Instrument, Borrower does not waive its rights under Section 2924c
of the California Civil Code.

 

51.           ADDITIONAL
PROVISIONS CONCERNING ENVIRONMENTAL HAZARDS. In addition to
the provisions of Section 18:

 

47

 

(a)                                  Except
for matters covered by an O&M Program or matters described in Section 18(b),
Borrower shall not cause or permit any lien (whether or not such lien has
priority over the lien created by this Instrument) upon the Mortgaged Property
imposed pursuant to any Hazardous Materials Laws. Any such lien shall be
considered a Prohibited Activity or Condition.

 

(b)                                 Borrower
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing:

 

(1)                                  at
the time of acquiring the Mortgaged Property, Borrower undertook all
appropriate inquiry into the previous ownership and uses of the Mortgaged
Property consistent with good commercial or customary practice and no evidence
or indication came to light which would suggest that the Mortgaged Property has
been or is now being used for any Prohibited Activities or Conditions; and

 

(2)                                  the
Mortgaged Property has not been designated as “hazardous waste property” or
“border zone property” pursuant to Section 25220, et seq.,
of the California Health and Safety Code.

 

The representations and warranties in this Section 51(b) shall
be continuing representations and warranties that shall be deemed to be made by
Borrower throughout the term of the loan evidenced by the Note, until the
Indebtedness has been paid in full.

 

(c)                                  Without
limiting any of the remedies provided in this Instrument, Borrower acknowledges
and agrees that each of the provisions in Section 18 and in this Section 51
is an environmental provision (as defined in Section 736(f)(2) of the
California Code of Civil Procedure) made by Borrower relating to the real
property security (the “Environmental Provisions”),
and that Borrower’s failure to comply with any of the Environmental Provisions
will be a breach of contract that will entitle Lender to pursue the remedies
provided by Section 736 of the California Code of Civil Procedure (“Section 736”) for the recovery of damages and for the
enforcement of the Environmental Provisions. Pursuant to Section 736,
Lender’s action for recovery of damages or enforcement of the Environmental
Provisions shall not constitute an action within the meaning of Section 726(a) of
the California Code of Civil Procedure or constitute a money judgment for a
deficiency or a deficiency judgment within the meaning of Sections 580a, 580b,
580d, or 726(b) of the California Code of Civil Procedure.

 

(d)                                 Any
reference in this Instrument or in any other Loan Document to Section 18
of this Instrument shall be construed as referring together to Section 18
and this Section 51.

 

48

 

52.          WAIVER OF
TRIAL BY JURY.
BORROWER AND LENDER EACH (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY
JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS INSTRUMENT OR THE
RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER 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.

 

ATTACHED EXHIBITS. The following Exhibits are attached to this Instrument:

 

	
  x

  	
  Exhibit A

  	
  Description
  of the Land (required).

  
	
   

  	
   

  	
   

  
	
  x

  	
  Exhibit B

  	
  Modifications
  to Instrument

  

 

 

IN WITNESS WHEREOF, Borrower has signed and delivered this Instrument or has caused this
Instrument to be signed and delivered by its duly authorized representative.

 

	
  Waterford
  Place Apartments, LLC,

  	
   

  
	
  a
  California limited liability company

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Shea
  Properties Management Company, Inc.

  	
   

  
	
   

  	
  a
  Delaware corporation

  	
   

  
	
   

  	
  Its
  Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Authorized Signatory

  	
   

  
	
   

  	
  Its:

  	
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Authorized Signatory

  	
   

  
	
   

  	
  Its:

  	
  Vice President

  	
   

  

 

49

 

STATE OF CALIFORNIA

COUNTY OF Los Angeles

 

On April 7, 2004,  before
me, Norma Y. Gutierrez personally appeared Robert R. O’Dell and James G.
Shontere

 

x personally known to me

o proved to me on the
basis of satisfactory evidence

 

to be the person(s) whose name are subscribed to the within
instrument and acknowledged to me that they executed the same in their
authorized capacity(ies), and that by their signature on the instrument, the
person(s) or the entity(ies) upon behalf of which the person(s) acted, executed
the instrument.

 

 

	
  Witness my hand and official seal.

  	
   

  
	
   

  	
   

  
	
  

  

  Signature

  	
  

  

  /s/ Norma Y. Gutierrez

  	
  

  
	
   

  	
  

  

  

  

 

(This area for official notarial seal)

 

50

 

EXHIBIT B

 

MODIFICATIONS TO INSTRUMENT

 

The following
modifications are made to the text of the Instrument that precedes this
Exhibit:

 

1.                                       Delete
clause (ii) of Section 2(b).

 

2.                                       Change
the reference in Section 4(e) from “six months” to “three months” and
add at the end of the Section “provided, however, that not more than 2.5%
of the total units in the Mortgaged Property at any one time may be leased on a
month-to-month basis as corporate units.”

 

3.                                       Paragraph
7 of the Security Instrument is amended to add the following subparagraph:

 

(f)                                    Notwithstanding the
provisions of Subparagraph 7(a), the Lender will not require Borrower to
deposit with Lender amounts sufficient to accumulate with Lender the entire sum
required to pay the water and sewer charges, Taxes, fire, hazard or other
insurance premiums. At least annually, the Borrower must provide Lender with
proof of payment of all such Impositions for which Lender is not collecting
Imposition Deposits. In the event that Borrower does not timely pay any of the
Impositions, or fails to provide Lender with proof of such payment, or at any
other time in Lender’s discretion, Lender may require Borrower to deposit with
Lender the Imposition Deposits as provided in Section 7(a).

 

4.                                       Delete
the third sentence of Section 10.

 

5.                                       In
the first sentence of Section 12(a), after the words “then Lender at
Lender’s option”, insert the following: “with concurrent notice to Borrower,”.

 

6.                                       At
the end of Section 13, insert the following: “Lender shall use good faith
efforts to minimize interference with tenants of the Improvements while
conducting any environmental inspections and tests.”

 

B-1

 

7.                                       In
the first sentence of Section 14(a), after the words “management agent’s
offices”, insert “or at the corporate offices of Shea Properties”.

 

8.                                       Section 14(c)(iii) is
deleted in its entirety and replaced with the following:

 

(iii)          a
statement that identifies all owners of any interest in Borrower, if Borrower
or a Controlling Entity is a corporation, all officers and directors of Borrower
and the Controlling Entity, and if Borrower or a Controlling Entity is a
limited liability company, all managers who are not members;

 

9.                                       Add
the following to the end of clause (i) of Section 14(d);
“Notwithstanding the foregoing provision of this subsection (i), so long as
there is no Event of Default Lender shall not require financial statements
other than an annual balance sheet and income statement for the Borrower which
are combined with the balance sheet and income statement of J. F. Shea Co., Inc.,
which financial statements shall be delivered to Lender, without the necessity
of a request by Lender, within 120 days following the end of each fiscal year
of Borrower.”

 

10.                                 In
Section 15(a), replace the words “when due” with the words “prior to delinquency”.

 

11.                                 At
the end of Section 17, after the word “Personalty”, insert “, and except
that without the consent of Lender, Borrower may make alterations and additions
to the Improvements provided that such alterations and additions are completed
in a lien-free and good and workmanlike manner in accordance with applicable
laws, that neither the performance nor completion of the alterations or
additions adversely affects the structural integrity of the Improvements or the
occupancy of the Improvements, and the aggregate costs of all such alterations
and additions does not exceed $1,500,000.”

 

12.                                 In
Section 18(e)(iv), insert the words “in all material respects” following
and word “complied” in the first sentence.

 

13.                                 In
Section 18(f)(ii), delete the words “or other person”.

 

14.                                 Section 18(g) is
modified to provide that with respect to any Environmental Inspection required
by Lender as a condition of Lender’s consent to any Transfer under Section 21,
Lender shall (x) provide to Borrower reasonable notice of the
Environmental Inspection, (y) to the extent reasonable, not interfere with
the

 

B-2

 

rights of tenants in possession, and (z) shall cause any
contractor, consultant or other entity-conducting such Environmental Inspection
to have insurance coverage for damages to the Property caused by such
contractor, consultant or other entity as a result of such Environmental
Inspection.

 

15.                                 In
Section 18(h), replace the words “on a timely basis” appearing in the second
sentence with the words “prior to the applicable deadline required by Hazardous
Materials Laws”.

 

16.                                 In
Section 18(i), insert the words “in all material respects” following and
word “comply” in the first sentence.

 

17.                                 Insert
the following provision after the words “any of the following” in the first
sentence of Section 18(j):

 

except to the extent that any of the foregoing are conclusively
determined to have first arisen as a result of acts or occurrences which first
occurred after such time as Borrower has sold, transferred or assigned all of
its right, title and interest and into the Mortgaged Property to Lender, or a
successor or assign of Lender pursuant to a foreclosure or deed-in-lieu of
foreclosure.

 

18.                                 In
Section 19(b), in the last sentence, change “30 days” to “15 days”.

 

19.                                 In
Section 19(f), after the third sentence, add the following: “However, if
no Event of Default has occurred, (i) if the cost of a “Restoration”
(hereinafter defined) is reasonably estimated to be $1,500,000 or less, Borrower
shall have the exclusive right to adjust or compromise claims under policies of
insurance for payment of the costs associated with such Restoration, provided
that any such adjustment or compromise shall be subject to Lender’s prior
written approval; and (ii) in all other instances, Lender shall consult
with and allow the participation of Borrower in connection with any adjustment
or compromise of claims under policies of property insurance, but Lender’s
determinations in connection with any adjustment or compromise shall control.”

 

20.                                 At
the end of Section 20(b), insert the following: “The foregoing
notwithstanding, Lender shall. not
exercise its option to apply Condemnation awards or proceeds to the payment of Indebtedness if the conditions set
forth in Section 19(h) for the application of insurance proceeds to
the Restoration are satisfied in connection with the restoration of the Mortgaged Property following
the Condemnation.” For

 

B-3

 

the purposes of the preceding sentence, references in Section 19(h) to
“the date of the loss or casualty” shall mean the date of the Condemnation.

 

21.                                 Section 21(c) is
supplemented and modified by adding the following provision:

 

(viii)                        A Transfer to any of the
following (“a Pre-Approved Entity”) under the terms and conditions set forth in
items (i)-(viii) below:

 

A)           a
Transfer of all or any part of the Property or any interest in the Property to
a Shea Family Member (as hereinafter defined), or a Shea Controlled Entity (as
hereinafter defined);

 

B)            a
Transfer of interests in the Borrower, provided that after giving effect to the
Transfer, the condition set forth in item (iii) below is satisfied;

 

C)            a
Transfer of interests in a Controlling Entity, provided that after giving
effect to the Transfer, the condition set forth in item (iii) below is
satisfied;

 

D)            a
Transfer of all or part of the interests of any general partner of Borrower,
provided that after giving effect to the Transfer, the condition set forth in
item (iii) below is satisfied.

 

E)            Borrower
delivers written notice of the Transfer to Lender not less than ten (10) Business
Days’ prior to a Transfer of the Property, and not more than ten (10) Business
Days’ following any other Transfer.

 

(i)            Lender
receives copies of the Transfer documents for a Transfer of the Property, and
copies of any modifications to the organizational documents of Borrower or any
Controlling Entity or general partner resulting from any other Transfer.

 

(ii)           Upon
the Transfer, one or more Shea Family Members (other than Claire Shea) and/or

 

B-4

 

one or more Shea Controlled Entities (other than one solely controlled
by Claire Shea or her spouse, issue or any trust established by or for their benefit)
shall own, collectively, not less than 50.1% of the ownership interests in each
of (w) the Property and (x) Borrower or a corporation, partnership,
limited liability company, joint venture, or trust which is a Controlling
Entity in Borrower.

 

(iii)                               Lender
approves the Transfer, which approval shall be granted if the Transfer meets
the terms and conditions of this Section 21(b)(7).

 

(iv)                              With
respect to a transfer of the Property, (x) the transferee executes an
assumption agreement that is acceptable to Lender and which requires the
transferee to perform all obligations of Borrower set forth in the Note,
subject to the provisions of section 9 of the Note, this Instrument and in any
other Loan Document, (y) the Borrower either agrees to remain primarily
liable for all obligations of Borrower under the Note or, executes and delivers
a limited
guaranty in form and substance satisfactory to Lender, and (z) upon
Lender’s approval of the Transfer, the assumption agreement is recorded in the
Land Records of the Properly Jurisdiction.

 

(v)                                 With
respect to a Transfer of the Property, Borrower pays the cost of all title
searches, title insurance and recording costs, and all fees and out of pocket
costs of Lender’s legal counsel related to the Transfer.

 

(vi)                              Lender
shall not collect a transfer fee of 1% of the unpaid principal balance in

 

B-5

 

connection with the Transfer to the Pre-Approved Entity. In the case of
a Transfer of an interest in the Property, or in the case of a Transfer of an
interest in Borrower, or any general partner of Borrower which is accompanied
by a material change in the organizational documents of any such entity,
Borrower shall pay a review fee in the amount of $2,000.

 

(vii)         At
the time of the Transfer, there exists no Event of Default under this
Instrument.

 

For the purposes of this Section 21(c)(viii), the following terms
shall have the following meanings:

 

“Shea Family Member” means John Shea, Peter Shea, Edmund Shea, Claire
Shea and their respective spouses and issue, and trusts established by or for
the benefit of any of the foregoing.

 

“Shea Controlled Entity” means any corporation, partnership, limited
liability company, or joint venture, at least 50.1% of the ownership interests
in which are held by one or more Shea Family Members or another Shea Controlled
Entity.

 

22.                                 Delete
Section 21(f)(iv).

 

23.                                 Delete
Section 22(e).

 

25.                                 In
Section 22(h), in the second sentence, change “90 days” to “120 days”, and
change “60 days” to “90 days”.

 

26.                                 Clause
(ii) of Section 29 to read as follows: “confirmation of Lender’s
calculation of the unpaid principal balance of the Note;”.

 

27.                                 Section 19
is modified by adding a new Subsection (1) as follows:

 

(1)                                  On
the date of this Instrument, Borrower maintains property insurance that fails
to meet Lender’s current (as of the date

 

B-6

 

of this Instrument) insurance requirements for Borrower and-the Mortgaged Property (the
“Insurance Deficiency”) in that such insurance is for an “agreed amount” and
not for “full replacement” value.

 

28.                                 Notwithstanding
the provisions of Section 37, the modifications set forth in this Exhibit B
shall become ineffective upon a Transfer that requires Lender’s consent or upon
any Transfer that constitutes an Event of Default under Section 21(a) of
this Instrument.

 

29.                                 New
section is added to the instrument that precedes this Exhibit:

 

53.                               CONDOMINIUM
PROVISIONS.

 

(a)                                  Borrower
represents and warrants that, to the best of its knowledge, the Mortgaged
Property is a condominium (the “Condominium”) and constitutes all of Unit 1 (as
defined in the Condominium Instruments”) and a 97% tenancy-in-common interest
in the common elements comprising the Waterford Place Condominiums, a
Condominium, as established under the applicable Condominium Act codified in
California Civil Code Sections 1350 et seq., as from time to time amended (the
“Condominium Act”). The Declaration, as recorded in the official records of
Alameda County, State of California as Document No. 2003653881, Bylaws and
Plats establishing and describing the Condominium, are collectively referred to
below as the “Condominium Instruments.”

 

(b)                                 Borrower
hereby agrees that the Condominium Instruments will not be modified or amended
without the prior written consent of Lender until the Indebtedness has been
paid in full.

 

(c)                                  Borrower
represents and warrants that none of the units in Unit 1 and its 97%
tenancy-in-common interest in the common elements comprising the Condominium
have been sold, conveyed or encumbered or are subject to any agreement to
convey or encumber. Borrower agrees that it will not in any way pledge, sell,
convey or encumber or enter into a contract or agreement to pledge, sell,
convey or encumber any unit in Unit 1 or any of its 97% tenancy-in-common
interest in the common elements of the Condominium unless expressly agreed to
in writing by Lender.

 

B-7

 

(d)                                 Borrower
agrees that it shall own, operate and maintain the Mortgaged Property in
accordance with the terms of this Instrument and operate the Mortgaged Property
solely as a rental apartment project.

 

(e)                                  The
Mortgaged Property granted, conveyed and assigned to Lender hereunder shall
include all rights, easements, rights of way, reservations and powers of the
Borrower under the Condominium Act and the Condominium Instruments in
Borrower’s capacity as owner of the Mortgaged Property and as Declarant as well
as any rights that Borrower may have, in any capacity, under the Condominium
Act and the Condominium Instruments in addition to Borrower’s rights as owner
of any of the units or the Condominium, specifically including but not limited
to all rights to approve any amendments to the Condominium Instruments and all
rights to expand the Condominium.

 

(f)                                    Borrower
hereby irrevocably constitutes and appoints Lender as Borrower’s proxy and
attorney-in-fact (which appointment shall be deemed coupled with an interest)
for and in its behalf to perform all of the obligations of Borrower and to
exercise all of the rights and powers of Borrower under the Condominium
Instruments without any liability therefor or thereunder (except for gross
negligence or willful misconduct). Borrower hereby instructs and grants and
gives to Lender full power and authority to do and perform all and every act
and thing whatsoever authorized, permitted, requisite or necessary to be done
by Borrower under the provisions of the Condominium Instruments to all intents
and purposes the same as Borrower might do, hereby ratifying and confirming all
such attorney shall lawfully do or choose to do or be done by virtue hereof, it
being understood and agreed that the aforesaid provisions impose no burden or
obligation on the Lender to do or perform any act whatsoever. It shall be a
default under this Instrument if (i) Borrower terminates or revokes or
attempts to terminate or revoke the aforesaid appointment of Lender as Borrower’s
proxy or attorney-in-fact either permanently or as to any election in the
Condominium Act or Condominium Instruments or (ii) Borrower attempts to
modify the terms of the Condominium Instruments without the prior written
consent of Lender. Notwithstanding anything in this paragraph to the contrary,
the rights and powers of Borrower granted in this

 

B-8

 

paragraph may not be exercised by Lender prior to the occurrence of an
Event of Default.

 

(g)                                 Borrower
hereby agrees that it shall maintain insurance in accordance with Lender’s
requirements on all of the Mortgaged Property, including any common areas.

 

(h)                                 Nothing
contained herein is intended to or shall be construed to constitute Lender as
the “Declarant” under the Condominium Act and/or the Condominium Instruments or
as owner of the Condominium, a partner or joint venturer of Borrower.

 

(i)                                     Borrower
hereby agrees to indemnify and hold Lender harmless from and against any and
all losses, cost, liabilities, or damages (including attorney’s fees and
disbursements) arising out of (i) the failure of the Borrower to comply
with any state or local law, ordinance, statute, or regulation by any
governmental authority covering the condominium at the Mortgaged Property; or (ii) any
claim of any unit owner or tenant of any unit owner as a result of any violation,
breach, misrepresentation, fraud, act, or omission of any obligation of
Borrower as set forth in the Condominium Instruments.

 

30.                                 Section 21(c) (vii) is
deleted in its entirety.

 

31.                                 New
section is added to the Security Instrument as follows:

 

54.       Borrower
must promptly notify Lender in writing if there is a significant water
intrusion event or if mold, fungus, microbial contamination or pathogenic
organisms (collectively “Mold”) are detected at the Mortgaged Property at any
time during the term of this Instrument.

 

At any time, Lender, in its discretion, may require that a professional
inspector inspect the Mortgaged Property for Mold and Borrower shall be
responsible for the cost of any such inspection. Lender shall not require such professional
inspection any more frequently than once every three years unless Mold is
detected at the Mortgaged Property or if there is a significant water intrusion
event. If Mold is detected at the Mortgaged Property or if there is a
significant water intrusion event, Lender, at Lender’s discretion, may require
that a professional inspector inspect the Mortgaged Property as frequently as
Lender determines is necessary until any issue with Mold or water intrusion is
resolved to

 

B-9

 

Lender’s satisfaction. Borrower shall be responsible for the cost of
all such professional inspections.

 

Borrower must keep all moisture management plan documentation at the
Mortgaged Property or the management agent’s office and available for the Loan
Servicer to review during the Mortgaged Property annual assessment inspection.

 

If Lender determines that the Property qualifies to have the annual
inspection waived, Borrower must execute the following certification each year
that the inspection is waived.

