Document:

exv10w1

 

Exhibit
10.1

 

LIMITED LIABILITY COMPANY AGREEMENT

OF

UDR TEXAS VENTURES LLC,

a Delaware limited liability company

Dated: As of November 5, 2007

 

THE INTERESTS REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “FEDERAL ACT”), OR THE SECURITIES LAWS
OF THE VARIOUS STATES (“STATE LAW”). THEY HAVE BEEN ISSUED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE FEDERAL ACT AND STATE LAW AND MAY NOT, EXCEPT AS SPECIFICALLY PROVIDED HEREIN, BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED BY THE HOLDERS THEREOF AT ANY TIME, AND WHICH MAY BE CONDITIONED UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MANAGING MEMBER THAT SUCH
SECURITIES MAY BE TRANSFERRED WITHOUT REGISTRATION OR QUALIFICATION. TRANSFER OF AN INTEREST IS
PROHIBITED EXCEPT PURSUANT TO REGISTRATION IN ACCORDANCE WITH THE FEDERAL ACT AND EACH RELEVANT
STATE LAW OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE FEDERAL ACT AND EACH RELEVANT
STATE LAW. HEDGING TRANSACTIONS INVOLVING AN INTEREST MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE
WITH THE FEDERAL ACT AND ALL APPLICABLE STATE LAWS.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE I. FORMATION	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.1
	 	Formation	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.2
	 	Agreement; Effect of Inconsistencies with Act	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.3
	 	Name	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.4
	 	Effective Date	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.5
	 	Term	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.6
	 	Registered Agent and Office	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.7
	 	Principal Place of Business	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.8
	 	Foreign Qualifications	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.9
	 	Investment Period	 	 	2	 
	 
	 	 	 	 	 	 
	Section 1.10
	 	No State Law Partnership	 	 	3	 
	 
	 	 	 	 	 	 
	ARTICLE II. DEFINITIONS	 	 	3	 
	 
	 	 	 	 	 	 
	Section 2.1
	 	General Interpretive Principles	 	 	3	 
	 
	 	 	 	 	 	 
	Section 2.2
	 	Defined Terms	 	 	3	 
	 
	 	 	 	 	 	 
	Section 2.3
	 	Terms Defined Elsewhere	 	 	17	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ARTICLE III. BUSINESS, PURPOSES AND POWERS	 	 	17	 
	 
	 	 	 	 	 	 
	Section 3.1
	 	Business and Purposes	 	 	17	 
	 
	 	 	 	 	 	 
	Section 3.2
	 	Powers	 	 	17	 
	 
	 	 	 	 	 	 
	Section 3.3
	 	Limitations on Scope of Business	 	 	18	 
	 
	 	 	 	 	 	 
	Section 3.4
	 	Title to Company Property	 	 	18	 
	 
	 	 	 	 	 	 
	ARTICLE IV. MEMBERS, CAPITAL CONTRIBUTIONS AND FINANCING	 	 	18	 
	 
	 	 	 	 	 	 
	Section 4.1
	 	Identity of Members and Percentage Interests	 	 	18	 
	 
	 	 	 	 	 	 
	Section 4.2
	 	Initial Capital Contributions	 	 	18	 
	 
	 	 	 	 	 	 
	Section 4.3
	 	Additional Capital Contributions	 	 	20	 
	 
	 	 	 	 	 	 
	Section 4.4
	 	Wire Transfers	 	 	26	 
	 
	 	 	 	 	 	 
	Section 4.5
	 	Capital Accounts	 	 	26	 
	 
	 	 	 	 	 	 
	Section 4.6
	 	Interest on and Return of Capital Contributions	 	 	27	 
	 
	 	 	 	 	 	 
	Section 4.7
	 	No Further Capital Contribution	 	 	28	 
	 
	 	 	 	 	 	 
	Section 4.8
	 	No Third Party Beneficiary Rights	 	 	28	 

-i-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page
	Section 4.9
	 	Borrow Funds	 	 	28	 
	 
	 	 	 	 	 	 
	Section 4.10
	 	Mortgage Loans	 	 	28	 
	 
	 	 	 	 	 	 
	Section 4.11
	 	Tax Exempt Bond Financing	 	 	29	 
	 
	 	 	 	 	 	 
	Section 4.12
	 	Release of Managing Member	 	 	30	 
	 
	 	 	 	 	 	 
	Section 4.13
	 	2530 Participation Certification	 	 	30	 
	 
	 	 	 	 	 	 
	Section 4.14
	 	Waiver of Right of Partition and Dissolution	 	 	30	 
	 
	 	 	 	 	 	 
	Section 4.15
	 	Liability of Members	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS	 	 	31	 
	 
	 	 	 	 	 	 
	Section 5.1
	 	Distributions	 	 	31	 
	 
	 	 	 	 	 	 
	Section 5.2
	 	Determination of Profits and Losses	 	 	34	 
	 
	 	 	 	 	 	 
	Section 5.3
	 	Allocation of Profits	 	 	35	 
	 
	 	 	 	 	 	 
	Section 5.4
	 	Allocation of Losses	 	 	36	 
	 
	 	 	 	 	 	 
	Section 5.5
	 	Order of Application	 	 	36	 
	 
	 	 	 	 	 	 
	Section 5.6
	 	Income Tax Elections	 	 	37	 
	 
	 	 	 	 	 	 
	Section 5.7
	 	Income Tax Allocations	 	 	37	 
	 
	 	 	 	 	 	 
	Section 5.8
	 	Transfers During Fiscal Year	 	 	37	 
	 
	 	 	 	 	 	 
	Section 5.9
	 	Amortization and Allocation of Organization Expenses	 	 	37	 
	 
	 	 	 	 	 	 
	Section 5.10 Special Allocations to Comply with Section 704 Regulations	 	 	38	 
	 
	 	 	 	 	 	 
	Section 5.11
	 	Tax Matters Member	 	 	41	 
	 
	 	 	 	 	 	 
	Section 5.12
	 	No Election to be Taxed as Corporation	 	 	42	 
	 
	 	 	 	 	 	 
	Section 5.13
	 	Section 704(c) Election	 	 	42	 
	 
	 	 	 	 	 	 
	Section 5.14
	 	Restoration of Deficit Balances	 	 	42	 
	 
	 	 	 	 	 	 
	ARTICLE VI. RIGHTS AND DUTIES OF MEMBERS	 	 	42	 
	 
	 	 	 	 	 	 
	Section 6.1
	 	Meeting of Members	 	 	45	 
	 
	 	 	 	 	 	 
	Section 6.2
	 	Major Decisions	 	 	43	 
	 
	 	 	 	 	 	 
	Section 6.3
	 	Managing Member Powers	 	 	49	 
	 
	 	 	 	 	 	 
	Section 6.4
	 	Actions Requiring Unanimous Consent	 	 	49	 
	 
	 	 	 	 	 	 
	Section 6.5
	 	Limitations on Use of Name	 	 	50	 

-ii-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE VII. RIGHTS, POWERS AND DUTIES OF MANAGING MEMBER	 	 	51	 
	 
	 	 	 	 	 	 
	Section 7.1
	 	Management and Control of Business; Authority of Managing Member; Managing Member Duties	 	 	51	 
	 
	 	 	 	 	 	 
	Section 7.2
	 	Special Obligations of Managing Member	 	 	53	 
	 
	 	 	 	 	 	 
	Section 7.3
	 	Operating Budget	 	 	54	 
	 
	 	 	 	 	 	 
	Section 7.4
	 	Business Plan	 	 	55	 
	 
	 	 	 	 	 	 
	Section 7.5
	 	Status Reports	 	 	56	 
	 
	 	 	 	 	 	 
	Section 7.6
	 	Managing Member's Compensation	 	 	56	 
	 
	 	 	 	 	 	 
	Section 7.7
	 	Signing of Documents	 	 	56	 
	 
	 	 	 	 	 	 
	Section 7.8
	 	Right to Rely on Authority of Managing Member	 	 	56	 
	 
	 	 	 	 	 	 
	Section 7.9
	 	Dealing with Related Persons	 	 	56	 
	 
	 	 	 	 	 	 
	Section 7.10
	 	Outside Activities	 	 	57	 
	 
	 	 	 	 	 	 
	Section 7.11
	 	No Liability	 	 	57	 
	 
	 	 	 	 	 	 
	Section 7.12
	 	Payments to Managing Member	 	 	57	 
	 
	 	 	 	 	 	 
	Section 7.13
	 	Draw Requests	 	 	57	 
	 
	 	 	 	 	 	 
	Section 7.14
	 	Limitations on the Company's Activities	 	 	57	 
	 
	 	 	 	 	 	 
	ARTICLE VIII. BOOKS OF ACCOUNT AND REPORTS; ACCESS TO RECORDS; REPORTING REQUIREMENTS	 	 	59	 
	 
	 	 	 	 	 	 
	Section 8.1
	 	Books and Records	 	 	59	 
	 
	 	 	 	 	 	 
	Section 8.2
	 	Banking	 	 	59	 
	 
	 	 	 	 	 	 
	Section 8.3
	 	Reporting Requirements	 	 	59	 
	 
	 	 	 	 	 	 
	ARTICLE IX. TRANSFERS OF MEMBERSHIP INTERESTS	 	 	61	 
	 
	 	 	 	 	 	 
	Section 9.1
	 	Fannie Mae's Right to Transfer	 	 	61	 
	 
	 	 	 	 	 	 
	Section 9.2
	 	Other Member's or Assignee's Right to Transfer	 	 	61	 
	 
	 	 	 	 	 	 
	Section 9.3
	 	Transferees	 	 	61	 
	 
	 	 	 	 	 	 
	Section 9.4
	 	Non-Complying Transfers Void	 	 	61	 
	 
	 	 	 	 	 	 
	ARTICLE X. ADMISSION OF ASSIGNEES	 	 	62	 
	 
	 	 	 	 	 	 
	ARTICLE XI. MANAGING MEMBER DEFAULT AND REMEDIES	 	 	62	 
	 
	 	 	 	 	 	 
	Section 11.1
	 	Managing Member Default	 	 	62	 
	 
	 	 	 	 	 	 
	Section 11.2
	 	Removal of Managing Member	 	 	64	 
	 
	 	 	 	 	 	 
	Section 11.3
	 	Purchase of Managing Member’s Membership Interest	 	 	65	 

-iii-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page
	Section 11.4
	 	Removal Right	 	 	65	 
	 
	 	 	 	 	 	 
	Section 11.5
	 	Exercise of Purchase Right	 	 	66	 
	 
	 	 	 	 	 	 
	ARTICLE XII. BUY-SELL PROVISIONS	 	 	66	 
	 
	 	 	 	 	 	 
	Section 12.1
	 	Master Buy-Sell Provision	 	 	66	 
	 
	 	 	 	 	 	 
	Section 12.2
	 	Closing	 	 	67	 
	 
	 	 	 	 	 	 
	Section 12.3
	 	Remedies; Coordination of Rights	 	 	68	 
	 
	 	 	 	 	 	 
	Section 12.4
	 	Terms Governing the Escrow Funds	 	 	68	 
	 
	 	 	 	 	 	 
	Section 12.5
	 	Property Buy-Sell Provision	 	 	68	 
	 
	 	 	 	 	 	 
	Section 12.6
	 	Closing	 	 	70	 
	 
	 	 	 	 	 	 
	Section 12.7
	 	Remedies; Coordination of Rights in Connection with Property Buy-Sell	 	 	70	 
	 
	 	 	 	 	 	 
	Section 12.8
	 	Terms Governing the Escrow Funds in Connection with Property Buy-Sell	 	 	70	 
	 
	 	 	 	 	 	 
	Section 12.9
	 	Managing Member's Right of First Refusal to Purchase Fannie Mae's Membership Interest	 	 	71	 
	 
	 	 	 	 	 	 
	Section 12.10
	 	Sale to Third Party	 	 	72	 
	 
	 	 	 	 	 	 
	ARTICLE XIII. DISSOLUTION OF COMPANY	 	 	74	 
	 
	 	 	 	 	 	 
	Section 13.1
	 	Events Causing Dissolution	 	 	74	 
	 
	 	 	 	 	 	 
	Section 13.2
	 	Winding Up	 	 	74	 
	 
	 	 	 	 	 	 
	Section 13.3
	 	Application of Assets in Winding Up	 	 	74	 
	 
	 	 	 	 	 	 
	Section 13.4
	 	Negative Capital Accounts	 	 	75	 
	 
	 	 	 	 	 	 
	Section 13.5
	 	Termination	 	 	75	 
	 
	 	 	 	 	 	 
	Section 13.6
	 	Effect of Bankruptcy, Death or Incompetency of a Member	 	 	75	 
	 
	 	 	 	 	 	 
	ARTICLE XIV. AMENDMENTS	 	 	75	 
	 
	 	 	 	 	 	 
	ARTICLE XV. INVESTMENT REPRESENTATIONS OF THE MEMBERS	 	 	76	 
	 
	 	 	 	 	 	 
	Section 15.1
	 	Investment Intent	 	 	76	 
	 
	 	 	 	 	 	 
	Section 15.2
	 	Unregistered Company Interests	 	 	76	 
	 
	 	 	 	 	 	 
	Section 15.3
	 	Nature of Investment	 	 	76	 
	 
	 	 	 	 	 	 
	Section 15.4
	 	Legend on Agreement	 	 	76	 

-iv-

 

TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE XVI. REPRESENTATIONS AND WARRANTIES	 	 	77	 
	 
	 	 	 	 	 	 
	Section 16.1
	 	Representations and Warranties of the Members	 	 	77	 
	 
	 	 	 	 	 	 
	Section 16.2
	 	Managing Member Representations and Warranties	 	 	78	 
	 
	 	 	 	 	 	 
	ARTICLE XVII.
	 	INDEMNITY	 	 	78	 
	 
	 	 	 	 	 	 
	Section 17.1
	 	Indemnity	 	 	78	 
	 
	 	 	 	 	 	 
	ARTICLE XVIII. MISCELLANEOUS PROVISIONS	 	 	78	 
	 
	 	 	 	 	 	 
	Section 18.1
	 	Notices	 	 	78	 
	 
	 	 	 	 	 	 
	Section 18.2
	 	Integration	 	 	79	 
	 
	 	 	 	 	 	 
	Section 18.3
	 	Governing Law and Exclusive Jurisdiction	 	 	79	 
	 
	 	 	 	 	 	 
	Section 18.4
	 	Binding Effect	 	 	79	 
	 
	 	 	 	 	 	 
	Section 18.5
	 	Promotions; Signage	 	 	79	 
	 
	 	 	 	 	 	 
	Section 18.6
	 	Payments	 	 	79	 
	 
	 	 	 	 	 	 
	Section 18.7
	 	Action Without Dissolution	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.8
	 	Attorney Fees	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.9
	 	Captions	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.10
	 	Pronouns	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.11
	 	Successors and Assigns	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.12
	 	Extension Not a Waiver	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.13
	 	Creditors and Third Parties Not Benefited	 	 	80	 
	 
	 	 	 	 	 	 
	Section 18.14
	 	Recalculations of Interest	 	 	81	 
	 
	 	 	 	 	 	 
	Section 18.15
	 	Severability	 	 	81	 
	 
	 	 	 	 	 	 
	Section 18.16
	 	Entire Agreement	 	 	81	 
	 
	 	 	 	 	 	 
	Section 18.17
	 	Counterparts	 	 	81	 
	 
	 	 	 	 	 	 
	Section 18.18
	 	Confidentiality	 	 	81	 
	 
	 	 	 	 	 	 
	Section 18.19
	 	Arbitration	 	 	83	 
	 
	 	 	 	 	 	 
	Section 18.20
	 	Exclusivity	 	 	84	 
	 
	 	 	 	 	 	 
	Section 18.21
	 	No Electronic Transactions	 	 	85	 

-v-

 

EXHIBITS

	 	 	 
	A
	 	Members and Member Interests

	A-1
	 	List of Values

	B
	 	Investment Criteria

	C
	 	Business Plan

	D
	 	Insurance Requirements

	E
	 	Capital Contribution Certificate

	F
	 	Form of Property Management Agreement

	G
	 	Form of Subsidiary Operating Agreement

	H
	 	Internal Rate of Return Calculation

	I
	 	Form of Guaranty

	J
	 	Form of Construction Management Agreement

	K
	 	Organization Client/Officer List

	L
	 	Due Diligence Checklist

	M
	 	Insurance Certificate/Policy

	N
	 	Form of Acquisition Contract Assignment

vi

 

LIMITED LIABILITY COMPANY AGREEMENT

OF UDR TEXAS VENTURES LLC

     THIS LIMITED LIABILITY COMPANY AGREEMENT OF UDR Texas Ventures LLC (this “Agreement”)
is made and entered into as of November 5, 2007, by and between (i) UDR TX FUND LLC, a Delaware
limited liability company (“Managing Member”) and (ii) FANNIE MAE, a corporation organized
under the laws of the United States (“Fannie Mae”).

R E C I T A L S

     The Members have agreed to form a limited liability company (the “Company”) under the
laws of the State of Delaware for the purpose of owning, holding, transferring, and selling its
interest in various Subsidiaries established to acquire, own, operate, reposition, renovate,
rehabilitate, manage, hold, sell, transfer, service, convey, dispose of, finance, refinance or
otherwise deal with multifamily properties.

     The Members desire to enter into this Agreement in order to set forth the terms and conditions
of the business and affairs of the Company and to determine the rights and obligations of its
Members.

     The Members desire to cause each Property to satisfy the Investment Criteria described in more
detail on Exhibit B.

     Capitalized terms used herein and not otherwise defined shall have the meanings ascribed in
ARTICLE II of this Agreement.

     NOW, THEREFORE, the Members, intending to be legally bound, hereby agree that the limited
liability company agreement of the Company shall be as follows:

ARTICLE I.

FORMATION

     Section 1.1 Formation. The Company has been organized as a Delaware limited liability
company pursuant to the Act. Andrew Wichern, as an authorized person within the meaning of the
Act, has executed, delivered and filed the Certificate of Formation with the Secretary of State of
the State of Delaware. Upon such filing, his power as an authorized person ceased and Managing
Member thereafter became designated as an authorized person within the meaning of the Act.

     Section 1.2 Agreement; Effect of Inconsistencies with Act. The Members agree to the
terms and conditions of this Agreement, as it may from time to time be amended, supplemented or
restated according to its terms. The Members intend that this Agreement and the other Project
Agreements shall be the sole source of the relationship among the parties with respect to the
Company and the Properties, and, except to the extent a provision of this Agreement expressly
incorporates federal income tax rules by reference to sections of the Code or Regulations or is
expressly prohibited or ineffective under the Act, this Agreement shall govern, even when

1

 

inconsistent with, or different from, the provisions of the Act or any other law. To the
extent any provision of this Agreement is prohibited or ineffective under the Act, this Agreement
shall be considered amended to the least degree possible in order to make such provision effective
under the Act. If the Act is subsequently amended or interpreted in such a way as to validate a
provision of this Agreement that was formerly invalid, such provision shall be considered to be
valid from the effective date of such interpretation or amendment. Each Member shall be entitled
to rely on the provisions of this Agreement, and no Member shall be liable to the Company or to any
other Member for any action or refusal to act taken in good faith reliance on this Agreement.

     Section 1.3 Name. The name of the Company is UDR Texas Ventures LLC, and such name
shall be used at all times in connection with the conduct of the Company’s business.

     Section 1.4 Effective Date. This Agreement shall become effective upon the date of
execution of this Agreement by the last of the Members to sign it (the “Effective Date”).

     Section 1.5 Term. The Company shall remain in existence until December 31, 2020 or
until it is dissolved and its affairs wound up in accordance with this Agreement and the Act,
whichever occurs first, unless sooner terminated or extended as provided in this Agreement. It is
the intent of the Members that the Company will (a) acquire or cause to be acquired all Properties
within the Investment Period, (b) dispose of each Property not less than thirty-six (36) and not
more than seventy-two (72) months following its acquisition by the Company or a Subsidiary, as
applicable, and (c) liquidate the assets of the Company no later than one hundred (100) months from
the date of the first acquisition of a Property by the Company or a Subsidiary, as applicable,
provided, that the Members acting unanimously may agree to extend each time frame referenced in
clauses (a), (b) and (c) above.

     Section 1.6 Registered Agent and Office. The Company’s registered agent for service
of process and registered office in the State of Delaware shall be: The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801. Such agent and such office may be changed from
time to time as approved by the Members.

     Section 1.7 Principal Place of Business. The Company’s principal place of business
shall be 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado, 80129. Managing Member may
change the location of the Company’s principal place of business only if approved by the Members.
Managing Member shall make any filing and take any other action required by applicable law in
connection with the change and shall give notice to all other Members of the new location of the
Company’s principal place of business promptly after the change becomes effective.

     Section 1.8 Foreign Qualifications. The Company shall qualify to do business as a
foreign limited liability company in each jurisdiction in which the nature of its business requires
such qualification.

     Section 1.9 Investment Period. The investment period is that period commencing on the
date of acquisition of the first Property by the Company or its Subsidiary and terminating on the
earlier of: (a) the second (2nd) anniversary of the date of acquisition of such first
Property,

2

 

and (b) that date on which the Maximum Capital Contribution has been funded by the Members
(“Investment Period”).

     Section 1.10 No State Law Partnership. The Company shall not be a partnership or
joint venture under any state or federal law, and no Member shall be a partner or joint venturer of
any other Member for any purpose, other than the Code and other applicable tax laws, and this
Agreement may not be construed otherwise.

ARTICLE II.

DEFINITIONS

     Section 2.1 General Interpretive Principles. For purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in
this ARTICLE II have the meanings assigned to them in this ARTICLE II and include
the plural as well as the singular, and the use of any gender in this Agreement shall be deemed to
include the other gender; (b) the word “including” means “including, but not limited to,”; (c)
“law” and “laws” shall mean statutes, regulations, rules, judicial, executive, and governmental
orders, and other governmental actions and legal pronouncements having the effect of law; (d)
“dollar’’ and “$” shall mean a United States dollar; (e) any matter that is required to be approved
by any provision shall, once so approved, be deemed approved for all other purposes of this
Agreement; (f) “approved by” shall mean the affirmative vote in writing of the applicable Person;
and (g) “approved by the Members” shall mean approved by the affirmative, written and unanimous
vote of the Members.

     Section 2.2 Defined Terms. As used in this Agreement, the following terms shall have
the following respective meanings (unless otherwise expressly provided):

     AAA: As defined in Section 18.19.2.

     Accountant: Ernst & Young LLP or such other national certified public accountant
approved by both Members, provided that any Accountant utilized by the Company shall be registered
with the Public Company Accounting Oversight Board.

     Acquisition Contract: As defined in Section 6.2.8.

     Acquisition Fee: One-half of one percent (0.5%) of the acquisition price set forth in
an Acquisition Contract, which fee shall be payable to Managing Member on the date of Closing of a
Property, provided however, that the Managing Member shall not be paid an Acquisition Fee in
connection with the contribution of the Initial Properties to the Company or a Subsidiary by
Managing Member or its Affiliates; provided further however, that Managing Member shall be paid an
Acquisition Fee on the contribution of any other properties to the Company by Managing Member or
its Affiliates.

     Act: The Delaware Limited Liability Company Act in its present form or as amended
from time to time. Reference to any section of the Act shall be deemed to refer to a similar
provision in any amendment to the Act.

3

 

     Additional Capital Contributions: As defined in Section 4.3.

     Adjusted Basis: The basis for determining gain or loss for federal income tax
purposes from the sale or other disposition of property, as defined in Section 1011 of the Code.

     Adjusted Capital Account: As defined in Section 5.10.6.

     Adjustment Amount: As defined in Section 4.3.3.2(a).

     Affiliate: When used with reference to any Person, (a) any Person that, directly or
indirectly, through one or more intermediaries controls, is controlled by, or is under common
control with, the specified Person (the term “control” for this purpose, means the ability, whether
by the ownership of shares or other equity interest, by contract or otherwise, to (i) elect a
majority of the directors of a corporation, (ii) independently to select the managing partner of a
partnership or a managing member of a limited liability company, (iii) otherwise to have the power
independently to remove and then select a majority of those Persons exercising governing authority
over an entity, or (iv) to manage the day to day affairs and operations of such Person; provided
that control shall be conclusively presumed in the case of the direct or indirect ownership of
fifty percent (50%) or more of the equity interests); and (b) a parent, sibling or issue of such
Person.

     Assignee: A Person to whom a Membership Interest is transferred in compliance with
ARTICLE IX, but who is not admitted to the Company as a Member pursuant to ARTICLE
X.

     Bank Accounts: As defined in Section 8.2.

     Bankruptcy or Bankrupt: With respect to any Person, such Person making an
assignment for the benefit of creditors, such Person being unable to or failing to, or admitting
such Person’s inability to, pay such Person’s debts as they become due, becoming a party to any
liquidation or dissolution action or proceeding with respect to such Person or any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially distressed debtors
with respect to such Person, or a receiver, liquidator, custodian, or trustee being appointed for
such Person or a substantial part of such Person’s assets and, if any of the same occur
involuntarily, the same not being dismissed, stayed or discharged within ninety (90) days of its
filing (or such shorter period as may be required by any Lender under a Mortgage Loan), or the
entry of an order for relief against such Person under Title 11 of the United States Code, or the
Board of Directors or other governing body of such Person adopting any resolution or otherwise
authorizing any of the foregoing actions. A Person will be deemed Bankrupt if the Bankruptcy of
such Person has occurred and is continuing.

     Basic Documents: Means the Mortgage Loan Documents, the Property Agreements, and all
documents and certificates contemplated thereby or delivered in connection therewith.

     Business Day: Any day other than Saturday, Sunday and any other day that is a legal
holiday in the State of Delaware or is a day on which banking institutions in such state are
authorized or required by law or other governmental action to close.

4

 

     Business Plan: As defined in Section 7.4. The Business Plan for 2007 is
attached as Exhibit C.

     Buy-Sell Offer: As defined in Section 12.1.

     Capital Account: The capital account of a Member maintained in accordance with
Section 4.5.

     Capital Commitment: The cash portion of the Maximum Capital Contribution to be
provided by the Members. For Fannie Mae, its Capital Commitment shall mean the sum of One Hundred
Sixty-six Million Six Hundred Ninety-eight Thousand Nine Hundred Forty-eight and no/100 Dollars
($166,698,948.00) and for Managing Member, its Capital Commitment shall mean the sum of Thirty-one
Million Three Hundred Twenty-four Thousand Eight Hundred Sixty-six and 95/100 Dollars
($31,324,866.95), as may be increased if approved by the Members.

     Capital Contribution: Any property (including cash) from time to time contributed by
a Member to the Company, including Initial Capital Contributions and Additional Capital
Contributions made pursuant to Section 4.3.1, Additional Capital Contributions made on
behalf of such Member pursuant to Section 4.3.3.1 and Additional Capital Contributions made
by such Member pursuant to Section 4.3.3.2.

     Capital Proceeds: For each Property, the cash proceeds received by the applicable
Subsidiary, and distributed by it to the Company, from a Capital Transaction (excluding the
proceeds of rental or business interruption insurance) which are not used by the Subsidiary to pay
for the costs and expenses incurred in connection with the Capital Transaction, including, in the
case of casualty or condemnation, the costs and expenses of restoration of such Property,
collecting the insurance proceeds or the condemnation award, as the case may be. Capital Proceeds
shall include all payments of principal of, and interest on, any promissory note or other
obligation received by the Subsidiary or the Company in connection with a Capital Transaction and
shall be increased by any reduction of Reserves previously established out of Capital Proceeds with
respect to the applicable Property.

     Capital Transaction: A transaction involving a Property in which a Subsidiary (a)
borrows money whether to refinance existing indebtedness or to reduce the Members’ equity
investment in its Property, (b) sells, exchanges or otherwise disposes of all or any part of its
property, including a sale or other disposition pursuant to a condemnation, or (c) elects to retain
and/or distribute the proceeds of property damage insurance or a condemnation proceeding rather
than repair or reconstruct the damage with such proceeds, or any other transaction that, in
accordance with generally accepted accounting principles, is considered capital in nature.

     Carrying Value: Carrying Value means, with respect to any asset, the Adjusted Basis
of the asset, except as follows:

     (a) the initial Carrying Value of an asset contributed by a Member to the
Company shall be the gross fair market value of the asset, as determined by the
Members at the time the asset is contributed;

5

 

     (b) the Carrying Values of the Company’s assets shall be adjusted to equal
their respective gross fair market values, as mutually determined by Managing Member
and Fannie Mae, as of the following times: (i) the acquisition of an additional
interest in the Company by any new or existing Assignee or Member in exchange for
more than a de minimis Capital Contribution; (ii) the distribution by the Company to
a Member or an Assignee of more than a de minimis amount of property as
consideration for all or part of a Membership Interest or an Assignee’s Economic
Rights; and (iii) the liquidation of the Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g); but adjustments pursuant to clauses (i) and (ii) above
shall be made only if Managing Member and Fannie Mae mutually determine that such
adjustments are necessary or appropriate to reflect the relative economic interests
of the Members in the Company;

     (c) the Carrying Value of an asset of the Company distributed to a Member shall
be adjusted to equal the gross fair market value of the asset on the date of
distribution as determined by Managing Member and Fannie Mae; and

     (d) the Carrying Values of the Company’s assets shall be increased (or
decreased) to reflect any adjustments to the Adjusted Basis of those assets pursuant
to Sections 734(b) or 743(b) of the Code, but only to the extent that those
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-l(b)(2)(iv)(m) and Section 5.2.7; but the Carrying
Values shall not be adjusted pursuant to this clause (d) if Managing Member and
Fannie Mae mutually determine that an adjustment pursuant to clause (b) above is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this clause (d).

     If the Carrying Value of an asset is determined or adjusted pursuant to clauses (a), (b) or
(d), such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with
respect to the asset for purposes of computing Profit and Loss.

     Certificate of Formation: The Certificate of Formation of the Company filed with the
Secretary of State of the State of Delaware on October 11, 2007, as the same may be amended or
amended and restated from time to time.

     Change in Control: with respect to Managing Member shall be deemed to have occurred if
(a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 and the regulations promulgated thereunder), acquires, directly or indirectly, in any
transaction or series of transactions forty percent (40%) or more of the Full Voting Power of UDR,
Inc. or substantially all of the assets of UDR, Inc. (a “CIC Threshold Transaction”);
provided, however, that a Change in Control shall not be deemed to have occurred if after a CIC
Threshold Transaction (i) the Chief Executive Officer and Chief Financial Officer (who held such
positions immediately prior to the effective date of the CIC Threshold Transaction or are otherwise
approved by all the Members) continue to hold their respective positions with UDR, Inc. or any
surviving entity after a CIC Threshold Transaction, or (ii) such CIC Threshold Transaction is a
transaction described in Rule 13e-3 under the Securities Exchange Act of 1934

6

 

and the Chief Executive Officer and Chief Financial Officer of UDR, Inc. (who held such
positions prior to the effective date of the CIC Threshold Transaction or are otherwise approved by
all the Members) remain in those positions with UDR, Inc. or any surviving entity after such CIC
Threshold Transaction, or (b) an event occurs in which the Chief Executive Officer, Chief Financial
Officer and at least fifty percent (50%) of the directors of UDR, Inc. (who held such positions
prior to the effective date of the CIC Threshold Transaction or are otherwise approved by all
Members) do not continue to hold those positions with UDR, Inc. or any surviving entity after such
event. A Change in Control with respect to Managing Member means any event (including any sale,
assignment, Transfer, merger, consolidation, combination, reorganization, liquidation, division,
dividend, stock split or other restructure) which results in (i) UDR, Inc. (or an Affiliate of UDR,
Inc.) no longer controlling Managing Member, or substantially all the assets owned by Managing
Member, prior to such event or (ii) any Change in Control with respect to UDR, Inc. As used in the
previous sentence, the term “controlling” shall have the same meaning as set forth in the
definition of Affiliate.

     CIC Threshold Transaction: shall have the meaning set forth in the definition of
“Change in Control”.

     Closing Date or Closing: The date upon which a Property is acquired by a
Subsidiary.

     Code: The Internal Revenue Code of 1986, in its present form or as amended from time
to time.

     Completion: The satisfaction of all of the following by the Subsidiary or its
Affiliate: (a) completion of development, redevelopment, renovation, re-positioning or
rehabilitation of its Property (i) substantially in accordance with the Rehabilitation Plan, if
any, (except as approved by Fannie Mae) and the Mortgage Loan Documents, (ii) in compliance with
all applicable laws, rules, regulations and ordinances, including, without limitation, the
Americans With Disabilities Act of 1990, as amended, and the Fair Housing Act, as amended, and
(iii) in a good and workmanlike manner, free and clear of all defects, mechanics’, materialmen’s,
and other liens or security interests, claims or encumbrances, except the permitted encumbrances
approved by the Members; (b) payment of all expenses, including all hard and soft costs, associated
with achieving Completion; (c) equipping the Property as set forth in the Rehabilitation Plan, if
any; (d) issuance of a mechanics’ lien endorsement to the Title Policy insuring against any
mechanics’ lien claims; (e) issuance of a certification to Fannie Mae from Managing Member that all
design, site, rehabilitation, and finishing work necessary for completion of the development or
rehabilitation of the Property have been finished and made available for use substantially in
accordance with the Rehabilitation Plan, if any, the Mortgage Loan Documents, and the Property
Agreements and items (a)(ii) and (a)(iii) of this paragraph have been satisfied; and (f) issuance
of all certificates of occupancy for the residential apartment units and all common areas of the
Property, if required by applicable governmental authorities in connection with the rehabilitation
of the Property.

     Completion Date: The date on which Completion occurs.

     Construction Management Agreement: As defined in Section 7.2.3 in the form
attached hereto as Exhibit J.

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     Construction Management Fee: Five percent (5%) of the hard cost portion of the
Rehabilitation Budget, which fee shall be payable to Construction Manager in addition to the
Development Fee, if applicable, on the last day of each month based on the percentage of completion
of the development, rehabilitation or capital improvement to a Property.

     Construction Manager: Managing Member or an Affiliate or a replacement construction
manager approved by Fannie Mae from time to time to act as the general contractor on the
development or rehabilitation of a Property.

     Contributed Property: Any property other than cash contributed to the Company as a
Capital Contribution.

     Cost Overrun: In connection with the Completion of a Property pursuant to a
Rehabilitation Plan adopted in connection therewith, if any, the amount by which the total costs
incurred (or expected to be incurred), after taking into account any cost savings by the Subsidiary
with respect to the rehabilitation of the Property exceed the aggregate amount for all costs of
Completion set forth in the Rehabilitation Budget.

     Deadlock: As defined in Section 6.2.30.

     Debt Placement Fee: One-quarter of one percent (0.25%) of the total amount borrowed
pursuant to one or more Mortgage Loans, which fee shall be payable to Managing Member on the date
of closing of the financing for each Property.

     Depreciation: For each Fiscal Year, an amount equal to the depreciation, amortization
or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except
that, if the Carrying Value of such asset differs from its Adjusted Basis for federal income tax
purposes, Depreciation for such asset shall be an amount which bears the same ratio to such
Carrying Value as the federal income tax depreciation, amortization or other cost recovery
deduction with respect thereto for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however that if the Adjusted Basis for federal income tax purposes of an asset is zero,
Depreciation for such asset shall be determined with reference to its Carrying Value with any
reasonable method as approved by the Members.

     Development Fee: Three percent (3%) of total Project Costs, which fee shall be
payable to Managing Member or an Affiliate as follows: (a) fifty percent (50%) at the closing of
the construction loan for a Property and (b) fifty percent (50%) in equal monthly installments over
the anticipated timeframe for construction of a Property. The Development Fee shall be used to pay
for all development activities performed by Managing Member or an Affiliate, including without
limitation, contract negotiation and administration, due diligence, site planning, design,
engineering and financial analysis.

     Disposition Fee: One-quarter of one percent (0.25%) of the gross sale price for a
Property, which fee shall be payable to Managing Member upon the transfer of a Property to an
unaffiliated third party.