 

Borrower has not received any written complaint, notice, letter or
other written communication from tenants, management agent or governmental
authorities regarding odors, indoor air quality, mold, fungus, microbial
contamination or pathogenic organisms (“Mold”) or any activity, condition,
event or omission that causes or facilitates the growth of Mold on or in any
part of the Property or that Borrower has investigated and fully and properly
remediated such activity, condition, event or omission in compliance with the
Moisture Management Plan for the Property.

 

 

	
   

  	
  INITIAL:

  	
  /s/ Authorized Signatory

  

 

B-10Exhibit 10.23

 

 

 

LIMITED LIABILITY COMPANY
AGREEMENT

 

OF

 

BEHRINGER HARVARD WATERFORD
PLACE VENTURE, LLC

 

(a Delaware Limited
Liability Company)

 

 

 

Dated as of May 29,
2009

 

THE INTERESTS (THE “INTERESTS”)
OF BEHRINGER HARVARD WATERFORD PLACE VENTURE, LLC HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE
SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE U.S. OR NON-U.S.
SECURITIES LAWS, IN EACH CASE  IN
RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS.  THE INTERESTS MAY BE
ACQUIRED FOR INVESTMENT ONLY, AND NEITHER THE INTERESTS NOR ANY PART THEREOF
MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR
TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT,
ANY APPLICABLE STATE SECURITIES LAWS AND ANY OTHER APPLICABLE SECURITIES LAWS,
AND (II) THE TERMS AND CONDITIONS OF THIS LIMITED  LIABILITY
COMPANY  AGREEMENT.  THE INTERESTS WILL NOT BE TRANSFERRED OF
RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THIS LIMITED LIABILITY COMPANY
AGREEMENT.  THEREFORE, PURCHASERS OF THE
INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  THE VENTURE

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Formation of Venture

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Venture Name and Principal Office

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Office of and Agent for Service of Process

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Term of the Venture

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Title to Assets

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6

  	
  Purpose and Powers

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  MEMBERS AND CAPITAL CONTRIBUTIONS

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Members; Capital Contributions

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Capital Calls

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.3

  	
  Additional Capital Contributions

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.4

  	
  Failure to Make Capital Contributions

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.5

  	
  Return of Capital Contributions

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.6

  	
  Capital Account

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.7

  	
  Transfer of Capital Account

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.8

  	
  Tax Matters Partner

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.9

  	
  Liability for Venture’s Obligations

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  ALLOCATIONS

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Allocation of Profits and Losses

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Tax Allocations

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  DISTRIBUTIONS AND EXPENSES

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Distributions of Net Cash Flow

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Tax Provisions

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Priority

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Expenses

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  MANAGEMENT RIGHTS, DUTIES, AND POWERS OF THE MANAGER; TRANSACTIONS
  INVOLVING THE MANAGER OR ITS AFFILIATES; ADDITIONAL OR SUCCESSOR MANAGER

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Management of the Venture

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Operating Plan

  	
  19

  
						

 

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  6.3

  	
  Major Decisions

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Business with Affiliates; Other Activities

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.5

  	
  Maintenance of Domestic Status

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Tax Status

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Liability for Venture’s Obligations

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Additional or Successor Manager

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Removal of Manager for Cause

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  LIMITATIONS ON LIABILITY AND INDEMNIFICATION

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Limitation of Liability

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Indemnification

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  TRANSFER OF MEMBERS’ INTERESTS IN THE VENTURE; BUY/SELL

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Transfers of a Member’s Interest

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Buy/Sell Arrangement

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Basis Election

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.4

  	
  Void Transfer

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  EXCESS INTEREST PROVISIONS

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Definitions

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Ownership Limitation

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.3

  	
  Excess Interests

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.4

  	
  Prevention of Transfer

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.5

  	
  Notice

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.6

  	
  Information for the Venture

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.7

  	
  Other Action by Venture

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.8

  	
  Ambiguities

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.9

  	
  Modification of Existing Holder Limits

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.10

  	
  Increase or Decrease in Ownership Limit

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.11

  	
  Limitations on Changes in Existing Holder and Ownership Limits

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.12

  	
  Waivers by Venture

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.13

  	
  Severability

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.14

  	
  Trust for Excess Interests

  	
  39

  
						

 

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  9.15

  	
  Distributions on Excess Interests

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.16

  	
  Voting of Excess Interests

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.17

  	
  Non-Transferability of Excess Interests

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.18

  	
  Call by the Venture on Excess Interests

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
  DISSOLUTION OF VENTURE

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Bankruptcy of Member

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2

  	
  Other Events of Dissolution

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.3

  	
  Distribution Upon Liquidation

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.4

  	
  Procedural and Other Matters

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
  REPRESENTATIONS AND WARRANTIES

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Representations and Warranties of the Members

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
  BOOKS AND RECORDS; REPORTS TO MEMBERS

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Books

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.2

  	
  Quarterly Reports

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.3

  	
  Annual Reports

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.4

  	
  Accountants; Tax Returns

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.5

  	
  Accounting and Fiscal Year

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.6

  	
  Project Valuations

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
  MISCELLANEOUS

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Notices

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.2

  	
  Execution in Counterparts

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.3

  	
  Amendments

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.4

  	
  Additional Documents

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.5

  	
  Validity

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.6

  	
  Governing Law

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.7

  	
  Waiver

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.8

  	
  Consent and Approval

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.9

  	
  Waiver of Partition

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.10

  	
  Binding Effect

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.11

  	
  Entire Agreement

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.12

  	
  Captions

  	
  48

  
						

 

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  13.13

  	
  No Strict Construction

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.14

  	
  Identification

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.15

  	
  Recourse to the Manager

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.16

  	
  Recourse to the Members

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.17

  	
  Remedies Not Exclusive

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.18

  	
  Use of Behringer Harvard Trade Name

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.19

  	
  Venture Counsel

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.20

  	
  Waiver of Jury Trial

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
  A

  	
  Members; Addresses; Capital Commitments; Percentage Interests

  	
   

  
	
   

  	
  B

  	
  Legal Description of Project

  	
   

  
	
   

  	
  C

  	
  Investment Guidelines

  	
   

  
	
   

  	
  D

  	
  Master Partnership Agreement

  	
   

  
	
   

  	
  E

  	
  Form of Limited Liability Company Agreement for the Subsidiary
  REIT

  	
   

  
						

 

iv

 

LIMITED LIABILITY COMPANY
AGREEMENT

OF

BEHRINGER HARVARD WATERFORD PLACE VENTURE, LLC

 

THIS LIMITED LIABILITY
COMPANY AGREEMENT of BEHRINGER HARVARD WATERFORD PLACE VENTURE, LLC is made and
entered into as of May 29, 2009, by and
between Behringer Harvard Waterford Place, LLC (“BH REIT”), a Delaware limited
liability company that is an indirect wholly owned subsidiary of Behringer
Harvard Multifamily REIT I, Inc. with its principal office at 15601 Dallas
Parkway, Suite 600, Addison, Texas 75001, and BEHRINGER HARVARD MASTER
PARTNERSHIP I LP (“BH MP”), a Delaware limited partnership with its principal
office at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001.

 

W I T N E S S E T H

 

WHEREAS, BH REIT as
the Manager and a Member and BH MP as a Member desire to form a limited
liability company for the purpose of owning, operating and managing the real
property at 4800 Tassajara Road, Dublin, California 94568, the legal
description for which is set forth in Exhibit B hereof and known as
Waterford Place Apartments (the “Project”);

 

WHEREAS, BH REIT and
BH MP desire to establish their respective rights and duties relating to the
Venture on the terms provided in this Agreement;

 

NOW,
THEREFORE, in consideration of the
premises and the mutual covenants of the parties hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

 

ARTICLE
1

 

DEFINITIONS

 

Capitalized terms used in
this Agreement (including, without limitation, Exhibits, Schedules and
amendments) have the meanings set forth below or in the Section of this
Agreement referred to below, except as otherwise expressly indicated or limited
by the context in which they appear in this Agreement.  All terms defined in this Agreement in the
singular have the same meanings when used in the plural and vice versa.  Accounting terms used but not otherwise
defined shall have the meanings given to them under U.S. GAAP.  References to Sections, Articles and Exhibits
and Schedules refer to the sections and articles of, and the exhibits and
schedules to, this Agreement, unless the context requires otherwise.

 

“Acquisition Date” has the
meaning ascribed thereto in Section 3.1.

 

“Act” means the Limited
Liability Company Act of the State of Delaware, Del. Code Ann. tit. 6, §§
18-101 et seq., as it may be amended from time to time, and any successor to
such statute.

 

“Advisory Committee” means
the Advisory Committee established pursuant to the terms of the Master
Partnership Agreement.

 

1

 

“Affiliate” means, when used
with respect to a specified Person, (i) any Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with the specified Person or (ii) any Person that is
an officer, general partner or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person serves in a
similar capacity.  For this purpose, the
term “control” (including, without limitation, the terms “controlling,” “controlled
by” and “under common control with”) means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise, which shall conclusively be deemed to exist where one Person
directly or indirectly is the beneficial owner of 50.1% or more of any class of
voting equity securities or other voting ownership interests of another Person.

 

“Affiliated Entity” means,
with respect to the Manager, an Entity that is an Affiliate of the
Manager.  For the avoidance of doubt, an
Affiliated Entity does not include any individual that is an Affiliate of the
Manager.

 

“Agreement” means this
Limited Liability Company Agreement, as amended, modified, supplemented or
restated from time to time.

 

“Alternative Offer Price”
has the meaning ascribed thereto in Section 8.2(b)(ii).

 

“Applicable Law” has the
meaning ascribed thereto in Section 3.4(d).

 

“Arbitration Notice” has the
meaning ascribed thereto in Section 8.2(e)(ii)(A).

 

“Bankruptcy” has the meaning
ascribed thereto in Section 10.1(b).

 

“Bankruptcy Event” has the
meaning ascribed thereto in Section 10.1(a).

 

“Behringer” means Behringer
Harvard Holdings, LLC, a Delaware limited liability company.

 

“Behringer Party” has the
meaning ascribed thereto in Section 8.2(e)(ii).

 

“Beneficial Owner” means a
Person who or which is or is treated as a direct or indirect owner of the Subsidiary
REIT for purposes of determining the status of the Subsidiary REIT as a
domestically-controlled qualified investment entity under Section 897(h)(4)(B) of
the Code.

 

“BH MP” has the meaning
ascribed thereto in the preamble to this Agreement.

 

“BH MP Venture” has the
meaning ascribed thereto in Section 8.2(e)(i).

 

“BH REIT” has the meaning
ascribed thereto in the preamble to this Agreement.

 

“BH REIT Advisor” means
Behringer Harvard Multifamily Advisors I LP, a Texas limited partnership.

 

2

 

“BH-Sponsored Investment
Program” means an entity formed or advised by Behringer Harvard Holdings, LLC,
a Delaware limited liability company, or one of its Affiliates.

 

“Business Day” means a day
other than a Saturday, Sunday or other day on which commercial banks in New
York City are authorized or required by applicable law to close.

 

“Buy/Sell Interest” has the
meaning ascribed thereto in Section 8.2(a)(ii).

 

“Capital Account” has the
meaning ascribed thereto in Section 3.6.

 

“Capital Call” means a call
for capital to be contributed to the Venture in accordance with Section 3.2.

 

“Capital Commitment” means,
with respect to any Member, the amount set forth opposite such Partner’s name
on Exhibit A, as amended from time to time.

 

“Capital Contribution” means
a capital contribution made by a Member to the Venture in accordance with Section 3.1
or Section 3.3 hereof.

 

“Cause” means (i) a
material breach of this Agreement by the Manager involving fraud or a violation
of a fiduciary duty owed to the Venture or BH MP as a Member; (ii) the
termination of the Advisory Agreement by BH REIT as a result of, or within six
months of the occurrence of, fraud or willful misconduct on the part of BH REIT
Advisor in respect of any Project or Venture; or (iii) the conviction of, or
the entry of a guilty plea or plea of no contest with respect to, a felony
involving fraud, embezzlement or dishonesty by BH REIT Advisor or any
Affiliated Entity of BH REIT Advisor.

 

“Certificate” means the Certificate
of Formation of the Venture, as originally filed with the office of the
Secretary of State of the State of Delaware on May 29, 2009, as amended,
supplemented or otherwise modified from time to time as herein provided.

 

“Closing Date” has the
meaning ascribed thereto in Section 8.2(d)(ii).

 

“Code” means the Internal
Revenue Code of 1986, as amended from time to time (or any corresponding
provisions of succeeding law); any reference to any section of the Code shall
include any corresponding provision of succeeding laws. Notwithstanding the
foregoing, any change in the Code which materially increases the requirements
for qualification of the Subsidiary REIT as a domestically-controlled qualified
investment entity for purposes of Section 897(h)(4)(B) of the Code, or
otherwise causes the Subsidiary REIT not to be a domestically-controlled
qualified investment entity for purposes of Section 897(h)(4)(B) of the Code,
shall not be included in the definition of “Code” hereunder, it being
understood that PGGM will bear the risk of such change; provided that
the Manager will use commercially reasonable efforts to minimize the financial
impact to PGGM (indirectly through BH MP) of any such change at PGGM’s expense;
provided further that the same does not adversely affect BH REIT’s tax
status.

 

3

 

“Consent” means the vote,
approval or consent, as the case may be, of a Person to do the act or thing for
which the vote, approval or consent is solicited, or the act of voting or
granting such approval or consent, as the context may require.

 

“Default” has the meaning
ascribed thereto in Section 3.4(a).

 

“Default Loan” has the
meaning ascribed thereto in Section 3.4(b).

 

“Defaulting Member” has the
meaning ascribed thereto in Section 3.4(a).

 

“Defaulting Purchaser” has
the meaning ascribed thereto in Section 8.2(d)(i).

 

“Domestic Status Loss” means
a change in the Tax Sensitive Beneficial Owner Group, if the effect thereof
would be a disqualification of the Subsidiary REIT as a “domestically-controlled
qualified investment entity” within the meaning of Section 897(h)(4)(B) of the
Code.

 

“Domestically-Controlled
REIT” means a REIT that is a “domestically-controlled qualified investment
entity” for purposes of Section 897(h)(4)(B) of the Code.

 

“Earnest Money” has the
meaning ascribed thereto in Section 8.2(d)(i).

 

“Entity” means a
partnership, corporation, business trust, limited liability company,
proprietorship, joint stock company, trust, estate, unincorporated association,
joint venture, pension fund, governmental entity, cooperative association or
other foreign or domestic entity or enterprise.

 

“Escrow Agent” has the
meaning described thereto in Section 8.2(d)(i).

 

“Indemnified Person” and “Indemnified
Persons” have the meanings ascribed thereto in Section 7.2(a).

 

“Initial Operating Plan” has
the meaning described thereto in Section 6.2(a).

 

“Interest” means, as to a
Member, the entire ownership interest of such Member in the Venture at any
particular time, including the right of such Member to any and all benefits to
which such Member may be entitled as provided in this Agreement, together with
the obligations of such Member to comply with all the terms and provisions of
this Agreement.

 

“Investment Guidelines”
means the investment guidelines for the Project described in Exhibit C.

 

“Liquidation” means (i) when
used with reference to the Venture, the date upon which the Venture ceases to
be a going concern, and (ii) when used with reference to any Member, the
earlier of (a) the date upon which there is a Liquidation of the Venture
or (b) the date upon which such Member’s entire Interest in the Venture is
terminated other than by Transfer to a Person other than the Venture.

 

“Liquidator” has the meaning
ascribed thereto in Section 10.3(a).

 

4

 

“Major Decision” has the
meaning ascribed thereto in Section 6.3(a).

 

“Major Dispute” means any
disagreement of the Members in respect of (i) the establishment of sale
objectives and parameters for the Project; (ii) the sale or other disposition
of the Project or any other property owned, directly or indirectly, by the
Venture in excess of $100,000; (iii) incurring, materially restructuring or
materially modifying any indebtedness of the Venture or the Subsidiary REIT in
excess of $100,000 or causing or the Venture or Subsidiary REIT to become
liable as an endorser, guarantor, surety or otherwise, except as otherwise
contemplated under Section 6.3(a)(iii); (iv) a mortgage,
pledge or hypothecation of the Project to secure indebtedness of the Subsidiary
REIT, except as otherwise contemplated under Section 6.3(a)(v); or (v)
selling any additional interests in the Venture (other than to the developer of
the Project).

 

“Management Company” means
HPT Management Services LP, a Texas limited partnership, and its successors and
assigns.

 

“Manager” means BH REIT, or
any permitted successor or delegee of Behringer in accordance with this
Agreement, in such Person’s capacity as the manager of the Venture.

 

“Mark to Market Price” has
the meaning ascribed thereto in Section 8.2(e)(ii)(A).

 

“Master Partnership” means
the limited partnership formed under the Master Partnership Agreement.

 

“Master Partnership
Agreement” means that certain limited partnership agreement, dated as of May 7,
2007, by and between BH Institutional GP LP and PGGM, the form of which is
attached as Exhibit D.

 

“Maximum Rate” has the
meaning ascribed thereto in Section 3.4(d).

 

“Member” means BH MP or BH
REIT, or any permitted successor or assign of either of them in accordance with
this Agreement, in such Person’s capacity as a member of the Venture.

 

“Negotiation Deadline” has
the meaning ascribed thereto in Section 8.2(e)(ii)(A).

 

“Net Cash Flow,” for any
period, means all cash receipts to the Venture from any source during such
period (other than from Capital Contributions), plus releases from reserves, minus all cash expenditures by the Venture during such
period (but only to the extent not made from Capital Contributions), including
costs, expenses, fees and additions to reserves determined by the Manager in
its sole discretion.

 

“Non-defaulting Member” has
the meaning ascribed thereto in Section 3.4(a).

 

“Offer Price” has the
meaning ascribed thereto in Section 8.2(a)(ii).

 

“Offering Notice” has the
meaning ascribed thereto in Section 8.2(a).

 

“Offeror” has the meaning
ascribed thereto in Section 8.2 (a).

 

5

 

“Operating Expenses” has the
meaning ascribed thereto in Section 5.4(b).

 

“Option Period” has the
meaning ascribed thereto in Section 8.2 (b).

 

“Organizational Expenses”
has the meaning ascribed thereto in Section 5.4(a).

 

“Percentage Interest” means,
as to any Member, its percentage ownership interest in the Venture as set forth
in Exhibit A, as the same may be amended from time to time.

 

“Permitted Temporary
Investments” means investments in (i) U.S. government and agency
obligations with maturities of not more than one year and one day from the date
of acquisition, (ii) commercial paper with maturities of not more than six
months and one day from the date of acquisition and having a rating assigned to
such commercial paper by Standard & Poor’s Ratings Services or Moody’s
Investors Service, Inc. (or, if neither such organization shall rate such
commercial paper at such time, by any nationally recognized rating organization
in the United States of America) equal to one of the two highest commercial
paper ratings assigned by such organization, it being understood that as of the
date hereof such ratings by Standard and Poor’s Rating Services are “P1” and “P2”
and such ratings by Moody’s Investors Service, Inc. are “A1” and “A2,” (iii) interest
bearing deposits in U.S. banks with an unrestricted surplus of at least $250
million, maturing within one year and (iv) money market mutual funds with
assets of not less than $500 million, substantially all of which assets are
believed by the Manager to consist of items described in the foregoing clause
(i), (ii) or (iii).

 

“Person” means an individual
or Entity.

 

“PGGM” means Stichting
Pensioenfonds voor de Gezondheid, Geestelijke en Maatschappelijke Belangen, a
Dutch foundation.

 

“Prior Operating Plan” has
the meaning ascribed thereto in Section 6.2(b).

 

“Profits”
or “Losses”
means, for each period taken into account under Article 4, an amount equal to the
Venture’s taxable income or taxable loss for such period, determined in
accordance with federal income tax principles, adjusted to the extent the
Manager determines that such adjustment is necessary to comply with the
requirements of Section 704(b) of the Code.

 

“Project” has the meaning
described thereto in the recitals to this Agreement.

 

“Purchase Price” has the
meaning ascribed thereto in Section 8.2 (d)(i).

 

“Purchaser” has the meaning
ascribed thereto in Section 8.2 (d)(i).

 

“Qualifying Opinion” means a
written opinion of outside, reputable tax counsel licensed to practice law in
the United States and acting reasonably.