     Distribution: A distribution of cash or a transfer of property by the Company to a
Member or an Assignee on account of a Membership Interest pursuant to Section 5.1.

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     Distribution Percentage: As defined in Section 4.3.3.2.

     Economic Rights: A Member’s or an Assignee’s, as applicable, rights to receive
allocations of Profits and Losses, Distributions and a return of capital.

     Effective Date: As defined in Section 1.4.

     Election: As defined in Section 12.1.3

     Election Notice: As defined in Section 9.1.

     Environmental Report(s): Those certain Phase I and, if applicable, Phase II
Environmental Site Assessments obtained in connection with any Property.

     Escrow Fund: As defined in Section 12.1.1.

     Fannie Mae: As defined in the Preamble.

     Fannie Mae Credit Enhanced Bond Loan: As defined in Section 4.11.2.

     Fannie Mae Preferred Return: With respect to Fannie Mae, for any period, an amount
accumulated on an annual basis to the extent not paid, equal to nine percent (9%) per annum,
compounded quarterly, multiplied by the weighted average of Fannie Mae’s Unreturned Capital during
such period. The Fannie Mae Preferred Return shall begin to accrue for Fannie Mae upon the date
Fannie Mae shall contribute all or part of its Initial Capital Contribution and shall be paid from
Capital Proceeds, Terminating Capital Proceeds and Net Cash Flow. Payments on account of the
Fannie Mae Preferred Return shall first be applied to the accrued but unpaid portion of the Fannie
Mae Preferred Return and thereafter to the current portion of the Fannie Mae Preferred Return.

     Final Appraiser: As defined in Section 12.9.1.1.

     First Refusal Purchase Price: As defined in Section 12.9.1.

     Fiscal Year: The fiscal year of the Company, which shall be the calendar year.

     Force Majeure Event: As defined in Section 11.1.2.1.

     Full Voting Power: shall mean the right to vote in the election of one or more
directors through proxy or by the beneficial ownership of common stock of UDR, Inc. or other
securities then entitled to vote in the election of one or more directors. For purposes of
calculating the percentage ownership of Full Voting Power of a person, all warrants, options or
rights to purchase common stock or other securities of UDR Inc. that would be entitled to vote in
the election of directors of UDR Inc. held by all persons shall be deemed to have been exercised
and all securities convertible into or exchangeable for UDR Inc. common stock or voting securities,
including the membership interest in Managing Member, shall be deemed to have been converted or
exchanged, as the case may be (disregarding for such purposes any restrictions on conversion,
voting (such as proxies), exchange or exercise), in each case for the maximum

9

 

number of shares of common stock of UDR Inc. or other securities entitled to then vote in the
election of one or more directors.

     Gross Revenues: The distributions paid to the Company by a Subsidiary resulting from
such Subsidiary’s normal operations, including, rental income, late fees, revenue from vending
machines, parking charges and service contracts but not any payment or loan made by any Member or
Affiliate (provided that any prepaid or accelerated rent will be allocated on a monthly basis over
the period for which such rent was prepaid and will be included in the calculation of Gross
Revenues on such allocated basis), plus interest income that is not prohibited from being
distributed by any Mortgage Loan Documents, but excluding (a) tenant security or other deposits
(unless forfeited to a Subsidiary), payments on account of vacancy and concessions, (b) Capital
Contributions, (c) Capital Proceeds or Terminating Capital Proceeds, (d) interest on Reserves not
available for distribution and (e) the proceeds of any insurance (other than rental or business
interruption insurance, which are included). Gross Revenues will be determined separately for each
Fiscal Year or portion thereof commencing after the date hereof and will not be cumulative.

     Guarantor: UDR, Inc. or one of its Affiliates as approved by Fannie Mae in its sole
discretion.

     Guaranty: That certain Guaranty of even date herewith in the form of Exhibit
I executed by Guarantor in favor of Fannie Mae and the Company.

     Guaranty Funds: As defined in Section 7.2.1.

     Holdback: As defined in Section 5.1.4.

     Holdback Account: As defined in Section 5.1.4.

     Holdback Percentage: As defined in Section 5.1.4.

     Income Allocation Amount: As defined in Section 5.10.10.

     Indemnitee: As defined in Section 17.1.

     Indemnitor: As defined in Section 17.1.

     Initial Capital Contribution: As defined in Section 4.2.1.1.

     Initial Properties: Those certain properties commonly known as: Lakeline Villas, Red
Stone Ranch, Lincoln at Towne Square — Phase I, Lincoln at Towne Square — Phase II, The Cliffs, The
Mandolin, The Meridian, Stone Canyon, The Bradford and The Legend at Park Ten located in Austin,
Texas, Dallas, Texas and Houston, Texas.

     Internal Rate of Return: The unique positive rate of return (if any) realized through
the date of calculation, determined by taking into account all Capital Contributions and all
Distributions, to be applied as a return of, and a return on, such Capital Contributions at the
determined unique positive rate of return, an example of such calculation is set forth on
Exhibit H attached hereto. “IRR” shall be conclusively determined (absent manifest error)
by using the

10

 

XIRR function in Microsoft Excel 2003 (or any version of Microsoft Excel then broadly in use
by the Members), and inputting the dates and amounts of all Capital Contributions and the dates and
amounts of all Distributions. If the XIRR function is no longer available in the version of
Microsoft Excel then broadly in use by the Members or has been materially altered from the XIRR
function contained in Microsoft Excel 2003, “IRR” shall be conclusively determined (absent manifest
error) by using the comparable function in the version of Microsoft Excel then broadly in use by
the Members or another comparable software program, as mutually agreed to by the Members. In no
event shall any funds advanced by a Member as a loan or any funds received by a Member in payment
thereof be included in the calculation of the Internal Rate of Return.

     Investment Criteria: As defined in Exhibit B attached hereto and incorporated
herein by this reference.

     Investment Period: As defined in Section 1.9.

     Lender: The holder of a loan for the acquisition, development or rehabilitation of a
Property and its successors and assigns.

     Lock-out Period: A period of three (3) years from the Effective Date.

     Loss: As defined in Section 5.2.

     Loss Allocation Amount: As defined in Section 5.10.9.

     Major Decision(s): As defined in Section 6.2.

     Management Rights: The rights, if any, of a Member to participate in the management
of the Company, including the rights to receive information, to inspect and audit the books and
records and to vote on, consent to, or approve actions of the Company.

     Managing Member: As defined in the Preamble, or such other Person as is selected in
accordance with this Agreement as a replacement Managing Member.

     Managing Member Default: As defined in Section 11.1.

     Managing Member Preferred Return: With respect to Managing Member, for any period, an
amount accumulated on an annual basis to the extent not paid, equal to nine percent (9%) per annum,
compounded quarterly, multiplied by the weighted average of Managing Member’s Unreturned Capital
during such period. Managing Member Preferred Return shall begin to accrue for Managing Member upon
the date Managing Member shall contribute all or part of its Initial Capital Contribution and shall
be paid from Capital Proceeds, Terminating Capital Proceeds and Net Cash Flow. Payments on account
of Managing Member Preferred Return shall first be applied to the accrued but unpaid portion of
Managing Member Preferred Return and thereafter to the current portion of Managing Member Preferred
Return.

     Material Adverse Effect: Means any set of circumstances or events, not in existence as
of the Effective Date, that would materially and adversely affect (a) the physical condition or

11

 

operation of a Property; (b) if and when applicable, the rehabilitation of a Property in
accordance with the Rehabilitation Plan and Rehabilitation Budget, if any; (c) the amount of any
distributions or other amounts payable to a Member pursuant to this Agreement; (d) the condition
(financial or otherwise), business operations or prospects of the Company or a Subsidiary; (e) the
ability of the Company, a Subsidiary, the Managing Member or Fannie Mae to perform its obligations
under any agreements to which it is a party (with respect to the Company or its assets) or (f) the
ability of any of the Members to enforce any of their rights or remedies under this Agreement.

     Maximum Capital Contribution: Shall mean the sum of the Maximum Contribution Amount
(Tranche 1) and Maximum Contribution Amount (Tranche 2) plus any additional Capital Commitment(s)
approved by the Members.

     Maximum Contribution Amount (Tranche 1): For Fannie Mae shall mean that portion of
Fannie Mae’s Capital Commitment allocated to Tranche 1, and for Managing Member shall mean that
portion of Managing Member’s Capital Commitment allocated to Tranche 1 plus the capital deemed
contributed with respect to the Property contributed to the Company by the Managing Member as set
forth on Exhibit A-1 (which is Eleven Million Three Hundred Twenty-four Eight Hundred Sixty-six and
95/100 Dollars, ($11,324,866.95) and Ten Million Three Hundred Forty-nine Thousand Eight Hundred
Seventy and 05/100 Dollars ($10,349,870.05) respectively, with respect to Tranche 1).

     Maximum Contribution Amount (Tranche 2): For Fannie Mae shall mean that portion of
Fannie Mae’s Capital Commitment allocated to Tranche 2, and for Managing Member shall mean that
portion of Managing Member’s Capital Commitment allocated to Tranche 2 (which is Eighty Million and
No/100 Dollars, ($80,000,000) and Twenty Million and No/100 Dollars ($20,000,000.00) respectively,
with respect to Tranche 2).

     Members: As set forth on Exhibit A.

     Membership Interest: With respect to a Member, the Member’s entire ownership interest
in the Company, including the Member’s (a) Economic Rights and (b) Management Rights.

     Minimum Gain on Member Non-recourse Debt: As defined in Section 5.10.8.

     Minimum Gain on Non-recourse Liability: As defined in Section 5.10.7.

     Mortgage Loan: Those loans made by one or more Lenders to the Subsidiaries for the
acquisition and, if applicable, development or rehabilitation of Properties which, except as
otherwise approved by Fannie Mae, shall not exceed (a) for acquired Properties, seventy percent
(70%) of the sum of (i) the total rehabilitation costs for such Property as set forth in the
applicable Rehabilitation Budget and (ii) the net purchase price of the Property; or (b) for
development Properties, eighty percent (80%) of the sum of (i) the total development costs of such
Property as set forth in the applicable Rehabilitation Budget and (ii) the net purchase price of
the Property and in either case which shall be non-recourse to the Company and the Members, and
shall be secured inter alia by a first priority lien on the Property, and any amendments,
modifications, increase, extension, consolidation, or adjustments made thereto.

12

 

     Mortgage Loan Documents: The documents executed in connection with the Mortgage Loan
as are approved by the Members, together with any and all other documents, assignments, instruments
or agreements at anytime executed and/or delivered by the Company or any other Person in connection
with a Mortgage Loan for the benefit of a Lender, securing, evidencing or otherwise relating to the
Mortgage Loan.

     Net Cash Flow: For any specified period, and for each Property an amount equal to the
sum of (a) all Gross Revenues and other cash revenues received by the Company, and (b) amounts set
aside as Reserves during earlier periods where, and to the extent, approved by the Members during
the period that such Reserves are no longer reasonably necessary for the efficient conduct of the
Company’s business, reduced by the sum of (i) cash expenditures by the Company during the period
for taxes and other costs and expenses in connection with the normal conduct of the Company’s
business or the Company, (ii) all payments by the Company during the period of principal of and
interest on loans and other obligations of the Company for borrowed money, if any, and (iii) such
Reserves that are approved by the Members during the period are reasonably necessary for the
efficient conduct of the Company’s business or the respective Property.

     Non-recourse Deductions: As defined in Regulations Section 1.704-2(b)(1).

     Obligations: The indebtedness, liabilities and obligations of the Company under or in
connection with any of the Basic Documents or any related document in effect as of any date of
determination.

     OFAC: As defined in shall have the meaning set forth in Section 16.1.6.

     Offeree: As defined in Section 12.1.

     Offeree Value: As defined in Section 12.1.2.

     Offering Member: As defined in Section 12.5.

     Offeror: As defined in Section 12.1.

     Offeror Value: As defined in Section 12.1.2.

     Operating Budget: As defined in Section 7.3. The initial Operating Budget is
incorporated into the initial Business Plan (attached as Exhibit C).

     Percentage Interest: As defined in Section 4.1.2.

     Person: An individual, corporation, trust, association, unincorporated association,
estate, partnership, joint venture, limited liability company or other legal entity, including a
governmental entity.

     Preferred Returns: The Fannie Mae Preferred Return and Managing Member Preferred
Return.

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     Prime Rate: The prime rate of U.S. money center commercial banks as published in The
Wall Street Journal.

     Profit: As defined in Section 5.2.

     Project Costs: All costs necessary in order for a Subsidiary to: (a) achieve
Completion; (b) discharge all obligations and liabilities arising out of any casualty occurring
prior to the Completion Date; and (c) if applicable, pay all other costs and expenses required in
accordance with any Rehabilitation Budget.

     Project Funds: Funds received from the proceeds of the Initial Capital Contributions
from Managing Member and Fannie Mae and the applicable Mortgage Loan for a particular Property.

     Property or Properties: As defined in Section 3.1.

     Property Agreements: To the extent applicable, the Property Management Agreement, the
Acquisition Contract, master broker agreements, construction contracts, if any, architect’s
agreements, affirmative action or equal opportunity plans and agreements, land use agreements or
other material agreements relating to the development, rehabilitation, acquisition, contribution,
ownership, operation, management, sale or other disposition of the Property.

     Property Buy Offer: As defined in Section 12.5.

     Property Buy-Sell Offer: As defined in Section 12.5.

     Property Management Agreement: A property management agreement governing the
day-to-day management and operation of a Property by the Property Manager to be executed by the
Subsidiary and Property Manager in the form attached hereto as Exhibit F.

     Property Management Fee: Four percent (4%) of gross revenues collected on each
Property excluding utility reimbursements; such fee to include all compensation for asset
management services provided by Managing Member or its Affiliate(s).

     Property Manager: UDR Western Residential, Inc. or an Affiliate of the Managing
Member or other property manager approved by Fannie Mae from time to time.

     Property Offer Election: As defined in Section 12.5.2.

     Property Purchase Price: As defined in Section 12.5.1.

     Property Sell Offer: As defined in Section 12.5.

     Purchase Event: As defined in Section 11.3.

     Purchase Price: As defined in Section 12.1.1.

     Qualified Appraiser: As defined in Section 12.9.1.1.

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     Regulations: The permanent and temporary regulations, and all amendments,
modifications and supplements thereof, from time to time promulgated by the Department of the
Treasury under the Code.

     Regulatory Allocation: As defined in Section 5.10.14.

     Rehabilitation Budget: The rehabilitation budget of Project Costs to perform the
rehabilitation work set forth in the Rehabilitation Plan, if any, which shall be approved by the
Members as required by Section 6.2.9 for a Property. The Rehabilitation Plan shall reflect
the bids obtained by the Subsidiary for the rehabilitation work, if any. Managing Member shall
cause the proposed Rehabilitation Budget for a Property to be delivered to the Members for the
Members’ review no later than one month prior to the scheduled commencement date of the
rehabilitation of such Property.

     Rehabilitation Plan: Any plan for the rehabilitation of any Property approved, as
required to be approved pursuant to Section 6.2.9, by the Members and shall include,
without limitation, specifications for materials, the scope of work, the project schedule, and an
operations and maintenance plan that comprehensively addresses concerns raised in the Property
Agreements, reports, and studies, and all amendments and modifications thereto approved by the
Members.

     Related Agreements: Any written agreement between any Member or any of its Affiliates
and the Company or any Subsidiary relating to or arising out of this Agreement or any Company
property, except documents related to any financing by Fannie Mae.

     Required Documentation: As defined in Section 4.11.2.1.

     Reserves: The amount of cash equal to the greater of (a) the amount approved by the
Members, or (b) the lender of a Mortgage Loan, in either case, to be necessary or advisable as
reserves for: (i) repayment of a Mortgage Loan; (ii) management, operation, maintenance,
replacement or preservation of a Property; (iii) payment of anticipated Property, Subsidiary and
Company expenses; (iv) any reserves required under a Mortgage Loan; and (v) other reasonable
contingencies related to the Company’s business.

     Restricted Period: As defined in Section 18.20.

     Secured Obligations: As defined in Section 4.3.4.

     Shortfall: As defined in Section 5.1.4.

     Subject Property: As defined in Section 12.5.1.

     Subsidiary or Subsidiaries: As defined in Section 3.1.

     Tax Exempt Bond Financing: As defined in Section 4.11.1.1.

     Tax Matters Member: As defined in Section 5.11.

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     Terminating Capital Proceeds: Capital Proceeds received by the Company directly or
indirectly from a Terminating Capital Transaction.

     Terminating Capital Transaction: A Capital Transaction involving the sale, exchange
or other disposition of the last to be sold of the Properties.

     Third Party Sale Notice: As defined in Section 12.10.1.

     Third Party Sale Procedure: As defined in Section 12.10.

     Title Policy: An owner’s TILA policy of title insurance obtained as of the date of
the acquisition of a Property, with coverage in an amount not less than the greater of (a) the
amount of the Capital Contributions made in connection with and allocable to such Property and the
stated amount of the Mortgage Loan on such Property, and (b) the Property acquisition and
rehabilitation costs, insuring good and marketable title to the Property in the name of the
applicable Subsidiary, subject to the permitted encumbrances approved by the Members. The title
policy shall insure against the standard exceptions including mechanics liens and matters that a
survey or physical inspection would reveal, and shall include the following endorsements to the
extent such endorsements are available in the state where the Property is located: TILA T-19.1
(with survey), access, contiguity (if appropriate) and non-imputation (with respect to a Property
contributable by a Member or an Affiliate of a Member) and any mineral rights endorsements that may
be applicable. Managing Member shall cause the Title Policy to be delivered to the Members with
legible copies of all documents listed as exceptions to title in the Title Policy.

     Tranche: Each group of Properties.

     Tranche 1: The Initial Properties.

     Tranche 2: Those Properties, if any, that satisfy the Investment Criteria and are
acquired by the Company or a Subsidiary as approved by the Members.

     Transfer and Transferred: A sale, assignment, transfer or other disposition
(voluntarily or by operation of law) of, or the granting or creating of a lien, encumbrance or
security interest in, a Membership Interest, and in the case of Managing Member, the sale,
assignment, transfer or other disposition, directly or indirectly, of any legal or beneficial
interests, in Managing Member. Any sale or other transfer, including by consolidation, merger or
reorganization, of any of the voting stock of a Member other than Fannie Mae, if such Member is a
corporation (other than a sale of the stock of a publicly traded company in normal open market
transactions), or any sale or other transfer of any partnership interests in such Member, if such
Member is a partnership, or any sale or other transfer of any membership interests of a Member if
such Member is a limited liability company or of any interest in such Member, if such Member is a
trust or other type of entity, shall be a Transfer.

     Unreturned Capital: With respect to each Member, as of any date, an amount (but not
less than zero) equal to (a) the aggregate amount of the Member’s Capital Contributions pursuant to
ARTICLE IV made before such date, reduced by (b) Capital Proceeds distributed to Fannie

16

 

Mae and Managing Member before such date pursuant to Section 5.1.2.4 and (c) Net Cash
Flow distributed to Fannie Mae and Managing Member pursuant to Section 5.1.1.4.

     Section 2.3 Terms Defined Elsewhere. The following terms are defined elsewhere in
this Agreement, as indicated below.

	 	 	 
	Term	 	Section
	Agreement

	 	Preamble
	Company

	 	Recitals
	Company Loans

	 	Section 4.9
	Company Minimum Gain

	 	Section 5.3
	Confidential Information

	 	Section 18.18.1
	Federal Act

	 	Cover Page
	Non-Offering Member

	 	Section 12.5
	Notice

	 	Section 18.1
	State Law

	 	Cover Page
	U.S. Person

	 	Section 16.1.6

ARTICLE III.

BUSINESS, PURPOSES AND POWERS

     Section 3.1 Business and Purposes. The purpose of the Company shall be to acquire,
reposition, renovate, manage and sell multifamily residential properties or to acquire, develop,
operate, manage and sell unimproved land approved by the Members (collectively, the
“Properties” and each individually, a “Property”) through wholly-owned subsidiary
single purpose entities (collectively, the “Subsidiaries” and each individually a
“Subsidiary”) and through the Subsidiaries to own, reposition, renovate, rehabilitate,
improve, hold, manage, operate, finance, refinance, lease, sell and otherwise deal with and dispose
of the Properties and/or the Company’s interest in the Subsidiaries and to conduct all activities
reasonably necessary or desirable to accomplish the foregoing purposes. The form of operating
agreement of a Subsidiary is attached hereto as Exhibit G. All Properties shall satisfy
the Investment Criteria except as may otherwise be approved by the Members. It is the intent of
the Members that the organizational documents relating to the formation of Subsidiaries shall be
interpreted together with the provisions of this Agreement to have substantially the same effect as
would be the case if all the interests therein were held or all such business were conducted by the
Company pursuant to the terms of this Agreement. In the event one or more Subsidiaries is formed,
the Managing Member shall perform the same or substantially identical service, subject to the same
standards of conduct and with the same rights and obligations with regard to such duties for each
Subsidiary as the Managing Member performs for the Company, subject to the terms, conditions,
limitations and restrictions set forth in this Agreement. The Company shall not engage in any
other business or activity without the approval of all of the Members.

     Section 3.2 Powers. Subject to Section 3.1 and Section 7.14 hereof,
the Company shall have all powers of a limited liability company under the Act and the power to do
all things

17

 

necessary or convenient to operate its business and accomplish its purposes as described in
Section 3.1. Without limiting the foregoing, the Company, by or through the Managing
Member, may enter into and perform, or cause the Subsidiary to enter into and perform, as
applicable, the Basic Documents and other documents necessary, desirable, relevant or ancillary to
the transactions described in such agreements, all without any further act, vote or approval of any
other Person notwithstanding any other provision of this Agreement, the Act or applicable law, rule
or regulation. The foregoing authorization shall not be deemed a restriction on the powers of the
Company or the Managing Member, on behalf of the Company, to enter into other agreements in
accordance with the terms of this Agreement.

     Section 3.3 Limitations on Scope of Business. Except for the authority expressly
granted to Managing Member and/or Fannie Mae in this Agreement, no Member or agent of the Company
shall have any authority to bind or act for the Company or any other Member in the carrying on of
their respective businesses or activities.

     Section 3.4 Title to Company Property. All property owned by the Company shall be
owned by the Company as an entity and, insofar as permitted by applicable law, no Member shall have
any ownership interest in any Company property in its individual name or right, and each Member’s
interest in the Company shall be personal property for all purposes.

ARTICLE IV.

MEMBERS, CAPITAL CONTRIBUTIONS AND FINANCING

     Section 4.1 Identity of Members and Percentage Interests.

     4.1.1 Members. The initial Members of the Company shall be as set forth on
Exhibit A. Upon their respective execution and delivery of this Agreement, each of
Managing Member and Fannie Mae shall be deemed admitted to the Company as a member of the
Company without the need for any other action or consent of any Person.

     4.1.2 Percentage Interests. The percentage interest (the “Percentage
Interest”) of each Member is the percentage that such Member’s Capital Contributions
bears to the total Capital Contributions of all Members, as adjusted pursuant to Section
4.3.3.2. The Percentage Interests of the Members shall be as set forth on Exhibit
A, as amended from time to time; provided that if Exhibit A shall conflict with
the first sentence hereof at any time, then the provisions of the first sentence hereof
shall control.

     Section 4.2 Initial Capital Contributions.

     4.2.1 Cash/Property.

     4.2.1.1 Amounts. Subject to Section 4.2.1.2, each Member has
contributed or shall contribute the amounts set forth on Exhibit A as its
initial Capital Contribution (the “Initial Capital Contribution”). Amounts
paid by the Members under this Section 4.2 shall be credited to their
respective Capital Accounts when actually paid.

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     4.2.1.2 Contributed Property. If any portion of the Managing Member’s
Initial Capital Contribution is Contributed Property, the Carrying Value of such
Contributed Property shall be set forth on Exhibit A-1 attached hereto for
each Property so contributed.

     4.2.2 Uses. The Initial Capital Contributions made in the form of cash shall
be used to pay expenses approved by the Members and set forth in the Business Plan attached
hereto as Exhibit C and all out-of-pocket costs, including reasonable legal fees
incurred by the Members in connection with the performance of due diligence and other
Property-related investigations and services.

     4.2.3 Initial Capital Contribution Funding Conditions. Fannie Mae’s obligation
to make its Initial Capital Contribution shall be conditioned upon its receipt and the
satisfaction of each of the items listed in this Section 4.2.3, unless otherwise set
forth below or waived or deferred by Fannie Mae:

     4.2.3.1 The full amount of Managing Member’s Initial Capital Contribution has
been paid;

     4.2.3.2 All documents and other information required to be delivered to Fannie
Mae or that Fannie Mae has requested in accordance herewith have been delivered to
Fannie Mae;

     4.2.3.3 Fannie Mae shall have received an opinion of counsel acceptable to
Fannie Mae with respect to (a) the due organization and valid existence of the
Company and for any applicable Subsidiary then in existence, (b) the admission of
Fannie Mae as a member in the Company and of the Company as a member of any
Subsidiary then in existence, (c) the authority of each Subsidiary to own and
operate the Property, if applicable, (d) the authority of the Company to own
interests in each Subsidiary, (e) the authorization of all parties (other than
Fannie Mae and the Company) to assume or enter into the Basic Documents, to the
extent applicable, (f) the validity and enforceability of the Guaranty, (g) the
structure of the Managing Member and the Company satisfies the requirements of the
Lenders, to the extent applicable, and (h) the due formation and valid existence of
the Managing Member, and the authority of the Managing Member to own its Membership
Interest and perform its duties and obligations under this Agreement, and the
execution and delivery of this Agreement by Managing Member and (i) such other
matters as may be reasonably required by Fannie Mae;

     4.2.3.4 Fannie Mae shall have received an opinion of counsel acceptable to
Fannie Mae (a) that the Company will be taxed as a partnership for federal and the
states of Colorado and Delaware income tax purposes, (b) that any Subsidiary then in
existence will be disregarded for federal and Delaware and Colorado state income tax
purposes and (c) addressing such other material tax issues relating to its
investment in the Company as Fannie Mae may reasonably request;

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     4.2.3.5 Guarantor has delivered to Fannie Mae, and Fannie Mae has approved in
its sole discretion, its financial statements;

     4.2.3.6 No event of Bankruptcy has occurred and no event has occurred which
with the passage of time could become an event of Bankruptcy, with respect to
Managing Member, Guarantor or any of their respective Affiliates, provided, however,
that for purposes of this subsection only, the term “Affiliate” shall not
include officers, directors or employees of Managing Member in their respective
individual capacities;

     4.2.3.7 To the extent that one or more Properties are being acquired by one or
more Subsidiaries on the Closing Date, then Managing Member shall also provide a
certification to Fannie Mae in the form of Exhibit E attached hereto and
satisfy the requirements of Section 4.3.2.1, Section 4.3.2.2,
Section 4.3.2.4, Section 4.3.2.5, Section 4.3.2.6,
Section 4.3.2.7, Section 4.3.2.8 and Section 4.3.2.10; and

     4.2.3.8 A certification by Managing Member that it is a single asset entity
without any financial obligations other than those owed to the Company and/or Fannie
Mae pursuant to this Agreement.

     Section 4.3 Additional Capital Contributions. To the extent approved by the Members,
if at any time or from time to time additional capital is required (a) to close on the acquisition
of any Property (including the payment of third party closing costs) or to fund any deposits
required to be paid pursuant to any letter of intent or any Acquisition Contract approved by the
Members, (b) to pay costs and expenses (whether operating or capital in nature) in connection with
the operation of the Properties or in accordance with the Business Plan, or (c) to fund the
reasonable working capital needs of the Company for both operating and capital expenditures of the
Company, any Member may (but shall not be obligated to) request that the Members make additional
contributions of capital to the Company (“Additional Capital Contributions”) in an amount
or amounts sufficient to fund such needs. If so requested by a Member and such Additional Capital
Contribution is approved by the Members or is otherwise included in the Business Plan, each Member
shall contribute its pro rata share (in proportion to the Percentage Interests of the Members at
the time of such request) of the amount requested. In no event shall a Member be obligated to
contribute any cash in excess of the amount of its portion of the Maximum Capital Contribution.
Such Additional Capital Contributions shall be made in accordance with the following procedure:

     4.3.1 Each Member shall contribute to the capital of the Company, in cash or current
funds, its pro rata share, in proportion to each Member’s Percentage Interest, of the
Additional Capital Contributions requested, within fifteen (15) days after a written request
therefor has been delivered to each Member, and with respect to Fannie Mae, delivery of a
fully executed Capital Contribution Certificate in the form of Exhibit E.
Notwithstanding any provision herein to the contrary, in no event shall a request for
Additional Capital Contributions pursuant to Section 4.3(i) above or otherwise to
acquire a Property (a) be made after the expiration of the Investment Period without the
approval

20

 

of the Members or (b) require the Members to make Capital Contributions to the Company
in excess of the Maximum Capital Contribution for the respective Member.

     4.3.2 Additional Capital Contribution Funding Conditions. Fannie Mae’s
obligation to make Additional Capital Contributions shall be conditioned upon its receipt of
a certification from the Managing Member in the form of Exhibit E attached hereto
and unless otherwise set forth below or waived by Fannie Mae, the satisfaction of each of
the items listed in this Section 4.3.2, if such Additional Capital Contribution will
be used to acquire a Property:

     4.3.2.1 Each of the Mortgage Loan Documents and the other Basic Documents are
(or concurrently herewith will be) in full force and effect with respect to the
Subsidiary and the Company, as applicable, and no default (or event which, with the
giving of notice or the passage of time or both, would constitute a default) exists
under the Mortgage Loan Documents or the other Basic Documents. The Managing Member
or its Affiliates shall have caused the Property Agreements to have been executed
and delivered, be in full force and effect, and be in the name of the Subsidiary (or
have been assigned by the Managing Member or its Affiliate to the Subsidiary);

     4.3.2.2 The Managing Member or its Affiliate shall have caused all of the
following to be provided to the Company for such Property being acquired:

     (a) a Title Policy (or a commitment from a title company to issue the
Title Policy subject only to the permitted encumbrances approved by the
Members and from a title company approved by the Members);

     (b) a survey of the Property prepared by a land surveyor licensed in
the state where the Property is located and certified for the benefit of the
Subsidiary and the title company as having been made in compliance with ALTA
minimum detail requirements, and with such certification otherwise being in
form and substance satisfactory to the Members and to the title insurer.
The survey shall indicate whether the Property is in a flood plain;

     (c) liability insurance and property insurance with respect to the
Property satisfactory to the Members, as evidenced by insurance certificates
in the form attached hereto as Exhibit M, which certificates, among
other things, shall name each Member as an additional insured as their
respective interests may appear;

     (d) an Environmental Report for the Property satisfactory to the
Members together with any supplemental reports or investigations required by
the Members, together with a reliance letter from the consultant(s)
preparing such reports, in form and substance satisfactory to the Members;

21

 

     (e) evidence satisfactory to the Members that all necessary regulatory
authority site plan approvals, if any, have been issued relating to the
Property and that prior to commencement of renovations, all necessary
permits and approvals to rehabilitate the Property in accordance with any
Rehabilitation Plan, if applicable, have been obtained;

     (f) there shall be no material adverse change in the financial
statements for the Guarantor from the financial statements last approved by
Fannie Mae;

     (g) an appraisal of any Property contributed by or acquired from the
Managing Member or its Affiliates to the Company in form and substance
satisfactory to the Members;

     (h) an acquisition/disposition analysis in a form approved by the
Members;

     (i) the investment summary in a form approved by the Members; and

     (j) all documents and other information required to be delivered to the
Members pursuant to the terms of this Agreement or requested by Fannie Mae
have been delivered to the Members.

     4.3.2.3 All Capital Contributions required to be made by Managing Member
pursuant to this Agreement have been made;

     4.3.2.4 Managing Member has assigned, or has caused its Affiliates to assign,
to the Company or the Company’s designee, and the Company or its designee has
accepted and assumed, pursuant to an agreement approved by the Members, or the
applicable Subsidiary has entered into an Acquisition Contract, the purchaser’s
rights under the applicable Acquisition Contract and the only remaining condition
precedent to the seller’s obligation to convey all of the interests in the
applicable Property is the delivery of the purchase price and the acquisition of all
of the interests in the appropriate Subsidiary free and clear of any liens, charges
or encumbrances other than the matters set forth in the Title Policy, and mechanics’
or other liens which have been bonded against in such a manner as to preclude the
holder of such lien from having any recourse to the Property or the Company for the
debt secured thereby, and Managing Member has not received notice of any such liens,
charges or encumbrances;

     4.3.2.5 All funds required to be deposited in segregated bank accounts have
been so deposited (or will be concurrently herewith);

     4.3.2.6 Subject to Section 6.2.1, the Mortgage Loan Documents and the
Basic Documents shall have been approved by the Members;

22

 

     4.3.2.7 Property Manager has executed a Property Management Agreement in the
form attached hereto as Exhibit F;

     4.3.2.8 There shall be no default under any Acquisition Contract by either
purchaser or seller thereunder;

     4.3.2.9 No event of Bankruptcy has occurred and no event has occurred which
with the passage of time could become an event of Bankruptcy, with respect to
Managing Member, Guarantor or any of their respective Affiliates, provided, however,
that for purposes of this subsection only, the term “Affiliate” shall not
include officers, directors or employees of Managing Member in their respective
individual capacities; and

     4.3.2.10 No party to any of the Project Agreements is in breach of any
provision thereof to be observed or performed by such party.

At such time as Fannie Mae has determined in its reasonable discretion that the
conditions listed in this Section 4.3.2 have been satisfied, Fannie Mae
shall deliver its Additional Capital Contribution to the Company.

     4.3.3 If a Member fails to make any required Additional Capital Contribution, the other
Members shall have the right, but not the obligation, to elect in its sole option one of the
following:

     4.3.3.1 Make the Additional Capital Contribution to the Company which the
non-contributing Member failed to make on behalf of the non-contributing Member and
to treat the Additional Capital Contribution made by such Member on behalf of the
non-contributing Member as a loan by the contributing Member to the non-contributing
Member. The terms and conditions of such loan shall be as follows:

     (a) simple interest shall accrue at a per annum rate equal to the
lesser of the Prime Rate plus two percent (2%) or the maximum rate of
interest chargeable under applicable law;

     (b) the non-contributing Member shall pay all costs and expenses,
including reasonable attorney’s fees, incurred by the contributing Member or
in collecting the principal of, and interest on, such loan; and

     (c) until the principal of, and interest on, such loans have been
repaid in full, any distributions of Net Cash Flow, Capital Proceeds or
Terminating Capital Proceeds which would otherwise have been made to the
non-contributing Member shall be made to the contributing Member and applied
to such loan.