 

“Real Estate Proceeds” means
proceeds from the direct sale of the Project (as opposed to proceeds from the
sale of interests in the Subsidiary REIT).

 

“REIT” means a real estate
investment trust under the Code.

 

6

 

“REIT Member” means a direct
or indirect (through another partnership or limited liability company) Member
of the Venture that is not a U.S. Person and for whom the direct or indirect
receipt of Real Estate Proceeds would have a material adverse tax consequence
on such Member.  For the avoidance of
doubt PGGM is a REIT Member.

 

“Seller” has the meaning
ascribed thereto in Section 8.2 (d).

 

“Shares” means the shares of
beneficial interests (including, for the avoidance of doubt, membership
interests) in the Subsidiary REIT.

 

“Subsequent Operating Plan”
has the meaning ascribed thereto in Section 6.2(b).

 

“Subsidiary REIT” means the
subsidiary to be formed by the Venture for the purpose of investing in the
Project and that has qualified or intends to qualify as a REIT.  The form of limited liability company
agreement for the Subsidiary REIT is attached hereto as Exhibit E.

 

“Substitute Capital” has the
meaning ascribed thereto in Section 3.3(b).

 

“Substituted Purchase Price”
has the meaning ascribed thereto in Section 8.2 (d).

 

“Substituted Purchaser” has
the meaning ascribed thereto in Section 8.2 (d).

 

“Taxes” shall mean all
taxes, charges, fees, duties, levies or other assessments, including without
limitation, income, gross receipts, net proceeds, ad valorem, turnover, real
and personal property (tangible and intangible), sales, use, franchise, excise,
value added, stamp, leasing, lease, user, transfer, fuel, excess profits,
occupational and interest equalization, windfall profits, severance and
employees’ income withholding and Social Security taxes, which are imposed by
the United States, or any state, local or foreign government or subdivision or
agency thereof, and such term shall include any interest, penalties or
additions to tax attributable to such Taxes.

 

“Tax Return” shall mean any
report, return or other information required to be supplied to a taxing
authority in connection with Taxes.

 

“Tax Sensitive Beneficial
Owner Group” means all Beneficial Owners of Shares other than (i) PGGM, (ii) PGGM’s
direct or remote transferees with respect to such Shares, and (iii) the
direct or indirect owners of PGGM or its transferees.

 

“Transfer” means to give,
sell, assign, pledge, hypothecate, devise, bequeath or otherwise dispose of,
transfer or permit to be transferred, during life or at death.  The term “Transfer” when used as a noun,
means any Transfer transaction.

 

“U.S. GAAP” means U.S.
generally accepted accounting principles at the time in effect.

 

“U.S. Person” means a “U.S.
Person” as such term is defined in Section 7701(a)(30) of the Code.

 

“Venture” means the limited
liability company formed hereby.

 

7

 

“Venture Counsel” has the
meaning ascribed thereto in Section 13.19.

 

ARTICLE
2

 

THE
VENTURE

 

2.1           Formation of Venture. 
The Manager and the Members hereby form a limited liability company
pursuant to the provisions of the Act, and the rights and liabilities of the
Members shall be as provided in the Act except as herein otherwise expressly
provided.

 

2.2           Venture Name and Principal
Office.  The name of the Venture shall be “Behringer
Harvard Waterford Place Venture, LLC” or such other name as the Manager may
determine.  The principal place of
business and the principal administrative office of the Venture shall be 15601
Dallas Parkway, Suite 600, Addison, Texas 75001.  The Venture may change such office and may
have such additional offices as the Manager may determine.

 

2.3           Office of and Agent for
Service of Process.  The registered office of the
Venture in the State of Delaware shall initially be 2711 Centerville Road, Suite 400,
Wilmington, Delaware 19808 and the Venture’s agent for service of process on
the Venture in the State of Delaware shall be Corporation Service Company.  The Venture may change, at any time and from
time to time, the location of such registered office and/or such registered
agent upon written notice of the change to the Members.

 

2.4           Term of the Venture. 
The term of the Venture commenced on the date the Certificate was first
filed with the Secretary of State of the State of Delaware.  Unless sooner terminated as hereinafter
provided or by operation of law, the term of the Venture shall continue until December 31,
2059.

 

2.5           Title to Assets. 
Record title to all assets acquired by the Venture shall be held in the
name of the Venture, and no Member shall have any property interest in such
assets.

 

2.6           Purpose and Powers.

 

(a)           The Venture is organized for the object and purpose of
investing in the Project through the Subsidiary REIT, owning, managing,
supervising and disposing of such investment as provided in this Agreement,
sharing the profits and losses therefrom and engaging in such activities
necessary, incidental or ancillary thereto and in any other lawful act or
activity in furtherance of the foregoing for which limited liability companies
may be organized under the Act. 
Notwithstanding any other provision of this Agreement, the Venture, and
the Manager on behalf of the Venture, may execute, deliver and perform such
agreements and documents as the Manager determines are necessary or desirable
for the formation, organization and continuation of the Venture.  Any provision herein regarding the purpose
and powers of the Venture and the authorization of actions hereunder may be
done through the Subsidiary REIT (and any subsidiary thereof).  In furtherance of this purpose, subject to
the limitations and restrictions set forth elsewhere in this Agreement,
including, without limitation, Section 6.3 hereof, the Venture
shall have all powers necessary, suitable or convenient for the accomplishment
of the aforesaid purpose, as principal or agent, including, without limitation,
all of the powers that may be exercised by the Manager on behalf of and, except
as specifically provided herein, at the expense 

 

8

 

of, the Venture pursuant
to this Agreement or the Act, and further including, without limitation, the
following:

 

(i)            to organize or cause to be organized the Subsidiary
REIT and any subsidiary thereof and to act as manager of the Subsidiary REIT,
and to exercise all of the powers, duties, rights and responsibilities
associated therewith;

 

(ii)           to borrow money, encumber assets (other than the
Capital Commitments of the Members) and otherwise incur recourse and
non-recourse indebtedness (including, without limitation, the issuance of
guarantees of the payment or performance of obligations by any Person) in
connection with or in furtherance of the acquisition or development or the
financing or refinancing of the Project;

 

(iii)          to improve, develop, redevelop, construct, reconstruct,
maintain, renovate, rehabilitate, reposition, manage, lease, mortgage and
otherwise deal with the assets and/or businesses of the Venture;

 

(iv)          to lend money on a secured or unsecured basis and, if
applicable, in connection therewith take as collateral a mortgage or pledge of
any real or personal property and to extend or modify the terms of any such
financing;

 

(v)           to alter or restructure the Venture’s investment in
the Project at any time during the term of the Venture without any precondition
that the Manager make any distributions to the Members in connection therewith;

 

(vi)          to make additional investments in the Project
subsequent to the Venture’s initial investment in the Project (including,
without limitation, additional investments made to finance an acquisition by
the Subsidiary REIT or any capital improvements, tenant improvements or other
improvements or alterations to any property constituting the Project or
otherwise to protect the Venture’s investment in the Project or to provide working
capital for the Project);

 

(vii)         to invest the Venture’s funds in Permitted Temporary
Investments;

 

(viii)        to pay commissions, fees or other charges to Persons
that may be applicable in connection with any transactions entered into by or
on behalf of the Venture;

 

(ix)           to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;

 

(x)            to engage outside accountants, custodians, appraisers,
attorneys, property managers, leasing brokers and any and all other third-party
agents and assistants, both professional and nonprofessional, and to compensate
them in such reasonable degree and manner as the Manager may deem necessary or
advisable;

 

(xi)           subject to Sections 2.6(b) and (c),
to enter into, make and perform all contracts, agreements and other
undertakings as may be necessary or advisable or incidental to carrying out its
purpose, including, without limitation, such agreements as the Manager deems 

 

9

 

necessary or appropriate
for the acquisition, development, operation, management, financing, sale or
other disposition of the Project or as otherwise contemplated by this
Agreement;

 

(xii)          to sue and be sued, to prosecute, arbitrate, settle or
compromise all claims of or against third parties, to compromise, arbitrate,
settle or accept judgment with respect to claims of or against the Venture and
to execute all documents and make all representations, admissions and waivers
in connection therewith;

 

(xiii)         to make any and all elections and filings for federal,
state, local and foreign tax purposes, including, without limitation, any
consent dividend IRS Form 972;

 

(xiv)        to purchase, and otherwise enter into contracts of,
insurance (including, without limitation, property and casualty insurance,
terrorism insurance, and liability insurance in respect of any liabilities for
which the Venture, the Manager or any other Indemnified Party would otherwise
be entitled to indemnification under this Agreement);

 

(xv)         to enter into and perform the terms of any credit
facility as borrower or guarantor and cause the Subsidiary REIT to enter into
and perform the terms of any credit facility as borrower, including, without
limitation, repaying borrowings under any credit facility on behalf of the
Venture;

 

(xvi)        to do such other things and engage in such other
activities as the Manager may deem necessary, convenient or advisable with
respect to the conduct of the business of the Venture, and have and exercise
all of the powers and rights conferred upon limited liability companies formed pursuant to the Act.

 

(b)           (i)            Subject to Section 6.3(a)(i),
the interest in the Project owned by the Venture may only be sold, exchanged or
otherwise disposed of (A) by selling, exchanging or otherwise disposing of
for cash the Venture’s Shares in the Subsidiary REIT or, subject to any other
requirements of this Agreement, including, without limitation, Section 2.6(b)(ii),
by selling, exchanging or otherwise disposing of for cash a Member’s interest
in the Venture, or (B) in connection with a like-kind exchange of the
Project pursuant to Section 1031 of the Code that does not result in the
recognition of any taxable gain to the Subsidiary REIT, an involuntary
conversion of the Project pursuant to Section 1033 of the Code that does
not result in the recognition of any taxable gain to the Subsidiary REIT, or
any other disposition or transfer that pursuant to a nonrecognition provision
in the Code does not result in the recognition of any taxable gain to the
Subsidiary REIT; provided that, in a transaction within the description of the
foregoing clause (B) the Members agree on the asset or assets to be acquired as
a result of such transaction.

 

(ii)           The Manager shall use “Best Efforts” (as defined
below) to cause the Subsidiary REIT to satisfy the requirements for taxation as
a Domestically-Controlled REIT; provided, however, that the
Manager and its Affiliates shall not be required to engage in any transaction
with, or on behalf of, the Venture or contribute additional capital to the
Venture in connection with such obligation. 
For purposes of the foregoing sentence, the Manager’s “Best Efforts”
means that (A) no Capital Contribution shall be accepted and no redemption
of interests in the Venture shall be allowed if as a result thereof more than
49% of the interests in the

 

10

 

Subsidiary REIT would be
held, directly or indirectly (including, without limitation, through the
Venture) by Persons that are not U.S. Persons, and (B) no Transfer of less than
all of the Venture’s interest in the Subsidiary REIT shall be permitted if such
Transfer would result in the Subsidiary REIT no longer qualifying as a
Domestically-Controlled REIT.  In
satisfying the requirements of this Section 2.6(b)(ii), in the absence
of actual knowledge to the contrary, the Manager shall be entitled to rely upon
the most recent written representations of the direct or indirect partners or
members and prospective partners or members of the Venture regarding the extent
to which they are, or are owned by, U.S. Persons.

 

(iii)          The Manager shall cause the limited liability company
agreement, charter or other governing document of the Subsidiary REIT to
provide that any Transfer that, if effective, would result in the interests in
the Subsidiary REIT being beneficially owned (as provided in Section 856(a) of
the Code) by fewer than 100 Persons (determined without reference to any rules of
attribution) shall be void ab initio as to
the Transfer of any interest in the Subsidiary REIT which would be otherwise
beneficially owned (as provided in Section 856(a) of the Code) by the
transferee and that the intended transferee shall acquire no rights in such
interest.

 

(iv)          The provisions of Sections 2.6(b)(i) and (ii)
shall not apply if either (A) there is not at least one REIT Member or (B) the
Venture has received a Qualifying Opinion (from counsel reasonably acceptable
to PGGM) that there has been a change in applicable U.S. law that eliminates
the material adverse tax consequence relating to the receipt by a REIT Member
of Real Estate Proceeds.

 

ARTICLE 3

 

MEMBERS AND CAPITAL CONTRIBUTIONS

 

3.1           Members; Capital Contributions. 
The name, address and Capital Commitment of each Member shall be as set
forth on Exhibit A.  Unless
otherwise agreed by each Member, the Members shall have no obligation to fund
Capital Contributions to the Venture in excess of their respective Capital
Commitments set forth on Exhibit A. 
The Members shall be required to make Capital Contributions under this Section
3.1 in connection with the Project, including the acquisition, development,
improvement, financing (including any mezzanine financing), operation or
maintenance by the Venture through the Subsidiary REIT of the Project or to pay
any Organizational Expenses or Operating Expenses.  The obligation of each Member to make any
Capital Contribution with respect to the Project (including additional funding
subsequent to the acquisition, development or financing of the Project)
contemplated by this Section 3.1 is subject to the conditions concurrent
that (i) (A) the Venture has acquired an interest in the Project or a binding
commitment has been executed for the acquisition of an interest in the Project;
(B) the Project has been substantially developed by the Manager, an Affiliate
or a BH-Sponsored Investment Program; or (C) the Venture, directly or indirectly,
has provided mezzanine or other financing for the Project or a binding
commitment for the provision of such financing has been executed and, in any
case, the applicable event under clause (A), (B) or (C) occurs no later than
120 days after the date of this Agreement (the “Acquisition Date”) and (ii) each
other Member has made, or is concurrently making, its proportionate Capital
Contribution.  If the conditions in
clauses (i) and (ii) have not been satisfied or waived on or 

 

11

 

before the Acquisition
Date, then subject to the payment of any Organizational Expenses or Operating
Expenses pursuant to Section 5.4, the Capital Contributions, if any,
made by the Members pursuant to this Section 3.1 shall be returned to
the Members, and this Agreement will terminate and be of no further force and
effect.

 

3.2           Capital Calls.  The Manager
from time to time may call for payment on at least ten (10) Business Days’
prior notice of (i) each Member’s Capital Commitment, or any portion thereof,
to the extent the conditions concurrent to the contribution obligations in Section
3.1 are met or (ii) additional Capital Contributions in accordance with Section
3.3.  Each call for contributions of
capital from the Members shall be made in accordance with their respective
Percentage Interests.  Except as
otherwise provided in Section 3.3 or unless otherwise agreed by a
Member, the amount of such Capital Call for a Member shall not exceed the
amount of its Capital Commitment as set forth on Exhibit A.  Except as otherwise provided in Section 3.3
or unless otherwise agreed by a Member, such Member shall not be required to
fund a Capital Call other than as provided in Section 3.1.

 

3.3           Additional Capital Contributions.

 

(a)           If at any time, and from time to time, after the date
on which each of the Members has made its Capital Contributions up to the
amount of such Member’s Capital Commitment in accordance with Section 3.1
hereof, additional cash in excess of Net Cash Flow and other funds available to
the Venture is required by the Venture (i) in order to pay any Organizational
Expenses or Operating Expenses, or (ii) in respect of the Project, including in
order to pay the costs of maintenance, repairs, capital improvements, replacements
or other expenses necessary to comply with lease or other contractual
obligations of the Subsidiary REIT (or any subsidiary thereof that owns the
Project) and to keep the Project in good condition and repair, then the Manager
may make a Capital Call for additional capital from the Members in proportion
to their respective Percentage Interests in an amount believed in good faith by
the Manager to be the amount needed to fund the cash needs of the Venture and
in such event shall provide the Members with not less than ten (10) Business
Days’ advance notice of the date on which such contributions are required to be
made.  Subject to Section 3.3(b),
the Members shall make their respective additional Capital Contributions as and
when requested in such notice.

 

(b)           In the event that BH MP declines to make its
additional Capital Contribution in accordance with Section 3.3(a), the
Manager shall be obligated to contribute, or to cause one or more of its
Affiliates, or Behringer or its Affiliates, to contribute, an amount (the “Substitute
Capital”) equal to the BH MP’s Capital Contribution specified in such Capital
Call.  Unless otherwise agreed by PGGM,
such Persons shall contribute the Substitute Capital to the Subsidiary
REIT.  In consideration of the contribution
of the Substitute Capital, the Subsidiary REIT shall issue Shares to the Person(s)
contributing the Substitute Capital based on the value of the outstanding
Shares of the Subsidiary REIT determined in accordance with this Section 3.3(b).  The number of Shares to be issued by the
Subsidiary REIT in consideration of the contribution of Substitute Capital
shall equal the amount of such Substitute Capital divided by the value of a
Share, which value shall be determined by the net asset value of the Subsidiary
REIT, based upon the valuation of the Project specified in this Section 3.3(b)
and the Subsidiary REIT’s interest in the Project and taking into account the
fair value of any other assets and the liabilities of the Subsidiary REIT and
the number of Shares outstanding immediately prior to the 

 

12

 

contribution of the
Substitute Capital.  The value of the
Project shall be determined based on a valuation (or an update of the most
recent valuation) that has been prepared within the three months preceding the
contribution of the Substitute Capital to the Subsidiary REIT and made by the
real estate valuation firm that prepared the most recent valuation of the
Project for the Venture or another real estate valuation firm approved by
Advisory Committee, or, if there is no previous valuation, upon a valuation
that has been prepared by a real estate valuation firm approved by the Advisory
Committee; provided that, if there has been any event that in the reasonable judgment
of the Manager has had a material effect (whether beneficial or adverse) on the
Project since the date of such valuation, a new valuation or an update of the
most recent valuation shall be obtained for the valuation of the Project.

 

3.4           Failure to Make Capital Contributions.

 

(a)           If, for any reason, a Member (the “Defaulting Member”)
fails to make a Capital Contribution under Section 3.1 (a “Default”),
which Default continues for fifteen (15) days after notice from the Manager,
the Member who has made, or is prepared to make, its contribution of such
capital (the “Non-defaulting Member”) may, but shall not be obligated to, make
a Default Loan to the Defaulting Member in accordance with Sections 3.4(b)
through (e).

 

(b)           The Non-defaulting Member may, at its election, make a
loan (a “Default Loan”) to the Defaulting Member of all of the amount that the
Defaulting Member was obligated to contribute to the Venture.  The Defaulting Member hereby irrevocably
authorizes and directs the Non-defaulting Member to advance the proceeds of
each Default Loan to the Venture. 
Receipt by the Venture of such proceeds shall constitute a Capital
Contribution of, and a loan made by the Non-defaulting Member to, the
Defaulting Member, and such Default Loan shall be legally enforceable to the
same extent and in the same manner, subject to the terms of this Agreement, as
if such proceeds were loaned directly to the Defaulting Member and contributed
by the Defaulting Member to the Venture. 
The making of a Default Loan to the Defaulting Member shall not cure the
default by the Defaulting Member.

 

(c)           Each Default Loan shall bear interest on the unpaid
principal amount thereof from time to time outstanding from the date advanced
until repaid, at the lesser of (i) six percent (6%) per annum plus the prime
commercial lending rate that Citibank, N.A., New York announces from time to
time to be in effect and (ii) the Maximum Rate permitted by Applicable Law, and
all payments made thereon shall be applied first toward payment of unpaid
accrued interest and then (if anything remains) toward payment of
principal.  Each Default Loan, both
principal and interest, shall be due and payable from the Defaulting Member to
the Non-defaulting Member who has made such loan upon demand by such Non-defaulting
Member, and the Non-defaulting Member shall have and is hereby granted a first
and prior lien and security interest upon the Interest of the Defaulting Member
and all amounts, payments and proceeds becoming distributable or payable by the
Venture to such Defaulting Member to secure repayment of the Default Loan.

 

(d)           In no event shall the aggregate of the interest on a
Default Loan, plus any other amounts paid in connection with the Default Loan
that under Applicable Law would be deemed “interest,” ever exceed the maximum
amount of interest which, under Applicable Law, could be lawfully charged on
such Default Loan.  The Defaulting Member
and Non-defaulting 

 

13

 

Member making the Default
Loan specifically intend and agree to limit contractually the interest payable
on each Default Loan to not more than an amount determined as being at the
Maximum Rate.  Therefore, none of the
terms of a Default Loan or any other instruments pertaining to or securing a
Default Loan shall ever be construed to create a contract to pay interest at a
rate in excess of the Maximum Rate, and neither the Defaulting Member nor any
other party liable therefor shall ever be liable for interest in excess of that
determined as being at the Maximum Rate. 
The provisions of this Section 3.4(d) shall control over all
provisions of or respecting a Default Loan and of any other instruments
pertaining to or securing a Default Loan. 
If any amount of interest taken or received by the Non-defaulting Member
shall be in excess of the maximum amount of interest that, under Applicable
Law, could lawfully have been collected on a Default Loan, then the excess
shall be deemed to have been the result of a mathematical error by the parties
hereto and shall be refunded promptly to the Defaulting Member.  All amounts paid or agreed to be paid in
connection with the indebtedness evidenced by a Default Loan that would under
Applicable Law be deemed “interest” shall, to the extent permitted by
Applicable Law, be amortized, prorated, allocated, and spread throughout the
full term of such Default Loan.  “Applicable
Law” means the law in effect from time to time and applicable to a Default Loan
that permits the charging and collection of the highest permissible lawful
nonusurious rate of interest on a Default Loan, including laws of the United
States of America and, to the extent applicable to a given Default Loan, laws
of the State of Texas.  It is intended
that Chapter 303 of the Texas Finance Code, as amended, shall be included in
the laws of the State of Texas in determining Applicable Law; and for the
purpose of applying said Chapter 303 to a Default Loan, the interest ceiling
applicable to such Default Loan under said Chapter 303 shall be the rate determined
under Section 303.001, et seq. of the Texas Finance Code.  “Maximum Rate” means the maximum lawful
nonusurious rate of interest (if any) that under Applicable Law the
Non-defaulting Member is permitted to charge the Defaulting Member on a Default
Loan from time to time.

 

(e)           If a suit or other proceeding in any court shall be
instituted for collection of a Default Loan or enforcement of the lien and
security interest securing payment of same, the Defaulting Member, in addition
to all other remedies available at law or in equity in connection with such
Default, shall be liable for all court costs and reasonable attorneys’ fees and
other collection costs thereby incurred, payment of which shall likewise be
secured by said security interest and lien. 
A Member who becomes a Defaulting Member shall continue to be a
Defaulting Member until all Default Loans made to such Member have been fully
repaid, both as to principal and interest and costs, and all amounts due from
the Defaulting Member to the Venture and the Non-Defaulting Member in
connection with such Default Loans shall have been paid in full.  Notwithstanding anything to the contrary in Article
5, all amounts of Net Cash Flow and any other payments and proceeds which
become distributable or payable to a Defaulting Member shall be paid, first, to
discharge all accrued and unpaid interest and the outstanding principal (in
that order) of the Default Loans made to the Defaulting Member, and second (if
anything remains), to pay all remaining amounts due to the Venture from the
Defaulting Member (with any amounts applied to discharge a Default Loan and any
costs or expenses in connection therewith being treated as having been
distributed to the Defaulting Member).

 

(f)            Notwithstanding anything to the contrary contained in
this Agreement, during the period that any Member is a Defaulting Member with
respect to a Capital Call, such Member’s Consent, whether otherwise required
directly or indirectly, shall not be required in 

 

14

 

order for the Venture to
make or to implement any Major Decision, and any action, decision or other
matter set forth in Section 6.3(a) as a “Major Decision” shall cease to
be a Major Decision during such period.

 

3.5           Return of Capital Contributions. 
Except as otherwise expressly provided herein, (i) the Capital
Contributions of a Member will be returned to that Member only in the manner
and to the extent provided in this Article 3 and in Articles 5
and 9, (ii) except to the extent provided in this Article 3 and
in Articles 5 and 9, no Member shall have any right to demand or
receive the return of any Capital Contribution to the Venture, and (iii) subject
to Section 8.2, no Member shall have the right or, subject to Sections
8.2 and 10.3(a)(ii), the obligation to receive a distribution of
property other than cash.  No Member
shall be entitled to interest on any Capital Contribution or Capital Account
notwithstanding any disproportion therein as between the Members.  No Member shall be liable for the return of
any portion of the Capital Contributions of the Members, and the return of such
Capital Contributions shall be made solely from, and to the extent of,
available Venture assets.  No Member
shall be entitled to withdraw from the Venture.

 

3.6           Capital Account.  The Venture
shall establish and maintain throughout the life of the Venture for each Member
a separate capital account (“Capital Account”) in accordance with Section 704(b)
of the Code.  Such Capital Account shall
be increased by (i) the amount of the Capital Contributions made by such Member
to the Venture pursuant to this Agreement, and (ii) all items of income and
gain allocated to such Member pursuant to Section 4.1; and such Capital
Account shall be decreased by (A) the amount of cash and property distributed
to such Member pursuant to this Agreement and (B) all items of loss and
deduction allocated to such Member pursuant to Section 4.1.  Any other Venture item which is required or
authorized under Section 704(b) of the Code to be reflected in the Capital
Accounts shall be so reflected.

 

3.7           Transfer of Capital Account. 
The original Capital Account established for each transferee shall be in
the same amount as the Capital Account or portion thereof of the Member which
such transferee succeeds, at the time such transferee is admitted to the
Venture.  The Capital Account of any
Member whose Percentage Interest shall be increased by means of the Transfer to
it of all or part of the Interest of another Member shall be appropriately
adjusted to reflect such Transfer.  Any
reference in this Agreement to a Capital Contribution of, or distribution to, a
then-Member shall include a Capital Contribution or distribution, as the case
may be, previously made by or to any prior Member on account of the Interest of
such then-Member.

 

3.8           Tax Matters Partner.  BH REIT shall
be the Venture’s “Tax Matters Partner” (as such term is defined in Section 6231(a)(7)
of the Code), with all of the powers that accompany such status (except as
otherwise provided in this Agreement). 
Promptly following the written request of the Tax Matters Partner, the
Venture shall, to the fullest extent permitted by law, reimburse and indemnify
the Tax Matters Partner for all reasonable expenses, including, without
limitation, reasonable legal and accounting fees, claims, liabilities, losses
and damages incurred by the Tax Matters Partner in connection with any
administrative or judicial proceeding with respect to the tax liability of the
Members.  The provisions of this Section
3.8 shall survive the termination of the Venture and shall remain binding
on the Members for as long a period of time 

 

15

 

as is necessary to
resolve with the Internal Revenue Service any and all matters regarding the
U.S. federal income taxation of the Venture or the Members.

 

3.9           Liability for Venture’s Obligations. 
Except as otherwise provided by the Act, the debts, obligations and
liabilities of the Venture, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Venture, and the
Members shall not be obligated personally for any such debt, obligation or
liability solely by reason of being a Member of the Venture.  Each Member shall be obligated to make
payment of its contributions of capital as and when due hereunder and other
payments as provided in this Agreement.

 

ARTICLE 4

 

ALLOCATIONS

 

4.1           Allocation of Profits and Losses.

 

(a)           Except as otherwise provided in this Section 4.1,
Profits and Losses shall be allocated among the Members in accordance with
their respective Percentage Interests.

 

(b)           Notwithstanding anything to the contrary in this
Agreement, Profits and Losses shall be allocated as though this Agreement
contained (and there is hereby incorporated herein by reference) a qualified
income offset provision which complies with Treas. Reg. § 1.704-1(b)(2)(ii)(d) and
minimum gain chargeback and partner minimum gain chargeback provisions which
comply with the requirements of Treas. Reg. § 1.704-2.

 

(c)           In the event that any amounts paid or payable to any
Member or any Affiliate which the Venture deducted or intended to deduct are
disallowed as deductions for federal income tax purposes (or it is determined
that such amounts are no longer allowable as deductions), (i) the amounts thus
disallowed or no longer allowable will be allocated to the Member which
received them (or whose Affiliate received them) as income, and (ii) notwithstanding
any provision herein to the contrary, the balance of the redetermined income or
loss of the Venture for the taxable year in question shall, to the extent
permitted by law, be allocated among the Members to obtain the same allocation
of Venture income or loss (after giving effect to the income allocated pursuant
to clause (i) hereof) as would have been obtained for such taxable year if the
amounts thus disallowed or no longer allowable had been proper deductions by
the Venture.

 

4.2           Tax Allocations.

 

(a)           Items of taxable income, gain, loss and deduction
shall be determined in accordance with Section 703 of the Code, and except as
otherwise provided in this Section 4.2, the Members’ distributive
shares of such items for purposes of Section 702 of the Code shall be
determined according to their respective shares of Profits or Losses (or items
thereof) to which such items relate.

 

(b)           In accordance with Section 704(c) of the Code and the
regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Venture shall, solely for tax
purposes, be allocated among the Members so as to 

 

16

 

take account of any
variation between the adjusted basis of such property to the Venture for
federal income tax purposes and its fair market value as of the date of
contribution.  In the event the book
value of any Venture property is adjusted pursuant to the Venture’s maintenance
of Capital Accounts, subsequent allocations of income, gain, loss, and
deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and
its book value for Capital Account purposes in the same manner as under Section
704(c) of the Code and the regulations thereunder.  Any elections or other decisions relating to
such allocations shall be made by the Manager in any manner that reasonably
reflects the purpose and intention of this Agreement.

 

(c)           Allocations pursuant to this Section 4.2
are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Member’s Capital
Account or share of Profits, Losses or distributions pursuant to any provision
of this Agreement.

 

ARTICLE 5

 

DISTRIBUTIONS AND EXPENSES

 

5.1           Distributions of Net Cash Flow. 
The Net Cash Flow of the Venture, as determined by the Manager, shall be
distributed no less frequently than quarterly to the Members in accordance with
their respective Percentage Interests.

 

5.2           Tax Provisions.  In the event
the Venture is subject to any tax or other obligation that is attributable to
the Interest of one Member, but not all the Members, such tax or other
obligation shall be specially allocated to, and charged against the Capital
Account of, such Member, and the amounts otherwise distributable to such Member
pursuant to this Agreement shall be reduced by such amount but shall
nevertheless be deemed to be a distribution of such amount to such Member for
all purposes of this Agreement.

 

5.3           Priority. 
Notwithstanding any other provision of this Agreement, it is
specifically acknowledged and agreed by each Member that the Venture’s failure
to pay any distribution pursuant to Section 5.1 to such Member shall not
give such Member creditor status with regard to such unpaid amount; but rather,
such Member shall be treated only as a Member of whatever class such Person is
a Member, and not as a creditor, of the Venture.  This Section 5.3 is, as permitted by Section
18-606 of the Act, intended to override the provisions of Section 18-606 of the
Act relating to a member’s status and remedies as a creditor, to the extent
that such provisions would be applicable in the absence of this Section 5.3.

 

5.4           Expenses.

 

(a)           Organizational Expenses.  The Members
shall bear, either directly or indirectly through the Venture, all
out-of-pocket costs (including, without limitation, legal and accounting fees
and expenses) incurred in connection with the formation and organization of the
Venture, the Subsidiary REIT and any subsidiary thereof (“Organizational
Expenses”) in accordance with their respective Percentage Interests.  The Manager may make one or more 

 

17

 

Capital Calls in
accordance with Article 3 in order to enable the Venture to pay (or, if
applicable, to reimburse to the Manager or its Affiliates) any Organizational
Expenses.

 

(b)           Operating Expenses.  The Venture
shall bear all other costs and expenses of the Venture’s activities and
operations, including without limitation, the following: (i) Taxes of the
Venture, fees and expenses of professional advisors to the Venture, premiums
for insurance (including, without limitation, error and omissions, directors
and officers and other forms of liability insurance (other than the cost of
liability insurance for the Manager, its Affiliates and any of their respective
officers, directors, partners, members, shareholders and employees)) protecting
the Venture, the Manager and other Indemnified Persons and litigation costs of
the Venture; (ii) administrative expenses related to the Venture, including
without limitation, fees and expenses of accountants, lawyers and other
professionals incurred in connection with the Venture’s annual audit, financial
reporting, legal opinions and preparation of Tax Returns; (iii) the Venture’s
proportionate share of all fees, costs and expenses incurred in evaluating,
developing, negotiating, structuring, acquiring, holding, appraising,
financing, selling or otherwise disposing of or otherwise dealing with the
Subsidiary REIT and the Project (or the Venture’s interest therein) pursued for
the Venture in accordance with the terms of this Agreement, whether or not the
Venture actually invests therein (including, without limitation, any “dead deal”
costs, travel, legal, accounting, due diligence, projections, valuations and
other fees and out-of-pocket expenses related thereto); (iv) all fees and
expenses incurred in connection with obtaining independent, third-party
valuations of the Venture pursuant to Section 12.6; (v) indemnification
expenses incurred pursuant to Section 7.2; and (vi) all other customary
fees, costs and expenses of the Venture (collectively, “Operating Expenses”).  The Manager may make one or more Capital
Calls in accordance with Article 3 in order to enable the Venture to pay
any Operating Expenses.

 

ARTICLE 6

 

MANAGEMENT RIGHTS, DUTIES, AND POWERS OF THE

MANAGER; TRANSACTIONS INVOLVING

THE MANAGER OR ITS AFFILIATES;

ADDITIONAL OR SUCCESSOR MANAGER

 

6.1           Management of the Venture.

 

(a)           Right, Power and Authority of Manager. 
Except as provided in this Agreement, the Manager shall have the right,
power and authority to manage and control the day-to-day affairs of the
Venture.  Subject to Section 6.3
and except for any other provision of this Agreement that requires the Consent
of the Members, any action taken by the Manager on behalf of the Venture shall
constitute the act of, and serve to bind, the Venture.  Without limiting the generality of the
foregoing, it is understood and agreed that the Manager may enter into letters
of intent, purchase agreements or other commitments relating to the acquisition
or development of the Project on behalf of the Venture and in anticipation of
the purchase or development of the Project by the Subsidiary REIT (or a
subsidiary thereof), it being acknowledged that any liability thereby incurred
by the Manager in connection therewith shall be subject to indemnification
under Section 7.2.  In no event
shall any Person dealing with the Manager with respect to the conduct of the
affairs of the Venture be obligated to ascertain that 

 

18

 

the terms of this
Agreement have been complied with or be obligated to inquire into the necessity
or expediency of any action of the Manager. 
The Manager shall be required to devote only such time to the business
of the Venture as is reasonably necessary to perform its obligations under this
Agreement.

 

(b)           Reliance on Officers of the Manager. 
It is understood and agreed that each officer of the Manager may act for
and in the name of the Manager under this Agreement.  In dealing with any officer of the Manager
acting for or on behalf of the Venture, no Person shall be required to inquire
into, and Persons dealing with the Venture are entitled to rely conclusively
on, the right, power and authority of any officer of the Manager to bind the
Venture.

 

(c)           No Obligation Other Than As Set Forth Herein. 
The Manager and its Affiliates shall not be obligated to do or perform
any act or thing in connection with the business of the Venture not expressly
set forth in this Agreement.

 

6.2           Operating Plan.  (a)        Within
60 days after the execution of this Agreement the Manager shall prepare or
cause to be prepared an initial operating plan (the “Initial Operating Plan”)
for the Project covering the period from the Venture’s acquisition of an
ownership interest in the Project through the end of the first full fiscal year
of the Venture following such acquisition. 
The Initial Operating Plan shall contain all material pertinent leasing,
financing, operational and disposition information together with a detailed
budget of projected operating and capital expenses and revenues and any other
information deemed appropriate by the Manager for the Project to the extent applicable.  The operations of the Project through the end
of such first full fiscal year shall be conducted in all material respects in
accordance with the Initial Operating Plan, except for any action or
expenditure the Manager deems reasonably necessary or appropriate in the event
of an emergency situation affecting the Project, as determined by the Manager
in its reasonable discretion.

 

(b)           Thirty days before the end of the Venture’s first full
fiscal year after the acquisition of its ownership interest in the Project and
each subsequent fiscal year of the Venture, the Manager shall prepare, or cause
to be prepared, and submit to the Members for their review and approval an
operating plan (a “Subsequent Operating Plan”) for the Project for the next
succeeding fiscal year of the Venture. 
Each Subsequent Operating Plan for the Project shall contain all
material pertinent leasing, financing, operational and disposition information
together with a detailed budget of projected operating and capital expenses and
revenues and any other information deemed appropriate by the Manager for the
applicable fiscal year.  The Members may
make comments on and suggestions for the Subsequent Operating Plan, and if
accepted by the Manager in its reasonable discretion, such comments and
suggestions shall be incorporated into a revised Subsequent Operating Plan for
such Project.  Upon receiving the Consent
of the Members for the Subsequent Operating Plan (as revised, if applicable),
the Manager shall cause the operations of the Project for the applicable fiscal
year to be conducted in all material respects in accordance with such
Subsequent Operating Plan.  If the
Members have not granted their Consent to a Subsequent Operating Plan for the
Project prior to the beginning of the fiscal year for which the Subsequent
Operating Plan is intended to be used, the Manager shall cause the operations
of the Project to be conducted in all material respects in accordance with the
operating plan for the immediately preceding fiscal year (the “Prior Operating
Plan”); provided that, (i) the Manager may make such adjustments to the Prior
Operating Plan as the Manager reasonably 

 

19

 

deems necessary or
appropriate under the circumstances, except that, other than as permitted by
clause (iii) of this Section 6.2, the Manager may not increase any items
of operating or capital expenses in excess of the amounts permitted by clause (ii)
of this Section 6.2 without the Consent of the Members, (ii) the Manager
may increase each item of operating and capital expenses in the Prior Operating
Plan by up to 5%, and (iii) in the event of an emergency situation affecting
the Project, as determined by the Manager in its reasonable discretion, the
Manager may take, or cause to be taken, such action in respect of such
emergency situation as the Manager deems reasonably necessary or appropriate;
provided that, the Manager promptly advises the Members of such emergency
situation and such action taken or caused to be taken.  After its approval by the Members, any
material deviation from or amendment to an approved Subsequent Operating Plan
shall require the Consent of the Members pursuant to Section 6.3, except
for any action or expenditure the Manager deems reasonably necessary or
appropriate in the event of an emergency situation affecting the Project, as
determined by the Manager in its reasonable discretion.

 

6.3           Major Decisions.

 

(a)           Notwithstanding anything to the contrary contained in
this Agreement (except as otherwise provided in Section 3.4(f) or
permitted in accordance with Section 6.2), the Manager shall have no
authority on behalf of the Venture to take any action, make any decision,
expend any sum or undertake or suffer any obligation if to do so would
constitute a Major Decision, unless such Major Decision is approved in advance
in writing by all of the Members (or, in the case of clause (vii) below, by the
affected Member(s))  As used herein, “Major
Decision” means any decision of the Venture to do or take any of the following
actions:

 

(i)            selling or otherwise disposing of the Project
(including without limitation, the sale of the Venture’s interest therein), or
causing the Subsidiary REIT to sell or otherwise dispose of the Project, or any
other property having a value in excess of $100,000, or Transferring any
material interest therein;

 

(ii)           selling any additional interests in the Venture or the
Subsidiary REIT (other than, in the case of the Subsidiary REIT, such number of
Shares as the Manager may reasonably determine to be necessary or appropriate
to permit the Subsidiary REIT to qualify or maintain its status as a REIT or as
provided in Section 3.3(b)); provided that, the sale of an interest in
the Venture to the developer of the Project and the admission of such developer
as a member of the Venture shall not require the Consent of the Members.