     4.3.3.2 Contribute the non-contributing Member’s pro rata share of such
Additional Capital Contribution, and elect to both (i) decrease the Percentage

23

 

Interest of the non-contributing Member pursuant to the formula described in
subsection (a) below, and (ii) decrease the percentage of distributions to which the
non-contributing Member is entitled under Sections 5.1.1.5, 5.1.1.6,
5.1.2.5, 5.1.2.6 and 5.1.5 (including for purposes of liquidation
upon dissolution) (the “Distribution Percentage”) pursuant to the respective
percentages determined in accordance with subsection (b) below, as follows:

     (a) Decrease the Percentage Interest of the non-contributing Member
(but not below zero) for all purposes under this Agreement (including,
without limitation, distributions pursuant to Section 5.1) such
that, immediately after such decrease, the Percentage Interest of the
non-contributing Member shall be a percentage equal to the Percentage
Interest of such non-contributing Member immediately prior to such decrease
minus a percentage equal to the amount of the Additional Capital
Contribution that such non-contributing Member failed to contribute, divided
by the aggregate amount of the Capital Contributions theretofore made by the
Members (including the contributing Member’s contribution of its pro rata
share and the non-contributing Member’s pro rata share), and concomitantly,
the Percentage Interest of the contributing Member(s) shall be increased by
the Adjustment Amount (hereafter defined). The amount of the decrease in
the non-contributing Member’s Percentage Interest is the “Adjustment
Amount”. By way of example only, (1) if Fannie Mae had contributed
$8,000,000 and Managing Member had contributed $2,000,000, (2) $1,000,000
Additional Capital Contribution was required and (3) Managing Member failed
to contribute its pro rata share (i.e., 20% of $1,000,000 or $200,000), then
after Fannie Mae contributed $1,000,000, Managing Member’s Percentage
Interest would be decreased by 1.8181% to 18.1819% (i.e., 20%
-$200,000/$11,000,000) and Fannie Mae’s Percentage Interest would be
increased by 1.8181% to 81.8181%;

     (b) Decrease the non-contributing Member’s Distribution Percentages in
the same proportion as the non-contributing Member’s Percentage Interest was
decreased pursuant to subsection (a) above. In addition, the contributing
Members’ Distribution Percentage shall be increased by the same amount by
which the non-contributing Member’s Distribution Percentage is decreased
pursuant to this subsection (b) (pro rata in proportion to their respective
contributions made on behalf of the non-contributing Member). If there are
subsequent adjustments to the Percentage Interests and the Distribution
Percentages, then such adjustments shall be made in a proportionate
reduction with reference to the non-contributing Member’s original
Percentage Interest and the original Distribution Percentages. Following
the example set forth above, Managing Member’s Distribution Percentage would
be decreased in the same proportion as its Percentage Interest is decreased
(i.e., a decrease to 90.91% of its original Distribution Percentage because
18.1819%/20% is a reduction to 90.91% of Managing Member’s Percentage
Interest).

24

 

Accordingly, Managing Member’s final Distribution Percentage would be
decreased from 50% to 45.455% and Fannie Mae’s Distribution Percentage would
be increased to 55.545%; and

     (c) Managing Member will promptly give each Member written notice of
its Percentage Interest, as adjusted, and its Capital Account balance each
time an adjustment occurs; provided, that failure to give such notice shall
not in any way affect or otherwise nullify any adjustment made pursuant to
this Section 4.3.3.2.

     4.3.3.3 Provide for the Company to set off the amount of the requested and
unmade Additional Capital Contribution, plus interest at the rate of twelve percent
(12%) per annum, compounded monthly, against any amounts which would otherwise be
payable by the Company to the non-contributing Member under this Agreement or any
Related Agreement; provided however there shall be no right of set off pursuant to
this Section 4.3.3.3 with respect to any Related Agreement of Fannie Mae or
its Affiliates that is related to financing.

     4.3.3.4 In the event the Company (a) allows the termination of, or (b) is
forced to terminate an Acquisition Contract due to a non-contributing Member’s
failure to make an Additional Capital Contribution, and the Company incurs a loss of
earnest money or other expense in connection with the termination of such
Acquisition Contract, then the non-contributing Member shall be liable to the
Company and the Company may seek indemnification for such loss of earnest money or
other expense and all related costs and expenses of the Company including expenses
of the Company incurred in connection with due diligence and other costs related to
determining the suitability of the property which is the subject of the Acquisition
Contract, all costs incurred in connection with the negotiation of any letter of
intent, term sheet and related documents, financing fees (e.g., application fees,
commitment fees, and costs in connection with any Mortgage Loan), and the costs of,
litigation, and reasonable attorneys’ fees and expenses, if any, incurred in
connection with any terminated Acquisition Contract or any other third party
expense. In addition, the non-contributing Member shall be liable for and shall
indemnify the contributing Member for any and all other actual, out-of-pocket loss,
cost, liability, damage or expense, including reasonable attorney’s fees, incurred
by the contributing Member as a result of the non-contributing Member’s failure to
make an Additional Capital Contribution. In the event the Company shall terminate
an Acquisition Contract due to a non-contributing Member’s failure to make an
Additional Capital Contribution, then the non-contributing Member and its Affiliates
shall not be entitled and shall not acquire, directly or indirectly, all or any
portion of the property that was the subject of such terminated Acquisition Contract
for a period of twenty-four (24) months following the later of (i) termination of
the Acquisition Contract or (ii) satisfying all indemnification obligations under
this Section 4.3.3.4.

     4.3.3.5 Rather than terminate an Acquisition Contract due to a non-contributing
Member’s failure to make an Additional Capital Contribution,

25

 

the contributing Member may require the Company, and shall be authorized, to
assign the Acquisition Contract, including all the benefits and obligations
thereunder and in connection therewith, to the contributing Member or its designee
for the purposes of closing the Acquisition Contract for its or its designee’s own
account. If such assignment is requested, the contributing Member and/or its
designee shall reimburse the Company for any out-of-pocket costs incurred by the
Company or funds, such as earnest money, deposited by the Company pursuant to the
terms of or in connection with such Acquisition Contract and assignment thereof.

     4.3.3.6 The contributing Member may request a return of any Additional Capital
Contribution it has made to the Company in connection with a non-contributing
Member’s failure to make the required Additional Capital Contribution.

     4.3.3.7 If the Managing Member is the non-contributing Member, then Fannie Mae
shall have the right to remove Managing Member as the Managing Member pursuant to
Section 11.2 hereof.

     4.3.4 Managing Member hereby grants to Fannie Mae a security interest (within the
meaning of the Uniform Commercial Code in effect in the State of Delaware) in the Managing
Member’s entire Membership Interest as security for such Member’s obligations to repay the
principal of, interest on, and other amounts payable in connection with, the loans to the
Managing Member set forth in Section 4.3.3.1
(collectively, the “Secured
Obligations”). If Managing Member defaults in paying the Secured Obligations, Fannie
Mae has the right to exercise all of the rights and remedies of secured parties under the
Uniform Commercial Code in effect in the State of Delaware with respect to the Managing
Member’s Membership Interest. Within five (5) days after a request by Fannie Mae, Managing
Member shall deliver to Fannie Mae financing statements and continuation statements as
Fannie Mae reasonably requests for the purpose of perfecting the security interest granted
by this Section 4.3.4 (and if Managing Member does not so deliver the financing
statements, Fannie Mae is hereby authorized to file any such financing statements in order
to perfect its security interests). This Agreement is intended to constitute a security
agreement within the meaning of the Uniform Commercial Code. Upon the conclusion of the
sale of the Managing Member’s Membership Interest pursuant to Article 9 of the Uniform
Commercial Code, the purchaser at the sale shall be an Assignee but a purchaser other than
Fannie Mae or its designee shall not become a Member unless admitted pursuant to ARTICLE
X of this Agreement.

     Section 4.4 Wire Transfers. The Capital Contributions required by Section 4.2
and Section 4.3 and any loans under Section 4.9 shall be made by wire transfer of
funds in dollars to a Company account designated by the Managing Member and approved by Fannie Mae.

     Section 4.5 Capital Accounts. Each Member’s Capital Account shall be maintained in
accordance with the following provisions:

26

 

     4.5.1 Each Member’s Capital Account shall be credited with the amounts of such Member’s
Capital Contributions (net of any liabilities secured by such Contributed Property or
assumed by the Company), such Member’s distributive share of Profits and any items in the
nature of income or gain which are specially allocated to the Member pursuant to ARTICLE
V;

     4.5.2 Each Member’s Capital Account shall be charged with the amounts of cash and the
Carrying Value of any property (net of any liabilities secured by such distributed property
or assumed by the Member) distributed by the Company to such Member pursuant to any
provision of this Agreement, such Member’s distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated to the Member pursuant to
ARTICLE V; and

     4.5.3 If all or a portion of a Member’s Membership Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the Transferred Membership Interest;

This Section 4.5 and other provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations. If the Members after
consultation with Accountant, determine that it is necessary and prudent to modify the manner in
which the Capital Accounts, or any charges or credits thereto (including charges or credits
relating to liabilities which are secured by contributions or distributed property or which are
assumed by the Company or by Members), are computed in order to comply with such Regulations,
Managing Member may make such modification, but only if it is not likely to have a material effect
on the amounts to be distributed to any Member pursuant to Section 5.1 or pursuant to
Section 13.3 upon the dissolution of the Company or other Material Adverse Effect on the
Members. Managing Member also shall (a) make any adjustments that may be necessary or appropriate
to (i) maintain equality between the Capital Accounts of the Members and the amount of capital
reflected on the Company’s balance sheet, as computed for book purposes, and (ii) accurately
reflect the underlying economic arrangement of the Members in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (b) make any appropriate modifications if unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

     Section 4.6 Interest on and Return of Capital Contributions. No Member shall be
entitled to any interest on its Capital Account or on its Capital Contributions except to the
extent expressly provided in this Agreement. No Member shall have the right to demand or receive
property other than cash in return for the contribution of such Member to the Company. Except as
otherwise provided in this Agreement, no Member or Assignee shall be entitled to demand the return
of the Member’s Capital Account or Capital Contribution at any particular time, except upon
dissolution of the Company. Unless otherwise provided by law, no Member or Assignee shall be
personally liable for the return or repayment of all or any part of any other Member’s Capital
Account or Capital Contribution, it being expressly agreed that any such return of capital pursuant
to this Agreement shall be made solely from the assets (which shall not include any right of
contribution from a Member or Assignee) of the Company.

27

 

     Section 4.7 No Further Capital Contribution. Except as expressly provided in this
Agreement or with the prior written consent of all the Members, no Member shall be required or
entitled to contribute any other or further capital to the Company, nor shall any Member be
required or entitled to loan any funds to the Company.

     Section 4.8 No Third Party Beneficiary Rights. The provisions of this ARTICLE
IV are not intended to be for the benefit of any creditor or any other Person (other than a
Member in his or her capacity as such) to whom any debts, liabilities or obligations are owed by
(or who otherwise has any claim against) the Company or any of the Members; and no such creditor or
other Person shall obtain any right under any of such provisions or shall by reason of any of such
provisions make any claim in respect of any debt, liability or obligation (or otherwise) against
the Company or any of the Members.

     Section 4.9 Borrow Funds. In addition to or in lieu of requesting Additional Capital
Contributions from the Members pursuant to Section 4.3, the Company shall have the right to
borrow funds sufficient to finance its obligations on such terms and conditions, including rate of
interest and maturity, as approved by the Members; provided, however, that in lieu of borrowing
from third parties, any one or more of the Members may, if approved by the other Member(s), from
time to time make advances to the Company to meet such requirements, provided that all Members are
given an opportunity to make such advances in accordance with their Percentage Interests
(collectively “Company Loans”). Any such advance made by a Member to the Company shall not
be considered a Capital Contribution, but shall constitute a debt of the Company to the advancing
Member, payable at such time and on such terms as all Members may agree. Payments made to an
advancing Member will be credited first to interest and then to principal. At the request of the
Member making the advance, the Company will execute a promissory note evidencing this debt.

     Section 4.10 Mortgage Loans. Managing Member shall use commercially reasonable
efforts to obtain a Mortgage Loan for each Property which, unless otherwise approved by Fannie Mae,
shall not exceed (a) for acquired Properties, seventy percent (70%) of the sum of (i) the total
rehabilitation costs for such Property as set forth in the applicable Rehabilitation Budget and
(ii) the net purchase price of the Property; or (b) for development Properties, eighty percent
(80%) of the sum of (i) the total development costs of such Property as set forth in the applicable
Rehabilitation Budget and (ii) the net purchase price of the Property. The Members acknowledge that
Fannie Mae or an Affiliate of Fannie Mae from time to time may purchase any mortgage loans secured
in whole or in part by the Company’s interests in and to a Subsidiary or in its related Property.
Such loan(s) will be treated in all respects (including, without limitation, for purposes of
determining Net Cash Flow and Capital Proceeds) as though it were made by an unrelated third party
lender, and such loan(s) will not be deemed to be or otherwise constitute a Capital Contribution.
Managing Member and any other Member of the Company expressly acknowledge that Fannie Mae’s
Membership Interest in the Company is equity and not debt. Notwithstanding the prior sentence, the
classification and treatment for income tax purposes of such loan(s) as a non-recourse debt or
recourse liability shall be made and governed by the Code. The Managing Member further agrees that
the fact that Fannie Mae or an Affiliate of Fannie Mae may purchase the Mortgage Loan shall not
affect the rights and obligations of the lender of the Mortgage Loan or the rights and obligations
of Fannie Mae or the Managing Member hereunder and that, upon the occurrence of an event of default
under the Mortgage Loan:

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     4.10.1 The lender of the Mortgage Loan may exercise all rights and remedies permitted
thereunder and by applicable law (subject to the limitations set forth in the Mortgage Loan
Documents) without regard to whether Fannie Mae or an Affiliate of Fannie Mae shall then be
a member in the Company;

     4.10.2 Neither the lender of the Mortgage Loan nor Fannie Mae (or its Affiliates) shall
be under any fiduciary duty or have any other obligation to exercise or to forebear from
exercising any rights and remedies under the Mortgage Loan or to take or refrain from taking
any action under the Mortgage Loan Documents;

     4.10.3 No Member shall be obligated to cure any default under the Mortgage Loan
Documents or to fund any Capital Contributions except upon the express terms and subject to
satisfaction of all conditions in this Agreement, and

     4.10.4 Neither the Company nor any Subsidiary or any Member (a) shall have as a defense
to any claim for payment from a lender under a Mortgage Loan, or (b) claim or advocate in
any legal or administrative proceeding, the subordination of priority of a Mortgage Loan (or
any other disposition of such Mortgage Loan) to any other loan or obligation of a Subsidiary
or the Company or to any class of equity investors in the Company, by reason of the
investment by Fannie Mae in the Company, on the one hand, and the ownership of a Mortgage
Loan by Fannie Mae, on the other hand.

     Section 4.11 Tax Exempt Bond Financing. Notwithstanding any provision to the contrary
in this Agreement, the following provisions shall apply:

     4.11.1 Prohibitions. The Managing Member shall not permit the Company to:

     4.11.1.1 acquire an interest in any Subsidiary that is the borrower under or
the beneficiary of any indebtedness, the interest on which is exempt from federal
income tax under Section 103 of the Code (“Tax Exempt Bond Financing”), or
that expects to incur any such Tax Exempt Bond Financing, or

     4.11.1.2 in the case of a Subsidiary in which the Company has already acquired
an interest, consent to the Subsidiary’s incurring of any such Tax Exempt Bond
Financing, unless the Managing Member first gives written notice to Fannie Mae of
the name of the actual or anticipated bond holder, the bond issuer, the dollar
amount of the bond issue, Form 8038 (if issued), the name of the Subsidiary and such
other material descriptive information pertaining to the bonds as may be requested
by Fannie Mae, and either (a) Fannie Mae notifies the Managing Member that Fannie
Mae does not own the bonds, and will not be credit-enhancing or providing liquidity
with respect to such bonds, or (b) Fannie Mae notifies the Managing Member that
Fannie Mae does own the bonds, and Fannie Mae gives its consent pursuant to
Section 4.11.2 below.

     4.11.2 Credit Enhancement. If any Property is, or is anticipated to be,
financed in whole or in part with the proceeds of Tax Exempt Bond Financing for which Fannie
Mae is providing credit-enhancement or liquidity (a “Fannie Mae Credit Enhanced Bond
Loan”), then the Managing Member shall request Fannie Mae’s consent prior to the

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Company acquiring an interest in the applicable Subsidiary or to the Company’s
consenting to such financing. Fannie Mae may grant or withhold such consent in its sole
discretion.

     4.11.2.1 If Fannie Mae determines that the bond documents prohibit an equity
investment by Fannie Mae, then the Managing Member shall not permit the Company to
invest in the Subsidiary, or to consent to such financing, and the Managing Member
shall cease its activities relating to such investment, unless Fannie Mae, obtains
(a) an amendment to the bond documents, in a form satisfactory to Fannie Mae in its
sole discretion, removing such prohibition, (b) an updated opinion of bond counsel
confirming the tax-exempt status of the bonds notwithstanding the foregoing
amendment and an equity investment by Fannie Mae, and (c) such other, consents, or
waivers or other documentation as may be required by Fannie Mae (collectively, such
amendment, opinion and documentation are hereinafter the “Required
Documentation”). The final determination of whether any Required Documentation
must be obtained shall be in the sole discretion of Fannie Mae.

     4.11.2.2 The Managing Member shall not cause or permit the Company to invest,
directly or indirectly, in any Subsidiary or investment that has obtained, or is
expected to obtain, any loan or other financing funded in whole or in part with the
proceeds of a tax-exempt private activity bond issuance, nor consent to any
Subsidiary obtaining any such loan or other financing if Fannie Mae has notified the
Managing Member that it is, or is expected to become, a holder, owner or purchaser
of such bonds.

     Section 4.12 Release of Managing Member. Unless otherwise approved by Fannie Mae, all
Mortgage Loans and all other indebtedness of the Company and/or Subsidiaries shall provide (a) for
the substitution of Fannie Mae or its designee in place and stead of Managing Member as managing
member of the Company without further Lender consent, and (b) upon such substitution, a release of
any Guarantor’s liability if Managing Member is a seller under Section 12.1 or Section
12.5 below.

     Section 4.13 2530 Participation Certification. Except with the express written
consent of Fannie Mae, the Managing Member shall not cause or permit any Mortgage Loan to be
incurred or assumed by a Subsidiary or the Company which would require the filing by the Company or
Fannie Mae of a Form 2530 Participation Certification or similar report with the United States
Department of Housing and Urban Development or any successor agency.

     Section 4.14 Waiver of Right of Partition and Dissolution. No Member has any interest
in specific Company property. The interests of all Members in the Company are, for all purposes,
personal property and each of the Members irrevocably waives any right or power to cause the
Company or any of its assets to be partitioned, to cause the appointment of a receiver for the
assets of the Company, to compel any sale of all or any portion of the assets of the Company
pursuant to any applicable law or laws, or to file a complaint or to institute any proceeding at
law or in equity to cause the termination or dissolution of the Company except as expressly
provided for in this Agreement. No Member shall have any interest in any specific

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assets of the Company, and no Member shall have the status of a creditor of the Company with
respect to any distribution pursuant to ARTICLE V hereof. The interest of the each Member
in the Company is personal property.

     Section 4.15 Liability of Members. No Member shall be obligated to make Capital
Contributions to the Company except as provided in this ARTICLE IV. Except as required by
the Act, no Member shall have any personal liability with respect to the liabilities or obligations
of the Company, solely by reason of its capacity as a Member. The failure of the Company to
observe any formalities or requirements relating to the exercise of its powers or the management of
its business or affairs under this Agreement or the Act shall not be grounds for imposing personal
liability on the Members for liabilities or obligations of the Company.

ARTICLE V.

ALLOCATIONS AND DISTRIBUTIONS

     Section 5.1 Distributions. Unless otherwise approved by the Members, Managing Member
shall determine on a quarterly basis, the amount of Net Cash Flow from time to time, and within ten
(10) days following a Capital Transaction, the amount of Capital Proceeds and Terminating Capital
Proceeds, available for distribution and shall distribute such Net Cash Flow, Capital Proceeds and
Terminating Capital Proceeds with regard to each Tranche, as follows:

     5.1.1 Net Cash Flow. In no event shall any Net Cash Flow be deemed to be
Project Funds available to either the Subsidiary or the Company to pay Project Costs.
Except as provided in Section 5.1.4 below, Net Cash Flow shall be applied and
distributed on a Property by Property basis among the Members in accordance with the
following order of priority:

     5.1.1.1 first, to pay any outstanding loans made by any Member under
Section 4.3.3 hereof;

     5.1.1.2 next, on a pari passu basis in proportion to their respective accrued
but unpaid Preferred Returns for prior periods, to each of the Members until they
have received cumulative distributions under this Section 5.1.1.2 and
Section 5.1.2.2 equal to their respective accrued but unpaid Preferred
Returns for prior periods;

     5.1.1.3 next, on a pari passu basis in proportion to their respective accrued
but unpaid Preferred Returns with respect to the current quarter, to each of the
Members until they have received cumulative distributions under this Section
5.1.1.3 and Section 5.1.2.3 equal to their respective accrued but unpaid
Preferred Returns with respect to the current quarter;

     5.1.1.4 next, on a pari passu basis in proportion to their respective
Unreturned Capital, to the Members until their respective Unreturned Capital
allocated to the Property for which Net Cash Flow is being distributed is reduced to
zero;

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     5.1.1.5 next, sixty-five percent (65%) to Fannie Mae and thirty-five percent
(35%) to Managing Member, until Fannie Mae has received cumulative distributions
under this Section 5.1.1.5 and Section 5.1.2.5 that provide Fannie
Mae with an Internal Rate of Return of eleven percent (11%);

     5.1.1.6 next, sixty percent (60%) to Fannie Mae and forty percent (40%) to
Managing Member, until Fannie Mae has received cumulative distributions under this
Section 5.1.1.6 and Section 5.1.2.6 that provide Fannie Mae with an
Internal Rate of Return of fifteen percent (15%);

     5.1.1.7 next, one hundred percent (100%) to Managing Member until Managing
Member receives payment for all Cost Overruns; and

     5.1.1.8 thereafter, fifty percent (50%) to Fannie Mae and fifty percent (50%)
to Managing Member.

     5.1.2 Capital Proceeds. Except as provided in Section 5.1.4 below,
after the payment of all costs and expenses associated with the Capital Transaction, Capital
Proceeds shall be applied and distributed on a Tranche by Tranche basis in accordance with
the following priority:

     5.1.2.1 first, to pay any debts or liabilities of the Company to Members;

     5.1.2.2 next, on a pari passu basis in proportion to their respective accrued
but unpaid Preferred Returns for prior periods, to each of the Members until they
have received cumulative distributions under this Section 5.1.2.2 and
Section 5.1.1.2 equal to their respective accrued but unpaid Preferred
Returns for prior periods;

     5.1.2.3 next, on a pari passu basis in proportion to their respective accrued
but unpaid Preferred Returns with respect to the current quarter, to each of the
Members until they have received cumulative distributions under this Section
5.1.2.3 and Section 5.1.1.3 equal to their respective accrued but unpaid
Preferred Returns with respect to the current quarter;

     5.1.2.4 next, on a pari passu basis in proportion to their respective
Unreturned Capital, to the Members in an amount equal to the amount of their
respective Unreturned Capital allocated to the Property for which Capital Proceeds
are being distributed;

     5.1.2.5 next, sixty-five percent (65%) to Fannie Mae and thirty-five percent
(35%) to Managing Member, until Fannie Mae has received cumulative distributions
under this Section 5.1.2.5 and Section 5.1.1.5 that provide Fannie
Mae an Internal Rate of Return of eleven percent (11%);

     5.1.2.6 next, sixty percent (60%) to Fannie Mae and forty percent (40%) to
Managing Member, until Fannie Mae has received cumulative

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distributions under this Section 5.1.2.6 and Section 5.1.1.6
that provide Fannie Mae with an Internal Rate of Return of fifteen percent (15%);

     5.1.2.7 next, one hundred percent (100%) to Managing Member until Managing
Member receives payment for all Cost Overruns; and

     5.1.2.8 thereafter, fifty percent (50%) to Fannie Mae and fifty percent (50%)
to Managing Member.

     5.1.3 Terminating Capital Proceeds. After the payment of all costs and
expenses associated with the Terminating Capital Transaction, Terminating Capital Proceeds
shall be applied and paid in accordance with the following priority:

     5.1.3.1 to pay any debts or liabilities of the Company other than debts and
liabilities (a) incurred in connection with the Terminating Capital Transaction that
produces the Terminating Capital Proceeds, and (b) owed to Members, and then to pay
the costs and expenses of winding up and terminating the Company, if applicable;

     5.1.3.2 the Terminating Capital Proceeds shall next be applied to establish any
Reserves which Managing Member and Fannie Mae mutually determine to be reasonably
necessary to provide for the costs and expenses of winding up and terminating the
Company and for any contingent or unforeseen liabilities or obligations of the
Company; but at the expiration of such period of time as Managing Member and Fannie
Mae determine to be advisable, the balance of the Reserves remaining after the
payment of such contingencies shall be distributed in the manner hereinafter
provided in this Section 5.1.3;

     5.1.3.3 the Terminating Capital Proceeds shall next be applied to pay any debts
or liabilities of the Company to Members; and

     5.1.3.4 thereafter, Terminating Capital Proceeds shall be applied and
distributed to all Members in accordance with Section 5.1.2.2 through
Section 5.1.2.8.

     5.1.4 Holdback. Notwithstanding any provision herein to the contrary, (a) the
Members anticipate that the Company will invest in Properties in Tranches; and (b) there
shall be withheld from distributions with respect to each Property otherwise payable to
Managing Member under Section 5.1.1.5, Section 5.1.1.6, Section
5.1.1.8, Section 5.1.2.5, Section 5.1.2.6 and Section 5.1.2.8,
as applicable, an amount (the “Holdback Percentage”) equal to twenty percent (20%)
multiplied by the total amount to be distributed to the Members pursuant to such
Section multiplied by the percentage of the amount to be distributed to Managing
Member pursuant to such Section minus the Managing Member’s Percentage Interest (the
“Holdback”). For example, if $500.00 were to be distributed to the Members in a
Tranche where Managing Member were to receive a thirty-five percent (35%) interest and
Managing Member’s Percentage Interest were twenty percent (20%), the Holdback amount would
be $15.00 (.20 multiplied by $500.00 multiplied by (.35 minus .20)).
Instead of distributing the Holdback, Managing

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Member shall pay the Holdback into an escrow account, in a mutually acceptable
institution (the “Holdback Account”). Amounts maintained in such Holdback Account
shall be used to pay for any shortfall in the distribution to Fannie Mae of its Fannie Mae
Preferred Return and the return of Fannie Mae’s Unreturned Capital pursuant to Section
5.1.1.2, Section 5.1.1.3, Section 5.1.1.4, Section 5.1.2.2,
Section 5.1.2.3 and Section 5.1.2.4; with respect to such Tranche (the
“Shortfall”). Interest on the Holdback Account and the principal thereof not
distributed to Fannie Mae pursuant to the proceeding sentence shall be paid to Managing
Member. Distribution for each Tranche shall be subject to such Holdback and release of
funds. So long as a class of unsecured senior debt securities of UDR, Inc. are rated
“investment grade” by at least one of Standard & Poors, Moody’s Investors Service or Fitch
Ratings. Managing Member may elect to have the Holdback withheld from a specific Tranche
distributed under Sections 5.1.1.5 and 5.1.2.5, as applicable, to Managing
Member if (a) Guarantor agrees in writing to pay Fannie Mae any such Shortfall upon the last
Capital Transaction involving a Tranche or (b) Managing Member pays such Shortfall on such
terms as Fannie Mae shall approve in its sole discretion; provided that, if after Managing
Member’s election to deliver such guaranty, a class of UDR, Inc.’s unsecured senior debt
securities shall no longer be rated “investment grade” by at least one of Standard & Poors,
Moody’s Investors Service or Fitch Ratings, then Managing Member shall immediately deposit
in the Holdback Account the lesser of the full amount of the Holdback or the Shortfall.
Notwithstanding the foregoing, the term “Holdback Percentage” shall mean seventy-five
percent (75%) for distributions arising with respect to Tranche 1.

     5.1.5 Promote. Notwithstanding the provisions of Section 5.1.2, for Tranche 1
only, Capital Proceeds shall be applied and distributed in accordance with the following
priority; (a) Section 5.1.2.1, (b) Section 5.1.2.2, (c) Section
5.1.2.3, (d) Section 5.1.2.4, (e) Section 5.1.2.5, (f) to Managing
Member, Five Million Dollars ($5,000,000,00), (g) next, sixty percent (60%) to Fannie Mae
and forty percent (40%) to Managing Member until Fannie Mae has received cumulative
distributions under this Section 5.1.5 that provide Fannie Mae with an Internal Rate
of Return of thirteen percent (13%); (h) next, to Managing Member, Five Million Dollars
($5,000,000.00); (i) next, sixty percent (60%) to Fannie Mae and forty percent (40%) to
Managing Member until Fannie Mae has received cumulative distributions under this
Section 5.1.5 that provide Fannie Mae with an Internal Rate of Return of fifteen
percent (15%); (j) to Managing Member, Five Million Dollars ($5,000,000.00); and (k)
Section 5.1.2.8.

     Section 5.2 Determination of Profits and Losses. For purposes of this Agreement, the
profit (“Profit”) or loss (“Loss”) of the Company for each Fiscal Year shall be the
net income or net loss of the Company for such Fiscal Year as determined for federal income tax
purposes, but computed with the following adjustments:

     5.2.1 by computing gain or loss resulting from the disposition of property with respect
to which gain or loss is recognized for federal income tax purposes by reference to the
Carrying Value of the property disposed of, notwithstanding that the Adjusted Basis of such
property differs from its Carrying Value;

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     5.2.2 by taking into account items of Depreciation attributable to any property of the
Company or the Subsidiary, as applicable, in lieu of Depreciation as determined for federal
income tax purposes;

     5.2.3 by including as an item of gross income any tax-exempt income received by the
Company;

     5.2.4 by treating as a deductible expense any expenditure of the Company described in
Section 705(a)(2)(B) of the Code or treated as a Code Section 705(a)(2)(B) expenditure
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i);

     5.2.5 in the event the Carrying Value of any Company asset is adjusted pursuant to
clause (b) or (c) of the definition of Carrying Value, by taking the amount of such
adjustment into account as gain or loss from the disposition of such asset for purposes of
computing Profit or Loss for the Fiscal Year or other period in which such adjustment
occurs;

     5.2.6 to the extent an adjustment to the Adjusted Basis of any asset of the Company
pursuant to Section 734(b) of the Code is required by Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result
of a distribution other than in complete liquidation of a Member’s Membership Interest, the
amount of such adjustment shall be treated as an item of gain (if the adjustment increases
the Adjusted Basis of the asset) or loss (if the adjustment decreases the Adjusted Basis of
the asset) from the disposition of the asset and shall be taken into account for purposes of
computing Profit or Loss; and

     5.2.7 the special allocations (if any) required by Section 5.10 shall not be
taken into account in computing Profit and Loss.

The amounts of the items of income, gain, loss or deduction of the Company to be specially
allocated pursuant to Section 5.10 shall be determined by applying rules analogous to those
set forth in Section 5.2.1 through Section 5.2.7, inclusive.

     Section 5.3 Allocation of Profits. Except as provided in Section 5.10 below,
the provisions of which shall be applied first, the Profits of the Company for each Fiscal Year
(including any Profits arising from a Capital Transaction or a Terminating Capital Transaction, or
upon liquidation of the Company) shall be allocated among the Members in such proportions and in
such amounts as would result in the respective Capital Account balance of each Member equaling as
nearly as possible (a) the amount the Member would receive if all unconditional obligations to
contribute to the Company were collected in full, the Company were liquidated and all of its assets
were sold for their Carrying Value (or, in the case of assets subject to liabilities for which the
creditor’s right is limited to assets of the Company, the amounts of such liabilities, if greater
than the aggregate Carrying Value of such assets) and the net proceeds distributed pursuant to
Section 5.1.2 minus (b) such Member’s share of “Company Minimum Gain,” determined
pursuant to Regulation Section 1.704-2(g)(1) and such Member’s share of “Member Minimum
Gain,” determined pursuant to Regulation Section 1.704-2(i)(5), computed immediately prior to
the hypothetical sale of assets.

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     Section 5.4 Allocation of Losses.

     5.4.1 Except as provided in Section 5.10 below, which shall be applied first,
the Losses of the Company for each Fiscal Year (including any Losses arising from a Capital
Transaction or a Terminating Capital Transaction or upon liquidation of the Company) shall
be allocated among the Members as follows:

     5.4.1.1 First, among the Members in such proportions and in such amounts as
would result in the respective Capital Account balance of each Member equaling as
nearly as possible (i) the amount the Member would receive if all unconditional
obligations to contribute to the Company were collected in full, the Company were
liquidated and all of its assets were sold for their Carrying Value (or, in the case
of assets subject to liabilities for which the creditor’s right is limited to assets
of the Company, the amounts of such liabilities, if greater than the aggregate
Carrying Value of such assets) and the net proceeds distributed pursuant to
Section 5.1.2 minus (ii) such Member’s share of “Company Minimum
Gain,” determined pursuant to Regulation Section 1.704-2(g)(1) and such
Member’s share of “Member Minimum Gain,” determined pursuant to Regulation
Section 1.704-2(i)(5), computed immediately prior to the hypothetical sale of
assets.

     5.4.1.2 The balance, if any, pari passu to the Members in accordance with their
Percentage Interests.

     Section 5.5 Order of Application. The allocations and distributions for each Fiscal
Year pursuant to Section 5.1, Section 5.3 and Section 5.4 shall be
reflected in the Members’ Capital Accounts in the following order of priority:

     5.5.1 first, allocations of Profits and Losses (other than Profits and Losses from
Capital Transactions or Terminating Capital Transactions) pursuant to Section 5.3
and Section 5.4;

     5.5.2 next, Distributions of Net Cash Flow pursuant to Section 5.1.1;

     5.5.3 next, allocations of Profits and Losses arising from a Capital Transaction or a
Terminating Capital Transaction;

     5.5.4 next, Distributions of Capital Proceeds from Capital Transactions pursuant to
Section 5.1.2 or Section 5.1.5, as applicable; and

     5.5.5 next, Distributions of Terminating Capital Proceeds from Terminating Capital
Transactions pursuant to Section 5.1.3.

Whenever any provision of Section 5.3 or Section 5.4 depends upon the Capital
Account of a Member, the Member’s Capital Account shall be determined after the operation of all
preceding provisions for the Fiscal Year.

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     Section 5.6 Income Tax Elections. Upon a Transfer of all or part of a Membership
Interest (or of the interest of a partner or a member in a partnership or a limited liability
company which is a Member or is a partner or member in a Member) because of death or sale, the
Managing Member, (a) shall at Fannie Mae’s request in connection with a Transfer of all or part of
Fannie Mae’s Membership Interest (provided such election would result in an upward adjustment of
the tax basis in the assets of the Company) or (b) otherwise, in its sole discretion, may cause the
Company to make the election described in Section 754 of the Code. Any out-of-pocket costs
incurred by the Company in connection with such election under Section 754 of the Code and the
out-of-pocket costs of administering or accounting for such election shall be at the cost and
expense of the Company.

     Section 5.7 Income Tax Allocations.

     5.7.1 For purposes of Sections 702 and 704 of the Code, or the corresponding sections
of any future federal income tax law, or any similar tax law of any state or other
jurisdiction, the Company’s profits, gains and losses for federal income tax purposes, and
each item of income, gain, loss or deduction entering into the computation thereof, shall be
allocated among the Members in the same proportions as the corresponding “book” items are
allocated pursuant to this ARTICLE V, except as otherwise provided in Section
5.13.

     5.7.2 If any portion of the income or gain from a Terminating Capital Transaction
allocated among the Members pursuant to Section 5.7.1 is characterized as ordinary
income under the recapture provisions of the Code, each Member’s distributive share of
taxable gain from the sale of the property that gave rise to such Profit (to the extent
possible) shall include a proportionate share of the recapture income equal to that Member’s
share of prior cumulative Depreciation deductions with respect to the property that give
rise to the recapture income.

     Section 5.8 Transfers During Fiscal Year. Upon a Transfer of all or any part of a
Membership Interest (in accordance with the provisions of ARTICLE IX of this Agreement) at
any time other than the end of a Fiscal Year, the share of Profit or Loss (in respect of the
Membership Interest so Transferred) shall be allocated between the transferor and the transferee in
the same ratio as the number of days in the Fiscal Year before and after such Transfer. This
Section 5.8 shall not apply to Profit or Loss from Terminating Capital Transactions or to
other extraordinary nonrecurring items. Profit and Loss from Terminating Capital Transactions
shall be allocated in accordance with the provisions of this Agreement on the date of closing of
the sale and extraordinary or nonrecurring items of gain or loss shall be allocated in accordance
with the provisions of this Agreement on the date the gain is realized or the loss incurred, as the
case may be.