 

(iii)          incurring, materially restructuring or materially
modifying any indebtedness of the Venture or the Subsidiary REIT in excess of
$100,000 or causing the Venture or the Subsidiary REIT to become liable as an
endorser, guarantor, surety or otherwise for any debt, obligation or
undertaking of any other Person in excess of $100,000 other than in accordance
with the Initial Operating Plan or the applicable Subsequent Operating Plan, as
the case may be, except for (A) indebtedness of the Venture or the Subsidiary
REIT arising in the ordinary course of business for trade payables, wages,
taxes or otherwise for goods or services rendered or provided to the Venture or
the Subsidiary REIT, and (B) endorsements of the Venture or the Subsidiary REIT
for deposit or collection of checks, drafts and similar instruments received by
the Venture or the Subsidiary REIT in the ordinary course of business;

 

20

 

(iv)                              establishing sale objectives and
parameters in respect of the Project or the Venture’s interest therein that are
contrary to the Investment Guidelines or making any material deviation from,
waiver of or amendment to the Investment Guidelines;

 

(v)                                 causing or permitting the Venture or the
Subsidiary REIT to mortgage, pledge or hypothecate the Project (except pursuant
to leases entered into in the ordinary course of business) to secure any
indebtedness for borrowed money of the Venture other than in accordance with
the Initial Operating Plan or the applicable Subsequent Operating Plan, as the
case may be;

 

(vi)                              calling for or requiring any Capital
Contribution from a Member such that the aggregate Capital Contributions of
such Member would be in excess of its Capital Commitment, except as otherwise
agreed by the Members or as otherwise provided in Section 3.3
hereof;

 

(vii)                           making any Tax election or decision
affecting the Tax treatment of any or all of the Members in connection with its
or their participation in the Venture other than as contemplated by Section 3.8;

 

(viii)                        determining that the Subsidiary REIT
shall no longer qualify and operate as a REIT;

 

(ix)                                adopting and implementing a Subsequent
Operating Plan or making any material deviation from or amendment to the
Initial Operating Plan or a previously approved Subsequent Operating Plan other
than as contemplated by Section 6.2; or

 

(x)                                   Transferring any interest in the Venture
to any Person or admitting any Person as a Member of the Venture except in
accordance with the proviso of Section 6.3(a)(ii) or Article 8.

 

(b)                                 In connection with any proposed Consent
to a Major Decision, the Manager shall provide the Members with such
information as they may reasonably request and as shall be reasonably available
to the General Partner for the Members (or, in the case of clause (vii) of
Section 6.3(a), the affected Member(s)) to make a prudent judgment
whether to approve or disapprove the proposed action.  The Manager shall give the Members not less
than 10 Business Days’ advance written notice of, and request their Consent to,
each proposed Major Decision.  Should a
Member fail to respond to a Consent request with respect to a Major Decision
within 10 Business Days from when such notice is given, such Member shall
conclusively be deemed to have granted its Consent to such Major Decision
(other than a Major Decision identified in Section 6.3(a)(i), (ii) or
(vii), which shall require the affirmative Consent of each Member or, in
the case of Section 6.3(a)(vii), the affected Member(s)) and shall
waive any right to withdraw such Consent or otherwise object to such Major
Decision, provided that the notice must indicate that it will become effective
at the expiration of the 10 Business Day period in order to become effective in
such manner.

 

21

 

6.4                                 Business with Affiliates; Other
Activities.

 

(a)                                  The Venture, directly or through the
Subsidiary REIT, may invest in the Project, notwithstanding that Behringer, any
of its Affiliates or any BH-Sponsored Investment Program holds a material (or
lesser) interest in the Project or that the Project has been recently developed
by, or is to be developed by, Behringer, any of its Affiliates or any
BH-Sponsored Investment Program, and, subject to Sections 2.6(b) and
6.3(a)(i), may sell, assign or otherwise Transfer interests in the
Project or other assets of the Venture or the Subsidiary REIT to, and otherwise
enter into a joint venture or other partnership or co-ownership arrangement
with, Behringer, any of its Affiliates or any BH-Sponsored Investment Program.

 

(b)                                 The Venture, directly or through the
Subsidiary REIT (and any other Person to which any of the foregoing are related
or in which any of the foregoing are interested), may, as necessary or
appropriate, engage in any transaction with or employ or retain Behringer or
any of its Affiliates to provide services (including, without limitation,
administration, accounting, construction management, data processing,
development, engineering, environmental, financing, insurance brokerage,
management and servicing, leasing, legal, market research, mortgage financing,
property management or other similar services) that would otherwise be
performed for the Venture or the Subsidiary REIT by third parties on terms
(including, without limitation, the consideration to be paid) that are
determined by the Manager to be fair and reasonable to the Venture or the
Subsidiary REIT, as the case may be, and such Persons may receive from the
Venture (and any such other Person) compensation (including, without
limitation, salary, salary related employment costs and expenses of the
employees who provide such services and other overhead expenses allocable
thereto, as reasonably determined by the Manager based on the time expended by
the employees who render such services or on a project-by-project basis) in
addition to that expressly provided for in this Agreement.  It is expressly acknowledged and agreed that
the Manager may cause the Subsidiary REIT (or any subsidiary thereof that owns
the Project) to engage the Management Company (or another Affiliate of
Behringer), to perform property management, leasing and related services for
the Project for a fee equal to the lesser of (i) 3.75% of the gross
revenues from the Project and (ii) the amount that an Affiliate of
Behringer or BH REIT otherwise pays to the Management Company (or such other
Affiliate) for property management, leasing and related services.

 

(c)                                  Nothing herein contained shall prevent or
prohibit Behringer, any of its Affiliates, or any of their respective trustees,
officers, directors, members, partners, employees or shareholders from
acquiring, developing, investing in, managing, leasing or otherwise dealing in
real property of any kind or nature for its own account or that of any of its
Affiliates or third parties or from entering into, engaging in or conducting
any other activity or performing for a fee any service (including, without
limitation, engaging in any business dealing with real property of any type or
location, acting as a director, officer or employee of any corporation, as a
trustee of any trust, as a general partner of any partnership, as a member or
manager of any limited liability company or as an official of any other Entity,
or receiving compensation for services to, or participating in profits derived
from, the investments of any such corporation, trust, partnership, limited
liability company or other Entity, regardless of whether such activities are
competitive with the Venture or the Project). 
The fact that Behringer or its Affiliates may encounter opportunities to
purchase, otherwise acquire, lease, sell or otherwise dispose of real or
personal property and may take advantage of such opportunities themselves or
introduce such 

 

22

 

opportunities to other
Persons in which it has or has not any interest, shall not subject Behringer or
its Affiliates to liability to the Venture or any of the Members (or any of the
direct or indirect partners or members of the Members) on account of the lost
opportunity.

 

6.5                                 Maintenance of Domestic Status. 
The Manager hereby agrees that, notwithstanding anything herein to the
contrary, unless caused, consented to or induced by PGGM or any Affiliate
thereof, either directly or through BH MP, neither the Manager nor any of its
Affiliates will (a) voluntarily take any action that, to the knowledge of
the Manager, would result in a Domestic Status Loss, or (b) permit to
occur any action that is within its reasonable control to prevent and that, to
the knowledge of the Manager, would result in a Domestic Status Loss.  The provisions of this Section 6.5
shall not apply if there is not at least one REIT Member.

 

6.6                                 Tax Status.  Each Member
agrees to take commercially reasonable actions to assist the other Member in
achieving the most favorable tax treatment for such other Member (and the
owners of such Member); provided that, no Member shall be required to take or
permit any action which (a) creates any risk of material adverse economic
or tax consequences for such Member (or the owners of such Member), unless the
requesting Member agrees to reimburse each such Person that may be subject to
such consequences for all adverse economic and tax consequences, or (b) is
contrary to law.

 

6.7                                 Liability for Venture’s Obligations. 
The debts, obligations and liabilities of the Venture, whether arising
in contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Venture, and neither the Members nor the Manager shall be
obligated personally for any such debt, obligation or liability of the Venture
by reason of being the Members or the Manager of the Venture.

 

6.8                                 Additional or Successor Manager. 
The Manager may delegate its rights and powers as a manager under this
Agreement and the Act, and may admit to the Venture as an additional or
successor Manager, any of its Affiliates, Behringer or any of its Affiliates
without the Consent of any Member, provided that, the Manager arranges for such
Person(s) to be bound by the provisions of this Agreement by having such
Person(s) execute such documents as may be reasonably required to make
such Person(s) party to this Agreement as an additional or successor
Manager(s).  In the event that any such Person
is admitted as an additional Manager, the Manager and such additional Manager
shall share in the rights and powers, as well as any duties and obligations,
under this Agreement and the Act in such manner and to such extent as the
Manager and such additional Manager may agree. 
In the event that any such Person is admitted as a successor Manager,
the Manager shall thereupon cease to have any rights, powers, duties or
obligations under this Agreement and the Act, and such Person, as the successor
Manager, shall assume all such rights, powers, duties and obligations
previously held by the Manager.  Except
as provided in this Section 6.8, the Manager may not admit any
Person as an additional or successor Manager without the Consent of the
Members.

 

6.9                                 Removal of Manager for Cause. 
Notwithstanding anything herein to the contrary, BH MP shall have the
sole right to elect to remove the Manager for Cause.  Upon the occurrence of any event constituting
Cause for its removal, the Manager shall deliver written notice of such event
to BH MP within five (5) Business Days of the occurrence of such
event.  BH MP shall exercise its right to
remove the Manager, if at all, by delivering to the Manager written notice of 

 

23

 

such election within
twenty (20) Business Days of the delivery of the notice of Cause from the
Manager.  In the event BH MP shall
exercise the right to remove the Manager, BH MP shall promptly (but in no event
later than ten (10) Business Days after its exercise of the right of
removal) appoint a successor Manager of the Venture.  Upon the removal of the Manager the Venture
shall file an amendment to its Certificate evidencing the removal of the
Manager as manager of the Venture.

 

ARTICLE
7

LIMITATIONS ON LIABILITY AND INDEMNIFICATION

 

7.1                                 Limitation of Liability. 
To the maximum extent permitted under the Act in effect from time to
time, neither the Manager nor any other Indemnified Person shall be liable to
the Venture or to any Member for (a) any act or omission performed or
failed to be performed by it, or for any losses, claims, costs, damages or
liabilities arising from any such act or omission, except to the extent such
loss, claim, cost, damage or liability results from such Indemnified Person’s gross
negligence, willful misconduct, fraud or a material breach of this Agreement, (b) any
tax liability imposed on the Venture or (c) any losses due to the
negligence (gross or ordinary), dishonesty or bad faith of any agents of the
Venture, as long as such persons are selected with reasonable care.  Without limiting the generality of the
foregoing, each Indemnified Person shall, in the performance of his, her or its
duties, be fully protected in relying in good faith upon the records of the
Venture and upon information, opinions, reports or statements presented to such
Indemnified Person by the Manager or by any other Person as to matters such
Indemnified Person reasonably believes are within such other Person’s
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Venture.  Any
repeal or modification of this Section 7.1 shall not adversely
affect any right or protection of a Person existing at the time of such repeal
or modification.

 

7.2                                 Indemnification.

 

(a)                                  Advancement of Expenses. 
In the event that the Manager, any of its Affiliates or any directors,
officers, shareholders, partners, members, employees, trustees, representatives
or agents of any of them (each, an “Indemnified Person” and collectively, the “Indemnified
Persons”) becomes involved in any capacity in any threatened, pending or
completed action, proceeding or suit, whether civil, criminal, administrative
or investigative, by reason of the fact that it, he or she was a manager,
officer, employee, representative or agent of the Venture, the Manager or
otherwise authorized to act hereunder or in connection herewith or otherwise
failed to act in connection with the business or affairs of the Venture or one
of its direct or indirect subsidiaries or otherwise is or was serving at the
Venture’s or one of the Venture’s direct or indirect subsidiary’s request as a
director, trustee, officer, partner, employee or agent of another Entity, the
Venture will periodically reimburse such Indemnified Person for its reasonable
legal and other expenses (including, without limitation, the costs of any
investigation and preparation) incurred in connection with such involvement,
provided that such Indemnified Person shall promptly repay to the Venture the
amount of any such reimbursed expenses paid to it if it is ultimately
determined by a court having appropriate jurisdiction in a decision that is not
subject to appeal, that such Indemnified Person is not entitled to be
indemnified by the Venture under this Section 7.2.

 

24

 

(b)                                 Indemnification. 
To the maximum extent permitted under the Act in effect from time to
time, the Venture shall indemnify, defend and hold harmless any Indemnified
Person against any losses, claims, costs, damages or liabilities to which such
Indemnified Person may become subject in connection with the business or
affairs of the Venture or one of its direct or indirect subsidiaries or serving
at the Venture’s or one of the Venture’s direct or indirect subsidiary’s
request as a director, trustee, officer, partner, employee or agent of another
Entity, except to the extent that any such loss, claim, cost, damage or
liability results from the gross negligence, willful misconduct, fraud or a
material breach of this Agreement of such Indemnified Person.  If for any reason (other than the gross
negligence, willful misconduct, fraud or material breach of this Agreement of
such Indemnified Person) the foregoing indemnification is unavailable to such
Indemnified Person, or is insufficient to hold it harmless, then the Venture
shall contribute to the amount paid or payable to the Indemnified Person as a
result of such loss, claim, cost, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the Venture
on the one hand and such Indemnified Person on the other hand but also the
relative fault of the Venture and such Indemnified Person, as well as any
relevant equitable considerations.

 

(c)                                  Successors.  The reimbursement,
indemnity and contribution obligations of the Venture under this Section 7.2
shall be in addition to any liability which the Venture may otherwise have and
shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Venture, the Manager and any other
Indemnified Person.  The foregoing
provisions shall survive any termination of this Agreement and any amendment to
such provisions shall not reduce the Venture’s indemnity obligation with respect
to any act or omission occurring prior to the date of such amendment.

 

(d)                                 Exclusivity. 
The indemnification provided by this Section 7.2 shall not
be deemed to be exclusive of any other rights to which the Indemnified Person
may be entitled under any agreement or as a matter of law, or otherwise, both
as to action in an Indemnified Person’s official capacity and to action in
another capacity, and shall continue as to an Indemnified Person who has ceased
to have an official capacity for acts or omissions during such official
capacity or otherwise when acting at the request of the Manager and shall inure
to the benefit of the heirs, successors and administrators of such Indemnified
Person.

 

(e)                                  Limitation. 
Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 7.2 shall not be construed as to provide for the
indemnification of any Indemnified Person for any liability (including, without
limitation, liability under U.S. federal securities laws which, under
certain circumstances, impose liability on Persons that act in good faith), to
the extent (but only to the extent) that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
provisions of this Section 7.2 to the fullest extent permitted by
law.

 

(f)                                    Reliance.  An
Indemnified Person may rely upon and shall be protected in acting or refraining
from action upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order or other document believed by it to be
genuine and to have been signed or presented by the proper party or parties.

 

25

 

(g)                                 Consultation. 
An Indemnified Person may consult with counsel, accountants and other
experts reasonably selected by it, and any opinion of an independent counsel,
accountant or expert retained with reasonable care shall be full and complete
protection in respect of any action taken or suffered or omitted by the
Indemnified Person hereunder in good faith and in accordance with such opinion.

 

ARTICLE
8

TRANSFER OF MEMBERS’ INTERESTS IN THE VENTURE;

BUY/SELL

 

8.1                                 Transfers of a Member’s Interest.

 

(a)                                  No Member may Transfer all or any portion
of its Interest or have any transferee admitted as a substituted Member in
respect of such Interest or any portion thereof without the prior written
Consent of the Manager, which Consent may be withheld in the sole discretion of
the Manager.  In the event a Member
desires to secure permission to Transfer its Interest or any portion thereof,
it shall notify the Manager in the manner described in Section 13.1
hereof and shall deliver such information to the Manager as it may request,
including, if requested, evidence reasonably satisfactory to the Manager with
respect to (i) compliance with applicable federal and state securities
laws and (ii) any other appropriate laws or regulations.  No Transfer may be made if it would violate
applicable federal or state securities laws or other laws or regulations.

 

(b)                                 In the event any Member desires to
Transfer all or any portion of its Interest in the Venture (and the Manager
Consents thereto) the Transferring Member shall arrange for its transferee to
be bound by the provisions of this Agreement by having such transferee execute such
documents as shall be reasonably required by the Manager to make the transferee
a party to this Agreement and by delivering the same to the Manager together
with such other information that may be reasonably requested by counsel to the
Manager.  The transferee of all or any
portion of the Interest of a Member shall become a substituted Member as to the
Interest (or portion thereof) thus Transferred upon the written Consent of the
Manager, which Consent may be granted or withheld in the sole discretion of the
Manager.  Any such substituted Member
shall succeed to all of the rights and assume all of the obligations of the
Member to the extent of the portion of the Interest in the Venture which has
been Transferred to such substituted Member. 
A transferee of all of any portion of the Interest of a Member who is
not a substituted Member shall have the right to receive allocations of income,
gain, loss and deduction and distributions of Net Cash Flow and other
distributions pursuant to this Agreement, but shall have no other rights
hereunder, and neither the transferor nor the transferee shall have the right
to vote with respect to any Interest so Transferred.  The effective date of any Transfer under Section 8.1
(a) or (b) shall be the date on which the transferee
executes and delivers to the Manager the documents required by the Manager, and
the Manager grants its Consent in accordance with Section 8.1(a) or
(b), as the case may be.

 

(c)                                  Anything contained in Sections 8.1(a) or
(b) to the contrary notwithstanding, no Transfer of an Interest or
any portion shall be effective if it would result in the Venture being
classified as an association (or publicly traded partnership) taxable as a 

 

26

 

corporation for federal
or state income tax purposes, and any such Transfer shall be effected in such
manner as may be necessary to maintain the classification of the Venture as a
partnership for federal and state income tax purposes.

 

(d)                                 Notwithstanding anything to the contrary
in this Agreement, no Interest in the Venture, or any portion thereof, shall be
issued in a transaction that is (or transactions that are) registered or
required to be registered under the Securities Act of 1933, as amended, and any
Transfer of an Interest or any portion thereof must be made in a transaction
that is exempt from registration or qualification under the Securities Act of
1933, as amended, and applicable state securities law.

 

(e)                                  No admission (or purported admission) of
a Member and no Transfer (or purported Transfer) of all or part of a Member’s
Interest (or any interest or right or attribute therein) in the Venture shall
be effective, and no Person shall otherwise become a Member, if the Venture
would or may have more than 100 members, treating as a member for this purpose
each Person indirectly owning an Interest (or any interest therein) in the
Venture through a partnership, a grantor trust or an S corporation.

 

8.2                                 Buy/Sell Arrangement. 
Any time after the occurrence and during the continuation of (i) a
Major Dispute for a period of not less than fifteen (15) days (such 15-day
period to commence upon written notice by a Member to the other Member), or (ii) an
event triggering the Subsidiary REIT’s “Excess Share” provisions pursuant to its
limited liability company agreement (or other governing instrument), then
either Member shall be entitled to initiate the buy/sell rights set forth in
this Section 8.2.

 

(a)                                  Either Member (an “Offeror”) may serve
upon the other Member (an “Offeree”) a notice (an “Offering Notice”) which
shall contain the following:

 

(i)                                     statement of intent to rely on this Section 8.2;
and

 

(ii)                                  a statement of the aggregate dollar
amount that the Offeror would be willing to pay in cash (the “Offer Price”) for
all of the Offeree’s interest (the “Buy/Sell Interest”) in the Shares (assuming
that the Venture were liquidated and the Shares owned by the Venture were
distributed in-kind to the Members), as specified in the Offering Notice.

 

(b)                                 Within thirty (30) days after receipt of
the Offering Notice by the Offeree (the “Option Period”), the Offeree shall
notify the Offeror whether the Offeree elects:

 

(i)                                     to sell its Buy/Sell Interest to the
Offeror for a price equal to the Offer Price; or

 

(ii)                                  to purchase the Buy/Sell Interest of the
Offeror for a price (the “Alternative Offer Price”) that is in proportion to
the Offer Price (based upon the relative Percentage Interests of the Members),
together with a statement of whether the Offeree elects to purchase the Offeror’s
Buy/Sell Interest in respect of the Venture or the Shares.

 

27

 

(c)                                  If the Offeree does not notify the
Offeror of its election prior to expiration of the Option Period, the Offeree
shall for all purposes be conclusively deemed to have elected to sell its
Buy/Sell Interest to the Offeror for the Offer Price indicated in Section 8.2
(a)(ii).

 

(d)                                 (i) If BH REIT is the Member
obligated to purchase the Buy/Sell Interest under Section 8.2(b) or
(c) (the “Purchaser”), then within five (5) Business Days
after the date of the exercise of the election by the Offeree or five (5) Business
Days after the expiration of the Option Period, whichever is earlier, the
Purchaser shall deposit in cash an amount in escrow, which amount while in
escrow shall be invested in Permitted Temporary Investments as directed by the
Purchaser (such amount, together with any interest earned thereon being the “Earnest
Money”), equal to 10% of the Offer Price or Alternative Offer Price, as the
case may be (such Offer Price or Alternative Offer Price, as applicable, being
the “Purchase Price”), with an independent third party (the “Escrow Agent”)
reasonably satisfactory to BH MP as the Member obligated to sell its Interest
under this Section 8.2(d) (the “Seller”).  The Earnest Money shall be applied against
the Purchase Price at the closing referenced below, or shall be paid to the
Seller as liquidated damages in the event of a default by the Purchaser in
accordance with this Section 8.2(d)(i).  In the event the Purchaser fails to deposit
timely such Earnest Money as provided above or fails or refuses to close on the
purchase and sale of its Buy/Sell Interest on the Closing Date (such Purchaser
being then referred to as the “Defaulting Purchaser”), then within fifteen (15)
days thereafter, unless the Defaulting Purchaser has earlier cured such default
by depositing the required Earnest Money as provided above or has proven to the
reasonable satisfaction of the Seller that the Defaulting Purchaser is ready, willing
and able to close such purchase and sale, the Seller shall have the option of
substituting itself as Purchaser of the Buy/Sell Interest of the Defaulting
Purchaser (such Seller being then referred to as the “Substituted Purchaser”)
under this Section 8.2(d) at a purchase price (the “Substituted
Purchase Price”) equal to 90% of the Purchase Price multiplied by the ratio of
BH REIT’s Percentage Interest to BH MP’s Percentage Interest if the Defaulting
Purchaser is BH REIT (or if, after becoming the Purchaser in accordance with Section 8.2(e),
BH MP or the BH MP Venture is the Defaulting Purchaser, 90% of the Purchase
Price multiplied by the ratio of BH MP’s Percentage Interest to BH REIT’s
Percentage Interest).  In the event that
the Seller elects to become the Substituted Purchaser in accordance with the
preceding sentence, the Seller shall, within 10 Business Days after the Seller
obtains the right to become the Substituted Purchaser, give written notice to
the Defaulting Purchaser of its intention to do so, which notice shall specify
the Substituted Purchase Price.  Within
five (5) Business Days after such notice the Substituted Purchaser shall
deposit Earnest Money equal to 10% of the Substituted Purchase Price in escrow
with an Escrow Agent selected by the Substituted Purchaser, whereupon, for
purposes of Sections 8.2(d)(ii) and (iii) below, the
Substituted Purchaser shall become the Purchaser, the Defaulting Purchaser
shall become the Seller and the Substituted Purchase Price shall become the
Purchase Price.  Alternatively, after the
default by the Defaulting Purchaser and its failure to cure such default prior
to the earlier of (A) fifteen (15) days after such default and (B) the
Seller’s election to become the Substituted Purchaser, the Seller may elect to
obtain, and retain as liquidated damages for the Defaulting Purchaser’s default
under this Section 8.2(d), the amount of Earnest Money deposited by
the Defaulting Purchaser (or the amount that should have been deposited by the
Defaulting Purchaser as Earnest Money but was not).

 

(ii)                                  On or before the date on which the
Purchaser is required to make the Earnest Money deposit referenced in Section 8.2(d)(i) (or,
if the Substituted Purchaser has 

 

28

 

become the Purchaser,
within five (5) Business Days after such Purchaser has made its Earnest
Money deposit), the Purchaser shall fix a closing date (the “Closing Date”) not
later than 30 days (or as soon thereafter as practicable) following (i) the
date of the election by the Offeree, or (ii) if no election was made, the
date of the expiration of the Option Period, provided that such Option Period
shall be subject to extension by up to 150 days if BH MP has become the
Substituted Purchaser.  If the Purchaser’s
election has been to purchase the Seller’s interest in the Shares, immediately
prior to the Closing Date, the Venture shall make a distribution in-kind of the
Shares owned by the Venture to the Members in accordance with their respective
Percentage Interests.  For purposes of
the distribution in-kind, the distributed Shares shall have a value per Share
equal to the Purchase Price divided by the number of Shares to be distributed
to the Seller.  The closing shall take
place on the Closing Date at a location reasonably designated by the
Purchaser.  The Purchaser may assign its
rights to purchase the Seller’s Buy/Sell Interest hereunder to any third party,
including one or more of its Affiliates; provided that, the Purchaser shall
remain liable for any such obligation to purchase.

 

(iii)                               At the closing on the Closing Date, the
Purchaser shall pay the Seller, in cash, the amount determined under Section 8.2(d)(i),
as the Purchase Price (with the Purchaser’s Earnest Money being credited
against such amount at the closing) and the Seller shall execute and deliver to
the Purchaser or its designee stock powers, bills of sale, instruments of
assignment, and other instruments as the Purchaser may reasonably require, to
give it or its designee good and indefeasible title to all of the Seller’s
right, title and interest in and to all of its Buy/Sell Interest.  The Venture shall pay all closing costs;
provided, however, that the Purchaser and the Seller shall pay their own
respective legal costs and expenses in connection with the preparation of the
closing documentation.  In addition, on
the Closing Date, the Purchaser shall cause the Seller to be released from any
liability accruing from and after the Closing Date in respect of the Venture
(including any financing arrangements entered into by the Venture or with
respect to the Project) or shall indemnify the Seller with respect to such
liability.

 

(iv)                              The Purchase Price to be paid pursuant to
this Section 8.2(d) in respect of the applicable Buy/Sell
Interest being sold shall be reduced proportionately on a per Share basis for
any distributions made by the Venture after the determination of the Offer
Price and prior to the Transfer of the applicable Buy/Sell Interest.

 

(v)                                 A sale of its Buy/Sell Interest shall not
relieve the Seller from any obligations or liabilities arising under or in
connection with this Agreement prior to the closing of the sale of the Buy/Sell
Interest, including, without limitation, any obligation to repay a Default Loan
in accordance with Section 3.4, and the Purchaser shall be entitled
to withhold from the Purchase Price an amount equal to the then outstanding
principal and accrued and unpaid interest of any such Default Loan in payment
thereof.  Similarly, after the closing of
the sale of a Buy/Sell Interest the Purchaser shall remain liable to the Seller
for the amount of any Default Loan incurred by the Purchaser and outstanding on
and after the closing of such sale until the outstanding principal and any
accrued and unpaid interest of such Default Loan has been paid in full.

 

(e)                                  (i)                                     If BH MP is the Offeree pursuant to Section 8.2(a) and
elects to purchase BH REIT’s Buy/Sell Interest, or has become the Substituted
Purchaser, then BH MP shall have 150 days after the earlier of the election by
BH MP to purchase BH REIT’s Buy/Sell 

 

29

 

Interest under this Section 8.2
and the expiration of the Option Period either to purchase BH REIT’s Buy/Sell
Interest or to find a third party to form a joint venture or other joint
ownership arrangement (the “BH MP Venture”) with BH MP for the acquisition and
ownership of BH REIT’s Buy/Sell Interest. 
In the event that BH MP either decides to purchase BH REIT’s Buy/Sell
Interest or finds a third party for such joint venture or other joint ownership
arrangement for the purchase of BH REIT’S Buy/Sell Interest, BH MP shall so
notify BH REIT in writing within such 150-day period.  In such event, BH MP or the BH MP Venture, as
the case may be, shall become the “Purchaser,” BH REIT shall become the “Seller”
and the provisions in Section 8.2(d), to the extent not
inconsistent with this Section 8.2(e)(i), shall apply; provided
that, BH MP or BH MP Venture, as the case may be, shall have five (5) Business
Days after its election to proceed with the purchase to deposit its Earnest
Money in escrow.  If BH MP is the Offeror
pursuant to Section 8.2(a) and BH REIT, as the Offeree, elects
to sell its Buy/Sell Interest to BH MP, then the provisions of this Section 8.2(e)(i) shall
apply and, if BH MP does not find a third party with whom to form a joint
venture or other joint ownership arrangement and otherwise elects not to
proceed with the purchase of BH REIT’s Buy/Sell Interest, the provisions of Section 8.2(e)(ii) shall
apply.

 

(ii)                                  If BH MP does not find a third party with
whom to form a joint venture or other joint arrangement and otherwise elects
not to proceed with the purchase, or if BH MP does not notify BH REIT in
writing within the applicable 150-day period that BH MP or the BH MP Venture
will proceed with the purchase, then, subject to Section 2.6(b), BH
REIT shall have the opportunity to elect to purchase, or to have Behringer, its
Affiliate or another designee (collectively, the “Behringer Party”) purchase,
or to seek to cause the sale of, the Project in accordance with the following
procedures.

 

(A)                              The Behringer Party and BH MP shall
attempt to mutually agree on a fair market value of the Project through
negotiation for a period of ten (10) days (the “Negotiation Deadline”)
commencing upon BH MP’s election not to proceed with the purchase or the
expiration of the 150-day period, whichever is earlier.  If the Behringer Party and BH MP do not agree
upon the fair market value of the Project prior to the expiration of the
Negotiation Deadline, then either the Behringer Party or BH MP may deliver to
the other a written notice of arbitration (the “Arbitration Notice”), pursuant
to which the fair market value (the “Mark to Market Price”) of the Project
shall be determined by “baseball style” arbitration in accordance with the
provisions in paragraphs (B) through (H) of this Section 8.2(e)(ii).

 

(B)                                The Behringer Party and BH MP shall each
use reasonable efforts to agree, within ten (10) days after the delivery
of an Arbitration Notice, upon the appointment of one arbitrator to agree on a
Mark to Market Price of the Project.  If
an agreement on a single arbitrator is not reached within such 10-day period,
then the Behringer Party and BH MP shall each appoint one arbitrator within ten
(10) days after the expiration of such previous 10-day period and shall
specify the name and address of their respective arbitrators to the other party
prior to the expiration of such 10-day period; provided that, if one party
fails to specify the name and

 

30

 

address of its selected arbitrator within such 10-day
period, then the other party shall give such failing party written notice, and
if within three (3) days after such written notice the failing party still
has not specified an arbitrator, then the arbitrator selected by the other
party shall act as the sole arbitrator as if both parties had agreed to the
appointment of such arbitrator as provided above.

 

(C)                                If two arbitrators have been selected,
then such arbitrators shall then appoint a third arbitrator within ten (10) days
after their appointment.  If the first
two arbitrators are unable to agree upon a third arbitrator within such 10-day
period, then the third arbitrator shall be appointed as soon as reasonably
practicable thereafter by a court of competent jurisdiction residing in the
county in which the Project is situated, subject to the qualification
requirements set forth in paragraph (G) of this Section 8.2(e)(ii).  In the event of the failure, refusal or
inability of any arbitrator to act, a new arbitrator shall be appointed as a
replacement, which appointment shall be made in the same manner as set forth
above for the appointment of such resigning arbitrator.  Immediately after the selection of the final
arbitrator, the three arbitrators shall meet and, within fifteen (15) days
after the completion of the selection of the arbitrators shall, or, if there is
only one arbitrator, within fifteen (15) days after his selection, such
arbitrator shall, endeavor to determine the Mark to Market Price.

 

(D)                               Within ten (10) days after the
selection of the sole arbitrator or all arbitrators, as the case may be, the
Behringer Party and BH MP shall submit to the arbitrator(s) such party’s
proposed Mark to Market Price as well as all other economic terms relevant to
the determination of the Mark to Market Price, together with reasonable
evidence supporting such proposed Mark to Market Price.  The arbitrator(s) shall select either
the proposed Mark to Market Price submitted by the Behringer Party or the
proposed Mark to Market Price submitted by BH MP, whichever proposal the
arbitrator(s) deem to be the most nearly correct according to the
definitions, terms and requirements set forth in this Agreement and the
information submitted to the arbitrator(s) by the parties, with no
compromise.  The power of the arbitrator(s) shall
be exercised by the concurrence of at least two arbitrators, except that if
only one arbitrator is selected, the decision of such arbitrator shall
govern.  The proposed Mark to Market
Price selected by the arbitrator(s) shall be the “Mark to Market Price.”  The determination of the arbitrator(s) shall
be final and non-appealable, shall be binding on both BH MP and the Behringer
Party, and may be enforced in any court of competent jurisdiction.

 

(E)                                 The price (the “Buy/Sell Market Price”)
to be paid for BH MP’s Buy/Sell Interest shall be equal to the amount that BH
MP would receive assuming that the Project were sold at its Mark to Market
Price, the Subsidiary REIT and, if applicable, any subsidiary thereof owning an

 

31

 

interest in the Project were liquidated, all of their
other assets sold, their debts and other liabilities discharged, and any net
proceeds remaining were distributed to the Members in proportion to their
respective interests in the Venture. 
Within ten (10) days after the decision of the arbitrator(s) determining
the Mark to Market Price, the Behringer Party shall deliver written notice to
BH MP stating whether the Behringer Party elects (x) to purchase BH MP’s
Buy/Sell Interest at the Buy/Sell Market Price or (y) seek to obtain a
third-party purchaser for the Project. 
In the event that the Behringer Party elects to purchase BH MP’s
Buy/Sell Interest, the Behringer Party and BH MP shall close on such purchase
at the Buy/Sell Market Price payable in cash within thirty (30) days of such
election by the Behringer Party.  The
provisions of Section 8.2(d) shall, to the extent not
inconsistent with Section 8.2(e)(ii), shall apply to such
purchase.  In the event that the
Behringer Party elects to seek to obtain a third-party purchaser, the Behringer
Party shall have 150 days from such election to obtain such third-party
purchaser either to purchase (1) the Members’ entire Interests in the Venture,
or (2) all of the Venture’s Shares in the Subsidiary REIT, in either case
for a price equal to what Members would have received assuming the Project were
sold at the Mark to Market Price, the Subsidiary REIT and, if applicable, any
subsidiary thereof owning an interest in the Project were liquidated, all of
their other assets sold, their debts and liabilities discharged, and any net
proceeds remaining were distributed to the Members in proportion to their
respective interests in the Venture.  The
Behringer Party shall provide prompt written notice advising BH MP of the
identity of such third-party purchaser, if any. 
In the event that a third party is to purchase either the Interests of
the Members or the Shares owned by the Venture, the third-party purchaser shall
purchase such Interests or Shares for cash at the closing of such purchase,
which shall occur within thirty (30) days of the Behringer Party’s written
notification of the third-party purchaser’s identity.  In such event, the Mark to Market Price shall
be reduced for any distributions made by the Venture to its Members after the
determination of the Mark to Market Price and the closing of such sale.  Such sale shall not relieve either Member
from any obligations or liabilities arising under or in connection with this
Agreement prior to such sale including, without limitation any obligation to
repay a Default Loan in accordance with Section 3.4.  If, at the end of such 150-day period, the
Behringer Party has not obtained a third-party purchaser, the Behringer Party
shall advise BM MP of such fact, and the Behringer Party may, within such
150-day period, elect to purchase BM MP’s Buy/Sale Interest at the Buy/Sell
Market Price, in which event such purchase price shall be payable in cash at a
closing to be held thirty (30) days after the end of such 150-day period, and
the provisions of Section 8.2(d) shall, to the extent not
inconsistent with Section 8.2(e)(ii), apply to the purchase of BH
MP’s Buy/Sell Interest under this Section 8.2(e).  In the event that the Behringer Party does
not elect to purchase BH MP’s Buy/Sell Interest and does not 

 

32

 

find a third-party purchaser for the Project, either
BH REIT or BH MP may, at its election, re-initiate the Buy/Sell procedure in
accordance with this Section 8.2 but otherwise shall not be
obligated to purchase the other party’s Buy/Sell Interest.

 

(F)                                 The arbitrator(s) shall have the
authority to request additional facts or evidence from each of the parties and,
if such arbitrator(s) so require, a hearing to present the same.  In the event of such a hearing, rules of
evidence applicable to state court judicial proceedings in civil district
courts in Dallas, Texas shall govern; provided that, evidence will be admitted
or excluded in the sole discretion of the arbitrator(s).  The arbitrator(s) shall resolve the
controversy and shall execute and acknowledge his or their decision, together
with a brief statement describing the rationale for such decision, in writing
and simultaneously deliver a copy thereof to each of the parties personally or
by registered or certified mail, return receipt requested.  If the arbitrators fail to reach an agreement
during such 15-day period (as may be extended in accordance with the next
sentence), then they shall be discharged, and new arbitration proceedings shall
commence, with new arbitrators being appointed in the same manner as set forth
above.  By agreement in writing, the
Behringer Party and BH MP may extend the time to reach agreement either before
or after the expiration thereof up to a maximum of thirty (30) additional
days.  The period within which the
arbitrator(s) must act are not jurisdictional.

 

(G)                                Each arbitrator shall (x) be an
independent appraiser licensed under the laws of the state in which the Project
is situated, and (y) have been actively and continuously engaged in
appraising multifamily rental communities as Member of the Appraisal Institute
in the county in which the Project is situated, for not less than the previous
five years.  The arbitrator(s) selected
by the Behringer Party and BH MP shall be instructed that they are neutral
arbitrators and shall not have any ex parte
communication with the appointing party and may not be appraisers that
consulted with the Behringer Party or BH MP in negotiations regarding the Mark
to Market Price prior to the submission of the Mark to Market Price proposals
to arbitration.  In addition, the sole
arbitrator or third arbitrator, as the case may be, shall be an independent
appraiser having no relationship representing the Behringer Party, BH MP, PGGM
or their respective Affiliates during the immediately preceding 365-day period
prior to selection.

 

(H)                               Each party to the arbitration proceeding
shall bear its own costs and the costs of the arbitrator it appoints.  The cost of the third arbitrator (or the
single arbitrator if only one arbitrator is required) shall be split equally
between the Behringer Party and BH MP.

 

33

 

8.3                                 Basis Election. 
In the event that a distribution of any of the Venture’s property is
made in the manner provided in Section 734 of the Code, or where a
Transfer of an Interest in the Venture permitted by this Agreement is made in
the manner provided in Section 743 of the Code, then, upon the request of
any Member, the Venture shall file an election under Section 754 of the
Code, in accordance with procedures set forth in the applicable Treasury
regulations.  Each Member shall provide
the Venture with all information necessary to give effect to any election under
Section 754 of the Code.

 

8.4                                 Void Transfer. 
In no event shall any Interest, or any portion, thereof, be Transferred
to a minor or an incompetent or in violation of any state or Federal law or in
violation of this Article 8. 
Any such attempted Transfer shall be void and ineffectual and shall not
bind the Venture or any Member.

 

ARTICLE
9

EXCESS INTEREST PROVISIONS

 

9.1                                 Definitions.  For purposes
of this Article 9,
the following terms shall have the following meanings:

 

“Beneficial Ownership” shall mean
ownership of Interests by a Person who would be treated as an owner of such
Interests either directly or constructively through the application of Section 544
of the Code, as modified by Section 856(h)(1)(B) of the Code.  The terms “Beneficial Owner,” “Beneficially
Owns,” “Beneficially Own” and “Beneficially Owned” shall have correlative
meanings.

 

“Charitable Beneficiary” shall mean an
organization or organizations described in Sections 170(b)(1)(A) and 170(c) of
the Code and identified by the Venture as the beneficiary or beneficiaries of
the Excess Interest Trust.

 

“Excess Interest Trust” shall mean the
trust created pursuant to Section 9.14.

 

“Excess Interest Trustee” shall mean a
Person, who shall be unaffiliated with the Venture, any Purported Beneficial
Transferee and any Purported Record Transferee, identified by the Venture as
the trustee of the Excess Interest Trust.

 

“Excess Interests” shall have the
meaning given to it in Section 9.3(a).

 

“Existing Holder” shall mean (a) each
of BH MP and BH REIT and (b) any Person to whom an Existing Holder
Transfers, subject to the limitations provided in this Agreement, Beneficial
Ownership of Interests causing such transferee to Beneficially Own Interests in
excess of the Ownership Limit.

 

“Existing Holder Limit” (a) for
the Members shall mean, initially, 45% in the case of BH MP and 55% in the case
of BH REIT of the Interests, and, after any adjustment pursuant to Section 9.9,
shall mean such percentage of the outstanding Interests, as the case may be, as
so adjusted, and (b) for any Existing Holder who becomes an Existing
Holder by virtue of clause (b) of the definition thereof, shall mean,
initially, the percentage of the outstanding Interests 

 

34

 

Beneficially Owned by
such Existing Holder at the time that such Existing Holder becomes an Existing
Holder, but in no event shall such percentage be greater than the Existing
Holder Limit for the Existing Holder who Transferred Beneficial Ownership of
such Interests or, in the case of more than one transferor, in no event shall
such percentage be greater than the smallest Existing Holder Limit of any
transferring Existing Holder, and, after any adjustment pursuant to Section 9.9,
shall mean such percentage of the outstanding Interests as so adjusted.