     Section 5.9 Amortization and Allocation of Organization Expenses. The Company shall
elect to amortize (a) over a period of one hundred eighty (180) calendar months, all organization
expenses in accordance with the provisions of Section 709(b) of the Code, and (b) over a period of
one hundred eighty (180) calendar months, all start-up expenses in accordance with the provisions
of Section 195 of the Code.

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Section 5.10 Special Allocations to Comply with Section 704 Regulations.

     5.10.1 General Rule. Notwithstanding the provisions of Section 5.3 and
Section 5.4, if the allocation of a Loss to a Member for any Fiscal Year pursuant to
Section 5.4 would cause or increase a negative balance in the Member’s Adjusted
Capital Account (as defined in Section 5.10.6) on the last day of the Fiscal Year
which exceeds the sum of the Member’s share of Minimum Gain on Non-recourse Liability (as
defined in Section 5.10.7) and the Member’s share of Minimum Gain on Member
Non-recourse Debt (as defined in Section 5.10.8) as of the last day of the Fiscal
Year, then the portion of the Loss that would have such effect shall instead be specially
allocated among the Members who have positive balances in their respective Adjusted Capital
Accounts on the last day of the Fiscal Year and the Members who have negative balances in
their respective Adjusted Capital Accounts on the last day of the Fiscal Year which do not
exceed the sum of their respective shares, on the last day of the Fiscal Year, of Minimum
Gain on Non-recourse Liability and Minimum Gain on Member Non-recourse Debt. The Loss to be
specially allocated pursuant to the preceding sentence shall be allocated among the Members
referred to in the preceding sentence, pro rata, in proportion to their respective Loss
Allocation Amounts (as defined in Section 5.10.9). For purposes of this Section
5.10, a Member’s share of Minimum Gain on Non-recourse Liability and Minimum Gain on
Member Non-recourse Debt shall be determined pursuant to Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5) and a Member’s share of excess Non-recourse Liabilities (as described in
Regulations Section 1.752-3(a)(3)) shall be based upon the Member’s Percentage Interest.

     5.10.2 Qualified Income Offset. If, at the end of any Fiscal Year, any one or
more of the Members has a negative balance in the Member’s Adjusted Capital Account which
exceeds the sum of the Member’s share of Minimum Gain on Non-recourse Liability and the
Member’s share of Minimum Gain on Member Non-recourse Debt at the end of the Fiscal Year,
then income and gain for the Fiscal Year (and, if necessary, subsequent Fiscal Years) shall
be allocated as quickly as possible among all Members who have such negative balances in
their Adjusted Capital Accounts, pro rata, in proportion to their respective
Income Allocation Amounts (as defined in Section 5.10.10) to the extent necessary to
reduce the negative balance of each Member’s Adjusted Capital Account to an amount equal to
the sum of the Member’s share of Minimum Gain on Non-recourse Liability and the Member’s
share of Minimum Gain on Member Non-recourse Debt as of the end of the Fiscal Year;
provided that an allocation pursuant to this Section 5.10.2 shall be made
only if and to the extent that such Member would have such a negative balance in the
Member’s Adjusted Capital Account in excess of the sum of the Member’s share of Minimum Gain
on Non-recourse Liability and the Member’s share of Minimum Gain on Member Non-recourse Debt
after all other allocations provided for in this ARTICLE V have been tentatively
made as if this Section 5.10.2 were not a part of this Agreement. The allocations
referred to in this paragraph shall be interpreted and applied to satisfy the requirements
of Regulations Section 1.704-1(b)(2)(ii)(d)(3).

     5.10.3 Minimum Gain Chargeback – Non-recourse Liability. If there is a net
decrease in the Minimum Gain on Non-recourse Liability (as defined in Regulations Section
1.704-2(g)) during any Fiscal Year, the Members shall be allocated items of

38

 

income and gain for the Fiscal Year, before any other allocation of Company items
described in Section 704(b) of the Code is made for the Fiscal Year (and, if necessary
subsequent Fiscal Years), in the amounts and in the proportions required by Regulations
Sections 1.704-2(f) and 1.704-2(j)(2)(i). The allocations referred to in this paragraph
shall be interpreted and applied to satisfy the requirements of Regulations Section
1.704-2(f).

     5.10.4 Minimum Gain Chargeback – Member Non-recourse Debt. If there is a
decrease in the Minimum Gain on Member Non-recourse Debt during a Fiscal Year, then any
Member who has a share of the Minimum Gain on Member Non-recourse Debt at the beginning of
the Fiscal Year shall be allocated items of income and gain for the Fiscal Year, before any
other allocation of Company items described in Section 704(b) of the Code is made for the
Fiscal Year (and, if necessary, subsequent Fiscal Years), in the amounts and in the
proportions required by Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). The
allocations referred to in this paragraph shall be interpreted and applied to satisfy the
requirements of Regulations Section 1.704-2(i)(4).

     5.10.5 Member Non-recourse Debt Deductions. Member non-recourse debt
deductions with respect to Member non-recourse debt shall be specially allocated among the
Member or Members who bear the economic risk of loss with respect to such Member
non-recourse debt in the amounts and in the proportions required by Regulations Section
1.704-2(i)(1). The allocations referred to in this subsection shall be interpreted and
applied to satisfy the requirements of Regulations Section 1.704-2(i).

     5.10.6 Adjusted Capital Account. The term “Adjusted Capital Account”
means the amount of a Member’s Capital Account (determined before the special allocation to
be made pursuant to this subsection, but after making all other adjustments to Capital
Account for the Fiscal Year with respect to contributions, allocations and distributions),
whether positive or negative, reduced by reasonably expected adjustments described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4) and by reasonably expected allocations of loss
and deduction described in Regulations Section 1.704-1(b)(2)(ii)(d)(5) and reasonably
expected distributions described in Regulations Section 1.704-1(b)(2)(ii)(d)(6), and
increased by any amounts described in Regulations Section 1.704-1(b)(2)(ii)(c) which such
Member is unconditionally obligated to contribute to the Company pursuant to this Agreement
or applicable law.

     5.10.7
Minimum Gain on Non-recourse Liability. The term “Minimum Gain on
Non-recourse Liability” means the aggregate amount of gain, if any, that would be
realized by the Company if, in a taxable transaction, it disposed of all Company property
encumbered by Mortgage Loan securing Non-recourse Liabilities (as defined in Regulations
Section 1.704-2(b)(3)) of the Company in full satisfaction thereof (and for no other
consideration). The Members intend that Minimum Gain on Non-recourse Liability shall be
determined in accordance with the provisions of Regulations Section 1.704-2(d)(1).

     5.10.8 Minimum Gain on Member Non-recourse Debt. The term “Minimum Gain on
Member Non-recourse Debt” means the aggregate amount of gain, if any, that

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would be realized by the Company if, in a taxable transaction, it disposed of all
Company property encumbered by Mortgage Loan securing Member non-recourse debt of the
Company (i.e., a non-recourse debt for which one or more of the Members bears the
economic risk of loss, and defined in Regulations Section 1.704-2(b)(4)), in full
satisfaction thereof (and for no other consideration). The Members intend that Minimum Gain
on Member Non-recourse Debt shall be determined in accordance with the provisions of
Regulations Section 1.704-2(i)(3).

     5.10.9 Loss Allocation Amount. The term “Loss Allocation Amount” means
(a) in the case of a Member who has a positive balance in his or her Adjusted Capital
Account, an amount equal to the sum of (i) the positive balance in the Member’s Adjusted
Capital Account, (ii) the Member’s share of Minimum Gain on Non-recourse Liability, and
(iii) the Member’s share of Minimum Gain on Member Non-recourse Debt, or (b) in the case of
a Member who has a negative balance in his or her Adjusted Capital Account which does not
exceed the sum of the Member’s share of Minimum Gain on Non-recourse Liability and the
Member’s share of Minimum Gain on Member Non-recourse Debt, an amount equal to the excess of
(i) the sum of the Member’s share of Minimum Gain on Non-recourse Liability and the Member’s
share of Minimum Gain on Member Non-recourse Debt, over (ii) the balance of the Member’s
Adjusted Capital Account (treated as a positive number).

     5.10.10 Income Allocation Amount. The term “Income Allocation Amount”
means, in the case of a Member who has a negative balance in his or her Adjusted Capital
Account which exceeds the sum of the Member’s share of Minimum Gain on Non-recourse
Liability and the Member’s share of Minimum Gain on Member Non-recourse Debt, an amount
equal to such excess.

     5.10.11 Gross Income Allocation. Each Member who has an Adjusted Capital
Account at the end of any Fiscal Year which is in excess of the sum of the Member’s share of
Minimum Gain on Non-recourse Liability and the Member’s share of Minimum Gain on Member
Non-recourse Debt shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation pursuant to this
Section 5.10.11 shall be made only if and to the extent that such Member would have
an Adjusted Capital Account in excess of such sum after all other allocations provided for
in this ARTICLE V have been made as if Section 5.10.2 and this Section
5.10.11 were not a part of this Agreement.

     5.10.12 Non-recourse Deductions. Non-recourse Deductions for any Fiscal Year
shall be specially allocated to the Members in accordance with their Percentage Interests.

     5.10.13 Section 754 Adjustments. In any case where an adjustment to the
Adjusted Basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is
required (pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations
1.704-1(b)(2)(iv)(m)(4)), to be taken into account in determining Capital Accounts because
of a distribution to a Member in complete liquidation of the Member’s interest in the
Company, the amount of such adjustment to Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment

40

 

decreases such basis), and such gain or loss shall be specially allocated among
the Members in accordance with their interests in the Company if (a) Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or (b) the Members to whom such distribution was made if
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

     5.10.14 Curative Allocations. Any credit or charge to the Capital Accounts of
the Members pursuant to Sections 5.10.1 through 5.10.13 (“Regulatory
Allocations”) hereof shall be taken into account in computing subsequent allocations of
Profits and Losses pursuant to Section 5.3 and Section 5.4, so that the net
amount of any items charged or credited to Capital Accounts pursuant to Section 5.3
and Section 5.4 and the Regulatory Allocations hereof and this Section 5.10.14
shall to the extent possible, be equal to the net amount that would have been allocated
to the Capital Account of each Member pursuant to the provisions of this ARTICLE V
if the special allocations required by the Regulatory Allocations hereof had not occurred.

     5.10.15 Purpose and Interpretation of ARTICLE V. The allocations set forth in
this ARTICLE V are intended to allocate Profits and Losses in a manner that complies
with the provisions of Section 704(b) of the Code and the Regulations promulgated from time
to time thereunder. To the extent special allocations of Profits or Losses, or items
thereof, are required to be made to comply with the requirements of Section 704(b) of the
Code and the Regulations thereunder, and which are not otherwise provided for herein, such
special allocations shall be made in the manner set forth in Section 704(b) of the Code and
the Regulations thereunder. To the extent any such special allocations are made, subsequent
allocations of Profits and Losses shall be made to offset any economic distortion caused by
such special allocations.

     Section 5.11 Tax Matters Member. Managing Member shall be the “Tax Matters Member” of
the Company pursuant to Section 6231(a)(7) of the Code (the “Tax Matters Member”)
as long as it is Managing Member. If UDR TX Fund LLC ceases to be Managing Member, Fannie Mae
shall designate the new Tax Matters Member. The Tax Matters Member shall be authorized and
required to represent the Company (at the expense of the Company) in connection with all
examinations of the affairs of the Company or the Subsidiary by any federal, state or local tax
authorities, including any resulting administrative and judicial proceedings, and to expend funds
of the Company for professional services and costs associated therewith. Subject to Section
6.2.23, the Tax Matters Member shall take all actions reasonably necessary to preserve the
rights of the Members with respect to audits and shall provide all Members with notices of all such
proceedings and other information as required by law. The Tax Matters Member shall obtain the
prior written consent of each Member before settling, compromising or otherwise altering the
defense of any proceeding before the Internal Revenue Service if such Member or any of its
constituent partners or members could be affected thereby. The Tax Matters Member shall keep the
Members timely informed of all significant activities under this Section 5.11, including
but not limited to any activities that may have any adverse effect on the Company, a Subsidiary or
a Member. Subject to Section 6.2.23, the Tax Matters Member may prepare and file protests
or other appropriate responses to such audits. The Tax Matters Member shall select counsel to
represent the Company in connection with any audit conducted by the Internal Revenue Service or by
any state or local authority. All costs incurred in connection with
the foregoing activities, including legal and accounting costs, shall be borne by the Company.

41

 

Any additional expenses with respect to judicial review of adverse determinations in connection
with any such tax audits or the defense of any Member against any claim asserted by the Internal
Revenue Service or state or local tax authority of additional tax liability arising out of the
Member’s ownership of its Membership Interest shall only be incurred by the Member(s) who have
authorized the Tax Matters Member, in writing, to proceed with such judicial review or defense.
Each Member agrees to cooperate with the Tax Matters Member and to do or refrain from doing any or
all things reasonably required by the Tax Matters Member in connection with the conduct of all such
proceedings.

     Section 5.12 No Election to be Taxed as Corporation. The Company shall be treated as
a partnership for federal income tax purposes. No Member shall cause the Company to elect to be
treated as a corporation for federal income tax purposes in accordance with Regulations Section
301.7701-3(c), unless such election is approved in writing by all Members.

     Section 5.13 Section 704(c) Election. The Company shall use the “traditional method”
under Section 704(c) of the Code with back end curative allocations to reverse the effect of the
ceiling.

     Section 5.14 Restoration of Deficit Balances. Except as may be otherwise expressly
agreed by a Member, no Member shall be obligated to restore any deficit balance in the Member’s
Capital Account. A Member may in its sole and absolute discretion agree in writing with the
Company that such Member shall be obligated to restore all or any portion of the deficit balance in
its Capital Account by the end of the tax year of the liquidation of the Company, which agreement
may be revoked if so provided in such agreement.

ARTICLE VI.

RIGHTS AND DUTIES OF MEMBERS

     Section 6.1 Meeting of Members.

     6.1.1 Regular Meetings. Regular meetings of the Members shall be held at such
times and places as shall be designated from time to time by the Members, provided that the
Members shall meet no less frequently than annually and provided such regular meetings of
the Members shall be as often as necessary or desirable to operate the Company.

     6.1.2 Special Meetings. Special meetings of the Members may be called by any
Member, at any time, by delivering at least five (5) Business Days’ prior notice thereof if
the meeting is telephonic or ten (10) Business Days’ prior notice thereof if the meeting is
in person to the others or such shorter time period as may be reasonable under the
circumstances, to discuss such matters’ regarding the Company’s business as the Members may
consider reasonable appropriate.

     6.1.3 Notice of Meetings. Each Company meeting will be held at such location
as is approved by the Members. Notice of any regular meeting of the Members shall be given
no fewer than five (5) Business Days and no more than twenty (20) Business Days
prior to the date of the meeting. Notices shall be delivered in the manner set forth
in

42

 

Section 18.1 hereof. The attendance of a Member at a meeting of the Members
shall constitute a waiver of notice of such meeting, except where a Member attends a meeting
for the express purpose of objecting to the transaction of any business because the meeting
is not properly called or convened.

     6.1.4 Quorum. All of the Members shall constitute a quorum for transaction of
business at any meeting of the Members. For purposes of this Section 6.1.4, a
Member shall be deemed present to the extent a representative of such Member who holds the
voting proxy of such Member is present. Voting proxies must be written, but such written
proxy need only name the proxy and need not contain formal authorization for specific
actions.

     6.1.5 Telephonic Meetings. The Members may participate in and act at all
meetings of the Members through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear each other.
Participation in such meetings shall constitute attendance in person at the meeting of the
person or persons so participating.

     6.1.6 Minutes. A written record of all meetings of the Members and all
decisions made by them shall be made by the Managing Member and kept in the records of the
Company and shall be delivered to each Member within ten (10) Business Days after each
meeting to be initialed or signed by each Member; provided however, that a Member’s failure
to initial or sign such minutes shall not affect or otherwise invalidate a previous properly
approved decision. The Managing Member shall prepare a proposed agenda for each regular
meeting of the Members and will distribute such agenda to each Member at the time it
provides notice to the Members in advance of any regular meeting. Additionally, the
Managing Member shall submit all materials and information as reasonably requested by the
Members to evaluate all submissions for Major Decisions.

     Section 6.2 Major Decisions. Notwithstanding any other provision of this Agreement to
the contrary, the following decisions require the approval of Managing Member and Fannie Mae
(“Major Decision(s)”):

     6.2.1 Financings. Any financing, refinancing or securitization of any Property
or any Subsidiary and the use of any proceeds thereof, including construction, interim and
permanent financing, and any other financing or refinancing of the operations of the
Company; provided no guarantees or credit enhancements shall be required from any Member or
its Affiliates without such party’s consent, the Mortgage Loan Documents entered into in
connection therewith (a) shall be non-recourse to Fannie Mae and (b) will provide that
Fannie Mae shall receive copies of all notices to the Company sent pursuant to the Mortgage
Loan Documents, and the Mortgage Loan Documents shall not impair or impede Fannie Mae’s
rights to remove the Managing Member, the Construction Manager or the Property Manager, in
accordance with this Agreement or Fannie Mae’s right to transfer its Membership Interest in
accordance with this Agreement. In furtherance of and not in limitation of the foregoing,
the Members shall approve any loan commitment
and any amendment thereto or modifications thereof prior to the execution thereof by
the Managing Member or any Subsidiary.