 

“Market Price” shall mean the market
price of such class of Interests on the relevant date as determined in good
faith by the Manager.

 

“Ownership Limit” shall initially mean
9.8% in number of the Interests or value of the outstanding Interests, and
after any adjustment as set forth in Section 9.10, shall mean such
greater percentage of the outstanding Interests as so adjusted.  The number and value of the outstanding
Interests of the Venture shall be determined by the Manager in good faith,
which determination shall be conclusive for all purposes hereof.

 

“Person” shall mean an individual,
corporation, partnership, estate, trust (including, without limitation, a trust
qualified under Section 401(a) or 501(c)(17) of the Code), portion of
a trust permanently set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint
stock company or other Entity.

 

“Prohibited Owner Event” has the meaning
provided in Section 9.3(c).

 

“Purported Beneficial Transferee” shall
mean, with respect to any purported Transfer which results in Excess Interests,
the beneficial holder of the Interests, if such Transfer had been valid under Section 9.2.

 

“Purported Record Transferee” shall
mean, with respect to any purported Transfer which results in Excess Interests,
the record holder of the Interests, if such Transfer had been valid under Section 9.2.

 

“Redemption Price” has the meaning
provided in Section 9.18.

 

“Restriction Termination Date” shall
mean the first day on which the Venture determines that it is no longer in the
best interests of the Subsidiary REIT to attempt to, or continue to, qualify as
a REIT.

 

9.2                                 Ownership Limitation.

 

(a)                                  Except as provided in Section 9.12,
until the Restriction Termination Date, no Person (other than an Existing
Holder) shall Beneficially Own Interests in excess of the Ownership Limit and
no Existing Holder shall Beneficially Own Interests in excess of the Existing
Holder Limit for such Existing Holder.

 

(b)                                 Except as provided in Section 9.12,
until the Restriction Termination Date, any Transfer that, if effective, would
result in any Person (other than an Existing Holder) Beneficially Owning
Interests in excess of the Ownership Limit shall be void ab initio as
to the 

 

35

 

Transfer of the Interests
which would otherwise be Beneficially Owned by such Person in excess of the
Ownership Limit; and the intended transferee shall acquire no rights in such
Interests.

 

(c)                                  Except as provided in Sections 9.9
and 9.12,
until the Restriction Termination Date, any Transfer that, if effective, would
result in any Existing Holder Beneficially Owning Interests in excess of the
applicable Existing Holder Limit shall be void ab initio as to the Transfer of
the Interests which would be otherwise Beneficially Owned by such Existing
Holder in excess of the applicable Existing Holder Limit; and such Existing
Holder shall acquire no rights in such Interests.

 

(d)                                 Until the Restriction Termination Date,
any Transfer that, if effective, would result in the Venture (treating the
Venture as if it otherwise qualified as a REIT solely for this purpose) being “closely
held” within the meaning of Section 856(h) of the Code shall be void ab initio as
to the Transfer of the Interests which would cause the Venture (treating the
Venture as if it otherwise qualified as a REIT solely for this purpose) to be “closely
held” within the meaning of Section 856(h) of the Code; and the
intended transferee shall acquire no rights in such Interests.

 

(e)                                  Until the Restriction Termination Date,
any Transfer that, if effective, would result in the Venture (treating the
Venture as if it otherwise qualified as a REIT solely for this purpose)
otherwise failing to qualify as a REIT shall be void ab initio as to the Transfer of
Interests that would result in the Venture (treating the Venture as if it
otherwise qualified as a REIT solely for this purpose) failing to qualify as a
REIT; and the intended transferee shall acquire no rights in such Interests.

 

(f)                                    Until the Restriction Termination Date,
any Transfer that, if effective, would result in the Venture (treating the
Venture as if it otherwise qualified as a REIT solely for this purpose)
becoming a “pension-held REIT” as defined in Section 856(h) of the
Code shall be void ab initio as
to the Transfer of Interests which would result in the Venture (treating the
Venture as if it otherwise qualified as a REIT solely for this purpose)
becoming a “pension-held REIT;” and the intended transferee shall acquire no
rights in such Interests.

 

(g)                                 Until the Restriction Termination Date,
any Transfer that would result in the Venture (treating the Venture as if it
otherwise qualified as a REIT solely for this purpose) not maintaining its
status as a Domestically-Controlled REIT shall be void ab initio as to the Transfer of Interests
which would result in the Venture (treating the Venture as if it otherwise
qualified as a REIT solely for this purpose) failing to maintain its status as
a Domestically-Controlled REIT; and the intended transferee shall acquire no
rights in such Interests.

 

9.3                                 Excess Interests.

 

(a)                                  If, notwithstanding the other provisions
contained in this Article 9,
at any time, until the Restriction Termination Date, there is a purported
Transfer or other change in the capital structure of the Venture such that any
Person would Beneficially Own Interests in excess of the applicable Ownership
Limit or Existing Holder Limit (as applicable), then, except as otherwise
provided in Sections
9.9 and 9.12, the Interests Beneficially Owned
in excess of such Ownership Limit or Existing Holder Limit (rounded up to the
nearest whole Interest) shall 

 

36

 

constitute “Excess Interests” and shall be
treated as provided in this Article 9.  Such designation and treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure.

 

(b)                                 If, notwithstanding the other provisions
contained in this Article 9,
at any time, until the Restriction Termination Date, there is a purported
Transfer or other change in the capital structure of the Venture (as a result
of a direct or indirect Transfer or otherwise) which, if effective, would cause
the Venture (treating the Venture as if it otherwise qualified as a REIT solely
for this purpose) to (i) become “closely held” within the meaning of Section 856(h) of
the Code, (ii) become a “pension-held REIT” within the meaning of Section 856(h) of
the Code, (iii) fail to qualify as a Domestically-Controlled REIT or (iv) otherwise
fail to qualify as a REIT, then the Interests that are the subject of such
Transfer or other event which would cause the Venture to fail such requirement
shall constitute “Excess Interests” and shall be treated as provided in this Article 9.  Such designation and treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure.

 

(c)                                  If, at any time prior
to the Restriction Termination Date, notwithstanding the other provisions
contained in this Article 9, there is an event (a “Prohibited Owner
Event”) which would result in the disqualification of the Venture as
a REIT under the Code (treating the Venture as if it otherwise qualified
as a REIT solely for this purpose) by virtue of
actual, Beneficial or constructive ownership of Interests, then Interests which
result in such disqualification shall be automatically exchanged for an equal
number of Excess Interests to the extent necessary to avoid such
disqualification.  Such exchange shall be
effective as of the close of business on the business day prior to the date of
the Prohibited Owner Event.  In
determining which Interests are exchanged, Interests owned directly or
indirectly by any Person who caused the Prohibited Owner Event to occur shall
be exchanged before any Interests not so held are exchanged.  If similarly situated Persons exist, such
exchange shall be pro rata.  If the Venture is still so disqualified as a REIT (treating the Venture as if it
otherwise qualified as a REIT solely for this purpose), Interests owned directly or indirectly by Persons who did not cause the
Prohibited Owner Event to occur shall be chosen by random lot and exchanged for
Excess Interests until the Venture is no
longer so disqualified as a REIT (treating the Venture as if it
otherwise qualified as a REIT solely for this purpose).

 

9.4                                 Prevention of Transfer. 
If the Venture or its designee shall at any time determine in good faith
that a Transfer has taken place in violation of Section 9.2 or that a Person
intends to acquire or has attempted to acquire beneficial ownership (determined
without reference to any rules of attribution) or Beneficial Ownership of
any Interests in violation of Section 9.2, the Venture or its
designee shall take such action as it deems advisable to refuse to give effect
to or to prevent such Transfer, including, without limitation, refusing to give
effect to such Transfer on the books of the Venture or instituting proceedings
to enjoin such Transfer; provided, however, that any Transfers
or attempted Transfers in violation of paragraph (b), (c), (d), (e), (f) or
(g) Section 9.2
shall automatically result in the designation and treatment described in Section 9.3,
irrespective of any action (or non-action) by the Venture.

 

9.5                                 Notice.  Any Person
who acquires or attempts to acquire Interests in violation of Section 9.2,
or any Person who is a transferee such that Excess Interests result under Section 9.3,
shall immediately give written notice or, in the event of a proposed or
attempted Transfer, shall 

 

37

 

give at least fifteen
(15) days prior written notice to the Venture of such event and shall provide
to the Venture such other information as the Venture may request in order to
determine the effect, if any, of such Transfer or attempted Transfer on the
Subsidiary REIT’s status as a REIT.

 

9.6                                 Information for the Venture.  Until the
Restriction Termination Date:

 

(a)                                  Every Beneficial Owner of more than 1⁄2 of
1% of the number or value of outstanding Interests shall, within thirty (30)
days after January 1 of each year, give written notice to the Venture
stating the name and address of such Beneficial Owner, the number of Interests
Beneficially Owned, and a description of how such Interests are held.  Each such Beneficial Owner shall provide to
the Venture such additional information as the Venture may reasonably request
in order to determine the effect, if any, of such Beneficial Ownership on the
Subsidiary REIT’s status as a REIT.

 

(b)                                 Each Person who is a Beneficial Owner of
Interests and each Person who is holding Interests for a Beneficial Owner shall
provide to the Venture in writing such information with respect to direct,
indirect and constructive ownership of Interests as the Venture deems
reasonably necessary to comply with the provisions of the Code applicable to a
real estate investment trust, to determine the Subsidiary REIT’s status as a
REIT, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.

 

9.7                                 Other Action by Venture. 
Nothing contained in this Article 9 shall limit the
authority of the Venture to take such other action as it deems necessary or
advisable to protect the Venture, the Subsidiary REIT and the interests of
their respective members by preservation of the Subsidiary REIT’s status as a
REIT.

 

9.8                                 Ambiguities.  In the case
of an ambiguity in the application of any of the provisions of this Article 9,
including, without limitation, any definition contained in Section 9.1,
the Venture shall have the power to interpret and determine the application of
the provisions of this Article 9
with respect to any situation based on the facts known to the Venture.

 

9.9                                 Modification of Existing Holder Limits. 
The Existing Holder Limits may be modified as follows:

 

(a)                                  Subject to the limitations provided in Section 9.11,
the Venture may grant options which result in Beneficial Ownership of Interests
by an Existing Holder pursuant to an option plan approved by the Venture.  Any such grant shall increase the Existing
Holder Limit for the affected Existing Holder to the maximum extent possible
under Section 9.11
to permit the Beneficial Ownership of the Interests issuable upon the exercise
of such option.

 

(b)                                 The Venture shall reduce the Existing
Holder Limit for any Existing Holder after any Transfer permitted in this Article 9
by such Existing Holder by the percentage of the outstanding Interests so
Transferred or after the lapse (without exercise) of an option described in
paragraph (a) of this Section 9.9 by the percentage of
the Interests that the option, if exercised, would have represented, but in
either case no Existing Holder Limit shall be reduced to a percentage which is
less than the Ownership Limit.

 

38

 

9.10                           Increase or Decrease in Ownership Limit. 
Subject to the limitations provided in Section 9.11, the Venture may
from time to time increase or decrease the Ownership Limit; provided, however, that any decrease
may only be made prospectively as to subsequent holders (other than a decrease
as a result of a retroactive change in existing law that would require a
decrease to retain the Subsidiary REIT’s status as a REIT, in which case such
decrease shall be effective immediately).

 

9.11                           Limitations on Changes in Existing Holder and
Ownership Limits.

 

(a)                                  Neither the Ownership Limit nor any
Existing Holder Limit may be increased (nor may any additional Existing Holder
Limit be created) if, after giving effect to such increase (or creation), five (5) Beneficial
Owners of Interests (including, without limitation, all of the then Existing
Holders) could Beneficially Own, in the aggregate, more than 49.9% in number or
value of the outstanding Interests.

 

(b)                                 Prior to the modification of any Existing
Holder Limit or Ownership Limit pursuant to Sections 9.9 or 9.10, the
Venture may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or
ensure the Subsidiary REIT’s status as a REIT.

 

(c)                                  No Existing Holder Limit shall be reduced
to a percentage which is less than the Ownership Limit.

 

9.12                           Waivers by Venture. 
The Venture, upon receipt of a ruling from the Internal Revenue Service
or an opinion of counsel or other evidence satisfactory to the Manager and upon
at least fifteen (15) days written notice from a transferee prior to the
proposed Transfer which, if consummated, would result in the intended
transferee owning Interests in excess of the Ownership Limit or the Existing
Holder Limit, as the case may be, and upon such other conditions as the Venture
may direct, may waive the Ownership Limit or the Existing Holder Limit, as the
case may be, with respect to such transferee.

 

9.13                           Severability.  If any
provision of this Article 9
or any application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions shall be affected only to the extent
necessary to comply with the determination of such court.

 

9.14                           Trust for Excess Interests. 
Upon any purported Transfer that results in Excess Interests pursuant to
Section 9.3,
such Excess Interests shall be deemed to have been transferred to the Excess
Interest Trustee, as trustee of the Excess Interest Trust for the exclusive
benefit of the Charitable Beneficiary. 
Excess Interests so held in trust shall be issued and outstanding
Interests of the Venture.  The Purported
Beneficial Transferee shall have no rights in such Excess Interests except as
provided in Section 9.17.

 

9.15                           Distributions on Excess Interests. 
Any distributions (whether as dividends, distributions upon liquidation,
dissolution or winding up or otherwise) on Excess Interests shall be paid to
the Excess Interest Trust for the benefit of the Charitable Beneficiary.  Upon liquidation, dissolution or winding up,
the Purported Record Transferee shall receive the lesser of (a) the amount
of any distribution made upon liquidation, dissolution or winding up or (b) the

 

39

 

price paid by the
Purported Record Transferee for the Interests, or if the Purported Record
Transferee did not give value for the Interests, the Market Price of the
Interests on the day of the event causing the Interests to be held in
trust.  Any such dividend paid or
distribution paid to the Purported Record Transferee in excess of the amount
provided in the preceding sentence prior to the discovery by the Venture that
the Interests with respect to which the dividend or distribution was made had
been exchanged for Excess Interests shall be repaid by the Purported Record
Transferee to the Excess Interest Trust for the benefit of the Charitable
Beneficiary.

 

9.16                           Voting of Excess Interests.  The
Excess Interest Trustee shall be entitled to vote the Excess Interests for the
benefit of the Charitable Beneficiary on any matter.  Subject to Delaware law, any vote taken by a
Purported Record Transferee prior to the discovery by the Venture that the
Excess Interests were held in trust shall be rescinded ab initio.  The owner of the Excess Interests shall be
deemed to have given an irrevocable proxy to the Excess Interest Trustee to
vote the Excess Interests for the benefit of the Charitable Beneficiary.

 

9.17                           Non-Transferability of Excess Interests. 
Excess Interests shall be transferable only as provided in this Section 9.17.
At the direction of the Venture, the Excess Interest Trustee shall Transfer the
Interests held in the Excess Interest Trust to a person whose ownership of the
Interests will not violate the Ownership Limit or Existing Holder Limit and for
whom such Transfer would not be wholly or partially void pursuant to Section 9.2.  Such Transfer shall be made within sixty (60)
days after the latest of (x) the date of the Transfer which resulted in
such Excess Interests and (y) the date the Venture determines in good
faith that a Transfer resulting in Excess Interests has occurred, if the
Venture does not receive a notice of such Transfer pursuant to Section 9.5.  If such a Transfer is made, the interest of
the Charitable Beneficiary shall terminate and proceeds of the sale shall be
payable to the Purported Record Transferee and to the Charitable Beneficiary.  The Purported Record Transferee shall receive
the lesser of the price paid by the Purported Record Transferee for the
Interests or, if the Purported Record Transferee did not give value for the
Interests, the Market Price of the Interests on the day of the event causing
the Interests to be held in trust, and the price received by the Excess
Interest Trust from the sale or other disposition of the Interests.  Any proceeds in excess of the amount payable
to the Purported Record Transferee shall be paid to the Charitable
Beneficiary.  Prior to any Transfer of
any Excess Interests by the Excess Interest Trustee, the Venture must have
waived in writing its purchase rights under Section 9.18.  It is expressly understood that the Purported
Record Transferee may enforce the provisions of this Section 9.17 against the
Charitable Beneficiary.

 

If any of the foregoing restrictions on Transfer of
Excess Interests is determined to be void, invalid or unenforceable by any
court of competent jurisdiction, then the Purported Record Transferee may be
deemed, at the option of the Venture, to have acted as an agent of the Venture
in acquiring such Excess Interests and to hold such Excess Interests on behalf
of the Venture.

 

9.18                           Call by the Venture on Excess Interests. 
Excess Interests shall be deemed to have been offered for sale to the
Venture, or its designee, at a price per Interest equal to the lesser of the
price per Interest in the transaction that created such Excess Interests (or,
in the case of a devise, gift or other transaction in which no value was given
for such Excess Interests, the Market Price at the time of such devise, gift or
other transaction) and the Market Price of the Interests to which such Excess
Interests relates on the date the Venture, or its designee, accepts

 

40

 

such offer (the “Redemption Price”).  The Venture shall have the right to accept
such offer for a period of ninety (90) days after the later of (x) the
date of the Transfer which resulted in such Excess Interests and (y) the
date the Manager determines in good faith that a Transfer resulting in Excess
Interests has occurred, if the Venture does not receive a notice of such
Transfer pursuant to Section 9.5
but in no event later than a permitted Transfer pursuant to and in compliance
with the terms of Section 9.17.  Unless the Manager determines that it is in
the interests of the Venture to make earlier payments of all of the amount
determined as the Redemption Price per Interest in accordance with the
preceding sentence, the Redemption Price may be payable at the option of the
Venture at any time up to but not later than one year after the date the
Venture accepts the offer to purchase the Excess Interests.  In no event shall the Venture have an
obligation to pay interest to the Purported Record Transferee.

 

ARTICLE
10

DISSOLUTION OF VENTURE

 

10.1                           Bankruptcy of Member.

 

(a)                                  The Bankruptcy, insolvency, termination,
dissolution, liquidation or other cessation or assignment for the benefit of
creditors by, any Member (each a “Bankruptcy Event”), or, except as otherwise
permitted in accordance with Article 8, the withdrawal of any
Member, shall dissolve the Venture, unless within 90 days after notice is given
to the other Member of the occurrence of such event, the remaining Member
elects to continue the business of the Venture. 
The Member suffering a Bankruptcy Event (or its legal representative) or
withdrawing from the Venture, except as otherwise permitted in accordance with Article 8,
is hereby deemed to Consent to the continuation of the business of the Venture.  In the event of a Bankruptcy Event with
respect to BH REIT or a withdrawal of BH REIT as the Manager of the Venture,
the Venture shall file an amendment to the Venture’s Certificate removing BH
REIT as the Manager of the Venture.

 

(b)                                 For purposes of this Agreement, the “Bankruptcy”
a Member shall be deemed to have occurred upon the happening of any of the
following:  (i) the filing of an
application by the Member for, or a consent to, the appointment of a trustee of
its assets, (ii) the filing by the Member of a voluntary petition for
relief as a debtor under the United States Bankruptcy Code or the filing of a
pleading in any court of record admitting in writing its inability to pay its
debts as they come due, (iii) the making by the Member of a general
assignment for the benefit of creditors or (iv) the expiration of 60 days
following the entry of an order, judgment or decree by any court of competent
jurisdiction adjudicating the Member a bankrupt or appointing a trustee of its
assets.

 

10.2                           Other Events of Dissolution. 
The happening of any one of the following events shall work a
dissolution of the Venture:

 

(i)                                     The reduction to cash or cash equivalents
of all Venture assets;

 

(ii)                                  The agreement in writing to dissolution
by the Members; or

 

41

 

(iii)                               The termination of the term of the
Venture pursuant to Section 2.4 of this Agreement.

 

Each Member waives the right
to cause a dissolution of the Venture in any other way.  Dissolution of the Venture shall be effective
on the day on which the event occurs which gives rise to the dissolution, but
the Venture shall not terminate until the assets of the Venture shall have been
distributed as provided herein and a certificate of cancellation of the Certificate
has been filed with the Secretary of State of the State of Delaware.

 

10.3                           Distribution Upon Liquidation.

 

(a)                                  Upon dissolution of the Venture, unless
the business of the Venture is continued as provided above, the Manager (or, in
the event that the dissolution is caused by a Bankruptcy Event with respect to
the Manager, such Person, other than the Manager,  as the Members shall designate as liquidator
of the Venture) shall act as (“Liquidator”). 
The Liquidator shall wind up the affairs of the Venture, shall sell such
of the assets of the Venture as it deems necessary or appropriate in accordance
with Section 2.6(b)), and (i) any resulting gain or loss from
each sale plus (ii) the fair market value of such property which has not
been sold shall be determined and income, gain, loss or deduction inherent in
such property (which has not been reflected in the Capital Accounts previously)
shall be allocated among the Members as provided in Section 4.1
and, after paying all debts and liabilities of the Venture, including all costs
of dissolution, shall distribute any remaining Venture property along with any
cash received from the sale of the property as follows:

 

(i)                                     The Liquidator may set up any reserve it
deems reasonably necessary for any contingent liabilities or obligations of the
Venture arising out of or in connection with the Venture.  Such reserve may be paid over by the
Liquidator to a bank or trust company to act as escrow agent.  Any such escrow agent shall hold such
reserves for payment of any of the aforementioned contingencies, and, at the
expiration of such period as the Liquidator shall designate, distribute the
balance thereafter remaining in the manner hereinafter provided.

 

(ii)                                  Cash and all other assets of the Venture
not sold pursuant to this Section 10.3 will be distributed among
the Members in the same manner as Net Cash Flow in accordance with Section 5.1.

 

(b)                                 The Members shall continue to share
income, loss and other tax items during the period of such Liquidation in the
same proportions as before dissolution. 
Subject to Sections 2.6(b) the Liquidator shall determine
whether to sell any Venture property, and, if so, whether at a public or
private sale, for what price, and on what terms.  If the Liquidator determines to sell or
otherwise dispose of any Venture property or any interest therein, the
Liquidator shall not be required to do so promptly but shall do so in an
orderly and commercially reasonable manner so as to avoid a distress sale.

 

(c)                                  The obligation of any Member to the
Venture or any other Member that shall have accrued and be unsatisfied as of
the date of dissolution or termination of the Venture shall survive such
dissolution or termination.

 

42

 

(d)                                 Each Member shall look solely to the
assets of the Venture for all distributions with respect to the Venture, its
Capital Account and its share of income, loss and other tax items, and shall
have no recourse therefor (upon dissolution or otherwise) against the Manager,
any other Member, the Liquidator or any of their Affiliates.

 

10.4                           Procedural and Other Matters.

 

(a)                                  Upon dissolution of the Venture and until
the filing of a certificate of cancellation, the Liquidator may, in the name
of, and for and on behalf of, the Venture, prosecute and defend suits, whether
civil, criminal or administrative, gradually settle and close the business of
the Venture, dispose of and convey the property of the Venture, discharge or
make reasonable provision for the liabilities of the Venture and distribute to
the Members any remaining assets of the Venture, in accordance with this Article 10
and all without affecting the liability of the Members or the Manager and
without imposing liability on the Liquidator.

 

(b)                                 The Certificate may be canceled upon the
dissolution and the completion of winding-up of the Venture by any Person
authorized to cause such cancellation in connection with such dissolution and
winding-up.

 

ARTICLE
11

REPRESENTATIONS AND WARRANTIES

 

11.1                           Representations and Warranties of the Members. 
Each of the Members hereby represents and warrants to the other Member
as follows:

 

(a)                                  Such Member is a corporation or other
Entity duly formed and validly existing under the laws of the jurisdiction of
its organization with all requisite power and authority to own its assets and
to carry on its business as now being conducted.  Such Member has all requisite power and
authority to enter into this Agreement and the other agreements contemplated to
be entered into by it in connection herewith and to carry out the transactions
contemplated hereby and thereby.

 

(b)                                 The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of such Member.  This Agreement has been executed and
delivered by a duly authorized officer of such Member and constitutes the valid
and binding obligation of such Member, enforceable against such Member in
accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditor’s rights and to general principles of equity.

 

(c)                                  The execution, delivery and performance
by such Member of this Agreement and all other agreements contemplated hereby
to which it is to be a party do not and will not (i) violate any decree or
judgment of any court of governmental authority that may be applicable to such
Member; (ii) violate any law (or regulation promulgated under any law); (iii) violate
or conflict with, or result in a breach of, or constitute a default (or an
event with or without notice or lapse of time or both would constitute a
default) under any contract or 

 

43

 

agreement to which such
Member is a party; or (iv) violate or conflict with any provision of the
organizational documents of such Member.

 

(d)                                 No broker, finder, agent or other third
party has been employed by or on behalf of such Member (or any partner, member,
shareholder or advisor thereof) in connection with the negotiation or
consummation of this Agreement or any of the transactions contemplated hereby,
and no such party has any claim for any commission, finder’s fee or similar
amount payable as a result of any engagement of such party by or on behalf of
such Member.

 

(e)                                  Such Member has acquired its Interest in
the Venture for investment purposes and has not acquired its Interest in the
Venture for the purpose of selling its Interest in the Venture, or causing the
Venture to sell its assets, to customers in the ordinary course of a trade or
business.

 

ARTICLE
12

BOOKS AND RECORDS; REPORTS TO MEMBERS

 

12.1                           Books.  The Manager
shall maintain or cause to be maintained separate, full and accurate books and
records of the Venture, and each Member or any authorized representative of any
Member shall have the right to freely inspect, examine and copy the same and to
meet with employees of the Manager responsible for preparing the same at
reasonable times during business hours and upon reasonable notice.  In addition, the Manager agrees to provide
each Member, its representatives and an independent accounting firm (if any)
designated by such Member reasonable access to all such books and records,
during which such Member or such accounting firm may conduct an audit of the
Venture.  The cost of any such audit
shall be borne by the requesting Member unless an error is discovered which has
had the effect of reducing or increasing such Member’s distributions from the
Venture by an amount equal to or greater than five percent (5%), in which case
the Venture shall bear the cost of the audit.

 

12.2                           Quarterly Reports. 
The Manager shall prepare and distribute to the Members a quarterly
report with respect to the Venture within 75 days of the last day of each of
the first three fiscal quarters of a fiscal year prepared in accordance with
U.S. GAAP, consistently applied, including (i) a balance sheet, (ii) a
profit and loss statement, (iii) a statement showing cash distributions
for such fiscal quarter and for the year to date, (iv) a statement showing
computation of related party fees and Member distributions for such fiscal
quarter and for the year to date, and (v) a report briefly describing any
significant variances from the applicable budget line item in the Venture’s
Initial Operating Plan or Subsequent Operating Plan.

 

12.3                           Annual Reports. 
The Manager shall engage Deloitte & Touche LLP or such other
nationally recognized independent registered public accounting firm selected by
the Manager with the Consent of the Members to examine and audit the Venture’s
books and records.  Within 120 days after
the end of each fiscal year, or as soon as practicable thereafter, the Manager
shall distribute to the Members financial statements with respect to the
Venture, which shall include the items set forth in clauses (i)-(v) of
Section 12.2 with respect to such fiscal year and which shall be
prepared in accordance with U.S. GAAP, consistently applied, and shall be
audited by the Venture’s independent registered public accounting firm.

 

44

 

12.4                           Accountants; Tax Returns. 
The Manager shall engage Deloitte & Touche LLP or such other
nationally recognized independent registered public accounting firm selected by
the Manager and approved by the Members to review, or to sign as preparer, all
federal, state and local Tax Returns that the Venture is required to file.  The Manager will furnish to each Member
within 120 days after the end of each fiscal year, or as soon thereafter as is
practicable, a Schedule K-1 or such other statement as is required by the
Internal Revenue Service that sets forth such Member’s share of the income,
gain, loss, deduction and other relevant fiscal items of the Venture for such
fiscal year.  Each Member shall be
entitled to receive, upon request, copies of all federal, state and local
income Tax Returns and information returns, if any, that the Venture is
required to file.

 

12.5                           Accounting and Fiscal Year. 
The Venture books and records shall be kept on the accrual basis.  The fiscal year of the Venture shall end on December 31.

 

12.6                           Project Valuations. 
Unless the Venture is to receive a report of a real estate valuation
firm set forth in the next sentence, the Manager shall cause the Venture,
within 30 days after the end of each semi-annual fiscal period, to have
prepared and to provide to the Members, with a copy to PGGM, an estimate of the
market value of the Venture, based on traditional real estate principles. In
addition, commencing at the end of the fiscal year that is four years after the
later of (x) the receipt of a certificate of occupancy for the Project and
(y) the acquisition of the Project, the Manager, on behalf of the Venture,
shall engage the services of a reputable real estate valuation firm to prepare
and deliver an annual report to the Members, with a copy to PGGM, estimating
the market value of the Project, based on traditional real estate
principles.  All costs and expenses associated
with the engagement by the Venture for the valuation by such real estate
valuation firm shall be borne by the Venture.

 

ARTICLE
13

MISCELLANEOUS

 

13.1                           Notices.  All notices
and demands under this Agreement shall be in writing and may be either
delivered personally (which shall include deliveries by courier), by telefax,
telex or other wire transmission or by email (with request for assurance of
receipt in a manner appropriate with respect to communications of that type,
provided that a confirmation copy is concurrently sent by an internationally
recognized express courier for overnight delivery, if possible) or mailed,
postage prepaid, by registered air mail, return receipt requested:

 

If to BH MP, addressed as
follows:

 

Behringer Harvard Master
Partnership I LP

15601 Dallas Parkway, Suite 600

Addison, Texas 75001

Attention:  Gerald J. Reihsen, Esq.

Facsimile:  (469) 341-0540

Email:  greihsen@behringerharvard.com

 

45

 

with a copy to:

 

Stichting
Pensioenfonds voor de Gezondheid,

Geestelijke
en Maatschappelijke Belangen

Kroostweg-Noord
149

P.O. Box
117

3700
AC Zeist

The Netherlands

Attention:  Werner Sohier

Facsimile:  011.31.30.277 4724

Email:  werner.sohier@pggm.nl

 

with a copy to:

 

Stichting
Pensioenfonds voor de Gezondheid,

Geestelijke
en Maatschappelijke Belangen

Kroostweg-Noord
149

P.O. Box
117

3700
AC Zeist

The Netherlands

Attention:  Gert-Jaap Das

Facsimile:  011.31.30.277 9191

Email:  gert.jaap.das@pggm.nl

 

If to BH REIT (whether as
Manager or a Member), addressed as follows:

 

Behringer Harvard Waterford
Place, LLC

15601 Dallas Parkway, Suite 600

Addison, Texas 75001

Attention: Gerald J. Reihsen, Esq.

Facsimile: (469) 341-0540

Email:
greihsen@behringerharvard.com

 

Unless delivered personally
or by telefax, telex or other wire transmission or by email as above (which
shall be deemed delivered on the next Business Day following the date of such
personal delivery or transmission or email, provided that such day is a
Business Day in the recipient’s jurisdiction, or otherwise on the following
Business Day in such jurisdiction), any notice shall be deemed to have been
given when received by its addressee. 
Any party hereto may designate a different address to which notices and
demands shall thereafter be directed by written notice given in the same manner
and directed to the other parties at their offices hereinabove set forth.

 

13.2                           Execution in Counterparts. 
This Agreement may be executed in several counterparts, each of which
shall be deemed an original but all of which shall constitute one and the some
instrument.  In addition, this Agreement
may contain more than one counterpart of the signature page, and this Agreement
may be executed by the affixing of the signature (or one of the several
signatures) of the Manager and each of the Members to any of such counterpart
signature pages; all of such counterpart signature pages shall be read as
though one, and they 

 

46

 

shall have the same force
and effect as though all of the signers had signed a single signature page.

 

13.3                           Amendments.  This
Agreement may be amended only with the unanimous written Consent of the Manager
and the Members.  Any waiver of any
provision of this Agreement shall require the Consent of the Party from whom
such waiver is sought.

 

13.4                           Additional Documents. 
The Manager may cause to be filed with any governmental agency any
Applications for Authority and, where applicable, certificates of cancellation
or certificates or statements of dissolution as may be required or permitted by
the laws of the State of Delaware and any other jurisdiction where the Venture
is organized or doing business.  Each
party hereto agrees to execute, with acknowledgment or affidavit, if required
by the Manager, any and all documents and writings that may be necessary or
expedient in connection with the creation of the Venture and the achievement of
its purposes, provided that no such document may modify this Agreement.

 

13.5                           Validity.  If any
provision of this Agreement or the application of such provision to any Person
or circumstance shall be held invalid, the remainder of this Agreement or the
application of such provision to Persons or circumstances other than those with
respect to which it is held invalid, shall not be affected thereby and shall continue
to be binding and in force.

 

13.6                           Governing Law. 
This Agreement and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the internal laws of the State of
Delaware.  Except as otherwise provided
herein, the rights and obligations of the Manager and the Members and the
administration and termination of the Venture shall be governed by the Act.

 

13.7                           Waiver.  The waiver by
any party hereto of the breach of any term, covenant, agreement or condition
herein contained shall not be deemed a waiver of any subsequent breach of the
same or any other term, covenant, agreement or condition herein, nor shall any
custom, practice or course of dealings arising among the parties hereto in the
administration hereof be construed as a waiver or diminution of the right of
any party hereto to insist upon the strict performance by any other party
hereto of the terms, covenants, agreements and conditions herein contained.

 

13.8                           Consent and Approval. 
Whenever under this Agreement the Consent of any Member is required or
permitted, such Consent may be evidenced by a written consent signed by an
authorized representative of such Member.

 

13.9                           Waiver of Partition. 
The Members hereby agree that the assets of the Venture are not and will
not be suitable for partition. 
Accordingly, each of the Members hereby irrevocably waives any and all
rights (if any) that it may have to maintain any action for partition of any of
the assets of the Venture.

 

13.10                     Binding Effect. 
Except as herein otherwise provided, this Agreement shall be binding
upon and inure to the benefit of the parties, their legal representatives,
heirs, administrators, executors, successors and permitted assigns.

 

47

 

13.11                     Entire Agreement. 
This Agreement constitutes the entire agreement among the parties with
respect to the formation and operation of the Venture; it supersedes any prior
agreements or understandings among them and it may not be modified or amended
in any manner other than pursuant to Section 13.3.

 

13.12                     Captions.  Captions and
headings contained in this Agreement are inserted only as a matter of
convenience and in no way define, limit or extend the scope of this Agreement
or any provision hereof.

 

13.13                     No Strict Construction. 
The language used in this Agreement is that chosen by the parties hereto
to express their mutual understanding and agreement, and no rule of strict
construction shall be applied against any Person in interpreting this
Agreement.

 

13.14                     Identification. 
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in either the masculine or the neuter gender shall include the
masculine, feminine and neuter.

 

13.15                     Recourse to the Manager. 
ANYTHING CONTAINED HEREIN TO THE CONTRARY NOTWITHSTANDING, NO PERSONAL
LIABILITY OR PERSONAL DEFICIENCY JUDGMENT SHALL BE ASSERTED OR ENFORCED AGAINST
ANY MEMBERS OF THE MANAGER, AGAINST THE DIRECTORS, TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, MEMBERS, SHAREHOLDERS OR PRINCIPALS OF THE MANAGER OR ITS
MEMBERS, OR AGAINST THE ASSETS OF ANY SUCH PARTIES, FOR PAYMENT OF ANY AMOUNT
HEREUNDER OR FOR OBSERVANCE OR PERFORMANCE OF ANY OF THE OBLIGATIONS OF THE
MANAGER OR THE VENTURE.

 

13.16                     Recourse to the Members. 
ANYTHING CONTAINED HEREIN TO THE CONTRARY NOTWITHSTANDING, NO PERSONAL
LIABILITY OR PERSONAL DEFICIENCY JUDGMENT SHALL BE ASSERTED OR ENFORCED AGAINST
ANY MEMBERS, PARTNERS OR SHAREHOLDERS OF EITHER MEMBER, AGAINST THE DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS, MEMBERS, SHAREHOLDERS OR PRINCIPALS OF
EITHER MEMBER OR ANY SUCH MEMBERS, PARTNERS OR SHAREHOLDERS OF A MEMBER, OR
AGAINST THE ASSETS OF ANY SUCH PARTIES, FOR PAYMENT OF ANY AMOUNT HEREUNDER OR
FOR OBSERVANCE OR PERFORMANCE OF ANY OF THE OBLIGATIONS OF SUCH MEMBER OR THE
VENTURE.

 

13.17                     Remedies Not Exclusive. 
Any remedies herein contained for breaches of obligations hereunder
shall not be deemed to be exclusive and shall not impair the right of any party
to exercise any other right or remedy, whether for damages, injunction or
otherwise.

 

13.18                     Use of Behringer Harvard Trade Name. 
If any third parties other than Behringer, any of its Affiliates or any
BH-Sponsored Investment Program acquires the Interest of any Member, or if the
property management agreement between the Subsidiary REIT (or any subsidiary
thereof) and the Management Company (or any other Affiliate of Behringer) is
terminated for any reason, then the remaining Member shall cause the Venture
(and the 

 

48

 

Subsidiary REIT (and any
subsidiary thereof)) to cease to use the name “Behringer Harvard” within 30
days of such event, unless Behringer agrees in writing to allow the continued
use of such name beyond such 30-day period.

 

13.19                     Venture Counsel. 
The Manager has retained Mayer, Brown, Rowe & Maw LLP (“Venture
Counsel”) in connection with the formation of the Venture and the Subsidiary
REIT and may retain Venture Counsel in connection with the operation of the
Venture and the Subsidiary REIT, including, without limitation, acquiring,
developing, holding and disposing of the Project.  Each Member acknowledges that Venture Counsel
does not represent any Member (in its capacity as such) in the absence of a
clear and explicit written agreement to such effect between such Member and
Venture Counsel (and then only to the extent specifically set forth in such
agreement), and that in the absence of any such agreement, Venture Counsel
shall owe no duties to any Member (in such capacity) or to the Members as a
group, whether or not Venture Counsel has in the past represented or is
currently representing such Member or Members with respect to other matters.

 

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

 

[INTENTIONALLY LEFT BLANK]

 

*  *  * 
*  *

 

49

 

IN WITNESS WHEREOF, this
Agreement has been executed by each of the parties hereto as of the date of
this Agreement set forth above.

 

 

	
  Manager:

  	
  BEHRINGER HARVARD WATERFORD PLACE, LLC, a Delaware limited liability
  company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald J. Reihsen, III 

  
	
   

  	
   

  	
  Gerald J. Reihsen, III 

  
	
   

  	
   

  	
  Executive Vice President — Corporate Development & Legal and
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Members:

  	
  BEHRINGER HARVARD MASTER PARTNERSHIP I LP, a Delaware limited
  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Behringer Harvard Institutional GP LP, a Texas limited partnership,
  its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Harvard Property Trust, LLC, a Delaware limited liability company,
  its general partner 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Gerald J. Reihsen, III 

  
	
   

  	
   

  	
   

  	
   

  	
  Gerald J. Reihsen, III 

  
	
   

  	
   

  	
   

  	
   

  	
  Executive Vice President — Corporate Development & Legal and
  Secretary

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BEHRINGER HARVARD WATERFORD PLACE, LLC, a Delaware limited liability
  company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald J. Reihsen, III 

  
	
   

  	
   

  	
  Gerald J. Reihsen, III 

  
	
   

  	
   

  	
  Executive Vice President — Corporate Development & Legal and
  Secretary

  

 

 

EXHIBIT A

 

MEMBERS; ADDRESSES; CAPITAL COMMITMENTS; PERCENTAGE INTERESTS

 

	
  Members

  	
   

  	
  Capital

  Commitments

  	
   

  	
  Percentage Interests

  	
   

  
	
  Behringer Harvard Master Partnership I LP

  15601 Dallas Parkway, Suite 600

  Addison, Texas 75001

  	
   

  	
  $

  	
  8,992,687.05

  	
   

  	
  45

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Behringer Harvard Waterford Place, LLC

  15601 Dallas Parkway, Suite 600

  Addison, Texas 75001

  	
   

  	
  $

  	
  10,991,061.94

  	
   

  	
   55 

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  19,983,748.99

  	
   

  	
  100

  	
  %

  

A-1

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