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     6.2.2 Business Plan. The approval of any Business Plan (and any budget with
respect to a Property or a Subsidiary) and any amendments or modifications thereto (other
than variances that are not considered material under Section 6.2.3);

     6.2.3 Operating Variances. The (a) incurring of any expense or incurring of
any obligation by or on behalf of the Company that varies materially from the Business Plan
or Operating Budget or (b) entering into (or amending or modifying) any agreement which was
not specifically included in the Operating Budget, as more particularly described in
Section 7.3 below. For purposes of clause (a) of this Section 6.2.3, such a
material variance shall be (i) expenses or obligations involving a line item that is in
excess of the amount set forth in the Business Plan or Operating Budget for such expense or
line item by more than $20,000.00, unless such variance can be funded to the extent of
actual achieved savings from another line item, or (ii) expenses or obligations involving an
amount for any transaction or any series of related transactions when taken with all prior
expenditures or obligations during the particular quarter or fiscal year related thereto
exceeds the maximum expenditure amount provided in the Business Plan or Operating Budget for
such particular transaction or series of transactions for such period by $20,000.00 for any
line item; and for the purpose of clause (b) of this Section 6.2.3, such agreement
shall be one that (i) does not expire (including extensions) by its terms within one (1)
year of execution, (ii) is not cancelable (without the payment of a termination fee or
penalty) upon the sale of an affected Property or (iii) the costs associated therewith to
the Company or a Subsidiary is not treated as a “current expense” under GAAP. If the
Managing Member, in its commercially reasonable judgment, deems it necessary, the Managing
Member may incur expenses in connection with an emergency to prevent injury to persons and
material damage to property, so long as the Managing Member has (to the extent practicable
considering the emergency in question) used reasonable commercial efforts to notify Fannie
Mae prior to incurring any such expense and the amount of such expense does not exceed
$50,000.00 for any single emergency; provided further that notwithstanding anything to the
contrary in this Section 6.2.3, the approval of the Members shall not be required
for a variance to a line item if the variance does not exceed $20,000.00, or if the variance
relates to the payment of utilities or taxes;

     6.2.4 Distributions. The determination of the amount and the timing (if other
than in accordance with Section 5.1) of distributions to the Members;

     6.2.5 Capital Calls. Requests for Additional Capital Contributions in
accordance with Section 4.3;

     6.2.6 Company Loans. Requests for Company Loans in accordance with Section
4.9;

     6.2.7 Sales. Except as provided in Section 12.10, any sale,
assignment, transfer or other disposition (including options and grants of rights of first
refusal) of all or any
part of a Company asset including a Property or a Subsidiary, except personal property
which is being sold and replaced in the ordinary course of business;

44

 

     6.2.8 Acquisitions. Subject to Section 18.20, the making of any
decision to acquire any Property, committing to make or increase any non-refundable deposit
in connection with the acquisition of any Property (or allowing any refundable deposit to
become non-refundable), the execution and delivery of any agreement, contract, binding
letter of intent or other document or instrument (an “Acquisition Contract”) to
purchase any Property, the acceptance of the form of assignment of the Acquisition Contract
to a Subsidiary if other than in the form attached hereto as Exhibit N, and the
approval of any due diligence in connection with an Acquisition Contract provided that the
Managing Member may execute and deliver an Acquisition Contract to purchase any Property and
pay a deposit with respect thereto so long as such Acquisition Contract is expressly
conditioned on approval of the Members and such deposit is fully refundable if the Members
approval is not obtained. All expenses incurred in connection with the acquisition of a
Property by the Company including the investigation and due diligence expenses of any Member
shall be deemed to be Company expenses and shall be reimbursed by the Company upon closing
under an Acquisition Contract or be paid as provided in Section 18.20 below;

     6.2.9 Rehabilitation. Approving or causing the approval of any Rehabilitation
Budget and/or Rehabilitation Plan, and/or any additions to or modifications of any
Rehabilitation Budget and/or Rehabilitation Plan; provided that if the Members fail to
approve a Rehabilitation Plan or Rehabilitation Budget, then the Managing Member shall
perform any rehabilitation in accordance with the preliminary rehabilitation budget approved
by the Members in accordance with Section 7.2.3. which approval shall include the
following: (a) the Members shall have reviewed and approved all structural reports and
structural remediation plans, if any, the final leasing and marketing plan, including a
relocation plan, if applicable, and such other documents and materials in conjunction with
such Rehabilitation Budget and/or Rehabilitation Plan as may be reasonably required by the
Members; (b) the Members shall have reviewed and approved any Rehabilitation Plan and
Rehabilitation Budget (with supporting documentation for direct and indirect rehabilitation
costs) and such other documents and materials as may be reasonably required by the Members;
and (c) Construction Manager shall execute a Construction Management Agreement in the form
attached hereto as Exhibit J. The Members shall act reasonably in approving any
Rehabilitation Budget or Rehabilitation Plan, and any addition or modification thereto;

     6.2.10 Rehabilitation Budget. Directly or indirectly causing the approval by
the Company or any Subsidiary of any individual change order or line item in any
Rehabilitation Budget during any rehabilitation of a Property in an amount of $25,000 or
more, or any change order after the aggregate amount of all change orders equals $50,000,
unless such variance is funded to the extent of actual achieved savings in other line items;

     6.2.11 Property Development. The making of any decision to develop any
Property, the execution and delivery of any document, agreement or instrument
implementing, evidencing or relating to any such decision or action (including any
development or construction contract other than the Construction Management Agreement in the
form attached hereto as Exhibit J or any document relation to the

45

 

financing thereof,
and the amount of any development or construction management fee and the parties to share in
such fees, and including any architectural or engineering agreement and material service
contracts), and the expenditure of any funds in connection with any such activity;

     6.2.12 Improvements. Any restructure, improvement, rehabilitation, alteration,
repair or construction in other than the ordinary course of business of any Property or any
property of the Company; provided, however, that the Managing Member may make any repairs
necessary in the event of an emergency subject to the limitations set forth in Section
6.2.3 without the necessity of obtaining the approval of the Members;

     6.2.13 Capital Expenditures. Any capital expenditures in an amount in excess
of $10,000.00 (or $50,000 as a result of a Force Majeure Event); provided, however, the
limitation in this Section 6.2.12 shall not apply to capital expenditures provided
for in the then current Business Plan (or any current budget with respect to a Property or
Subsidiary) which has been approved by the Members; provided, however, that the Managing
Member may subject to the limitations set forth in Section 6.2.3 make any capital
expenditures necessary in the event of an emergency;

     6.2.14 Loans and Guarantees. The Company’s incurrence of any liabilities or
obligations with regard to any debt or loan guaranties, letters of credit, hedge or hedging
agreements, completion guaranties or any contractual liability in excess of amounts set
forth in the then current Business Plan (or any current budget with respect to a Property or
Subsidiary) which has been approved by the Members, or any similar contingent liabilities or
lending money to any Person;

     6.2.15 Contracts. (a) Directly or indirectly causing the Company or the
Subsidiary to engage a construction manager in connection with the rehabilitation of any
Property, (b) directly or indirectly causing the Company or applicable Subsidiary to engage
a property manager for management of such Property, (c) the terms and conditions of any
general construction contract and any architecture agreement in connection with any
Property, and (d) directly or indirectly causing the Company or any Subsidiary to enter into
any sale, lease or license of mineral rights or oil and/or gas rights; the entering into,
amendment, modification, extension or termination of any development agreement, construction
management or development management agreement, or property management or leasing agreement
or any sale, lease or license agreement regarding mineral, oil, or gas rights or any other
material agreement with regard to the Company or a Property, other than in each case a
Construction Management Agreement in the form attached hereto as Exhibit J or a
Property Management Agreement in the form attached hereto as Exhibit F;

     6.2.16 Remedies. Terminating or pursuing a remedy under or causing Subsidiary
to terminate or pursue a remedy under any Acquisition Contract, material Basic Documents, or
Property Documents, including any Property Management Agreement,
Construction Management Agreement and/or any construction contract, provided however,
that it shall not be a Major Decision for Fannie Mae to unilaterally terminate contracts
with Affiliates of Managing Member as provided in this Agreement;

46

 

     6.2.17 Subsidiary Entities. The making of any decision and the implementing of
any decision to form a Subsidiary or any other subsidiary entity and to assign, transfer or
convey all or any portion of a Property or any other asset or property or the rights to
acquire a Property or any other asset or property to the Subsidiary or other subsidiary
entity; and all amendments or modifications to such organizational documents;

     6.2.18 Professional Services. Engaging key professional advisors such as
accountants, auditors, attorneys, engineers or other similar type or service professionals
on behalf of the Company or any Subsidiary other than in the ordinary course of business;

     6.2.19 Non-Standard Leases. Any material lease of any space within a Property
or any material amendment or modification thereto, which is not substantially in accordance
with the leasing guidelines included in the Business Plan, or any termination thereof (other
than termination of residential leases in the ordinary course of business) or the entering
into or signing a commercial lease with a tenant at the Property or making a material
modification of the terms of an existing commercial lease;

     6.2.20 Overhead. Other than as set forth in an Operating Budget, determining
the amount of overhead and other reimbursements, if any, or any salary, compensation or
other remuneration payable to any Member, or any of its Affiliates pursuant to the terms
hereof or any separate agreement between the Company and a Member or any of its Affiliates;

     6.2.21 Affiliate Transactions. The entering into or consummation of any
transaction or arrangement with any Member or any Affiliate of any Member, or any other
transaction involving an actual or potential conflict of interest, including any waiver,
modification or supplement of any terms or conditions of any agreement approved by the
Members, and the giving, making or enforcement of any rights, approvals, consents, elections
or other decisions with respect to any such transaction, agreement or arrangement;

     6.2.22 Legal Proceedings. The institution of any legal proceedings in the name
of the Company or any Subsidiary, settlement of any legal proceedings against the Company or
any Subsidiary and confession of any judgment against the Company or any Subsidiary or any
property of the Company (other than eviction and termination proceedings in respect of
tenant leases and other nonmaterial legal proceedings for the collection of amounts due and
owing to the Company from third parties and tenants undertaken in the ordinary course of
business);

     6.2.23 Tax Elections. Subject to Section 5.6 the making of all
material tax elections, determinations and other decisions under the Code and any decision
to settle or compromise any matter raised by the Internal Revenue Service. Notwithstanding
anything contained in this Agreement to the contrary, Managing Member upon reasonable
prior written notice to Fannie Mae may, without having such action approved by the Members,
make any tax election on behalf of the Company as is reasonably required to maintain or
otherwise not jeopardize, Guarantor’s status as a “real estate

47

 

investment trust” for federal
income tax purposes; provided that the effects of any such tax election shall not directly
or indirectly adversely affect the Company, any Subsidiary or Fannie Mae.

     6.2.24 Causing Subsidiary to Undertake Major Decisions. Causing or consenting
to any Subsidiary undertaking any action that if undertaken by the Company would be a Major
Decision;

     6.2.25 Separation of Funds. Commingling of any Company or Subsidiary monies
with monies of any Member or any other Person, other than the Company or a Subsidiary, or
maintaining (a) any Company funds other than in an account for the Company or (b) any
Subsidiary funds other than in an account for the Company or a Subsidiary;

     6.2.26 Amendment. The making of any material amendments or modifications of or
supplements to any instrument, agreement or other document otherwise requiring the consent
of the Members;

     6.2.27 Restoration. Any decision not to rebuild or restore a Property
following any casualty or condemnation;

     6.2.28 Insurance. Canceling, suspending or materially modifying or causing the
cancellation, suspension, or material modification of the Company’s or any Subsidiary’s
insurance coverage as shown on Exhibit D;

     6.2.29 Others. Any other act for which this Agreement requires the vote or
consent of the Members or the approval, determination, consent, adoption, ratification, or
any other action expressly reserved to the Members under this Agreement, including any
modification, amendment or renewal of any matter previously requiring the approval of the
Members; and

     6.2.30 Deadlock. If the Members are unable to agree on the matters set forth
in Sections 6.2.1 through Section 6.2.29 within seven (7) Business Days of
the later of (a) the meeting of the Members pursuant to Section 6.1 at which the
applicable Major Decision was brought to a vote or (b) the date on which the Members have
received all materials, if any, requested by the Members in connection with their
deliberations regarding such Major Decision, the issue shall be submitted to the chief
executive officer, or his designees, for the Managing Member or to any Vice President of
Community Investments for Fannie Mae. If such decision makers are unable to resolve the
issue within ten (10) days of being requested to do so, or such longer period of time as
Fannie Mae and Managing Member may mutually agree on in writing (a “Deadlock”),
then, (a) with respect to any Deadlock that relates solely to one Property, either Member
may initiate a buy-sell procedure pursuant to Section 12.5 with respect to such
Property or (b)
with respect to any Deadlock that relates to all of the Properties or materially
effects the Company taken as a whole, either Member may initiate a buy-sell procedure
pursuant to Section 12.1; provided that with respect to a Deadlock related solely to
a Major Decision set forth in Sections 6.2.1, 6.2.7, 6.2.8,
6.2.14, 6.2.20, 6.2.21, 6.2.22, 6.2.23,
6.2.25, or

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6.2.29 the issue causing such Deadlock shall be deemed not to be
approved and neither Member shall have the right to initiate a buy-sell procedure as set
forth in this Section 6.2.30; provided, that if the then current Business Plan shall
provide for the refinance of any Mortgage Loan, including the material terms of a possible
refinance (i.e. term of loan, interest rate, principal amount, financing fees or
points, and collateral), which may be stated in the alternative or provide for a range of
financial terms, and the Members, acting in good faith, do not agree upon the terms of any
such refinance, and the maturity date of such applicable Mortgage Loan is not otherwise
extended, then at any time before the date that is two hundred and ten (210) days prior to
such Mortgage Loan maturity date, either Member may initiate the buy-sell procedure pursuant
to Section 12.1 solely with respect to a Property which is the subject of such
Mortgage Loan.

     Section 6.3 Managing Member Powers. Subject to Section 6.2 and Section
6.4 and the other terms of this Agreement and the limitations imposed by law, the Managing
Member shall have all of the same powers as a managing member of a limited liability company under
the laws of the State of Delaware.

     Section 6.4 Actions Requiring Unanimous Consent. Notwithstanding the powers of the
Managing Member set forth in Section 6.3 and ARTICLE VII, or the Members set forth
in Section 6.2, but subject to the provisions of Section 11.2 without the consent
of all of the Members, neither the Managing Member nor Fannie Mae shall have the right or power to
do any of the following:

     6.4.1 Agreement. Perform any act in contravention of this Agreement, or any
amendment hereto, or amend this Agreement;

     6.4.2 Impossibility of Business. Perform any act, other than to sell, lease,
exchange, transfer, mortgage or convey all or substantially all of the Company’s assets with
the approval of the Members or as provided in ARTICLE XII, which would make it
impossible to carry on the ordinary business of the Company;

     6.4.3 Guarantee Debts. Guarantee debts or obligations of any Person other than
a Subsidiary;

     6.4.4 Purposes. Change the nature of the business conducted by the Company or
its purposes as described in Section 3.1 hereof;

     6.4.5 Percentage Interest. Change the Percentage Interest of any Member,
except as provided in Section 4.3.3.2;

     6.4.6 Company Name. Change the name of the Company or permit or cause any
Subsidiary to change the name of such Subsidiary;

     6.4.7 Admitting a Member. Except following a Managing Member Default, but
nevertheless subject to the rights of the Managing Member under Section 11.2.2 admit
an additional Person as a Member or permit or cause the Subsidiary to admit an additional
Person as a Member;

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     6.4.8 Possession or Use of Company Property. The possession or use of a
Property, a Subsidiary or any other Company asset for other than Company purposes;

     6.4.9 Dissolution or Distributions in Kind. Other than as provided in
Section 13.1, dissolve, liquidate and wind-up the affairs of the Company or directly
or indirectly causing the dissolution, liquidation, and winding-up of any Subsidiary;

     6.4.10 Bankruptcy. The filing of any voluntary petition in bankruptcy on
behalf of the Company or any Subsidiary, the consenting to the filing of any involuntary
petition in bankruptcy against the Company or any Subsidiary, the filing of any petition
seeking, or the consenting to, reorganization or relief under any applicable federal or
state law relating to bankruptcy or insolvency, the consenting to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or any Subsidiary or a substantial part of their respective property, the making of
any assignment for the benefit of creditors, the admission in writing of the Company’s or
any Subsidiary’s inability to pay its debts generally as they become due or the taking of
any action by the Company or any Subsidiary in furtherance of any such action;

     6.4.11 Merger. Enter into any agreement or contract for, or consummate, any
merger, consolidation, recapitalization, reorganization, reconstitution or any similar
rearrangement of the Company, any Subsidiary, any Property or any of the Company’s or any
Subsidiary’s equity, assets or liabilities;

     6.4.12 Company Term. Make any decision to extend the term of the Company, as
provided in Section 1.5;

     6.4.13 Receiver. Causing any property of the Company or the Subsidiary to be
subject to the authority of any court, trustee or receiver (including suits for partition
and bankruptcy, insolvency and similar proceedings);

     6.4.14 Membership. Permit a Member to resign, withdraw or retire from the
Company; or

     6.4.15 Employees. Hire any employees of the Company.

     Section 6.5 Limitations on Use of Name. Without the prior express written consent of
a Member, no Member nor its Affiliates shall use the name of another Member or any servicemarks or
other intellectual property of another Member or its Affiliates in any manner or, except as
otherwise required by law (i.e., required filings with the Securities and Exchange Commission) or
under any Mortgage Loan Document, disclose another Member’s involvement in the Company or any
Property, including, without limitation, through the issuance of a press release, any advertisement
or other communication with third parties or the general public, provided that such prohibition
shall not apply with respect to the use by Fannie Mae of the
Managing Member or its Affiliates name in connection with any loan, if so provided in any such
loan, made to Managing Member or its Affiliates by Fannie Mae.

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ARTICLE VII.

RIGHTS, POWERS AND DUTIES OF MANAGING MEMBER

     Section 7.1 Management and Control of Business; Authority of Managing Member; Managing
Member Duties. Subject to the provisions of Section 7.14 and the restrictions
contained in ARTICLE VI:

     7.1.1 General Duties. The Managing Member, acting as a fiduciary of the
Company, shall perform and carry out the day-to-day business of the Company and the duties
and other actions reasonably necessary to implement the Major Decisions, the Business Plan,
and the Operating Budget, pursuant to the terms of this Agreement, in each case in
accordance with the standard of care required of prudent and experienced third-party owners
and operators of multifamily apartment communities. The Managing Member’s duties, subject
to Section 6.2 and Section 6.4, shall include (a) using commercially
reasonable efforts to generate an acquisition pipeline for Properties, (b) coordinating and
reporting such information to Fannie Mae, (c) initiating due diligence (in accordance with
the form of checklist attached hereto as Exhibit L) and qualifying a Property, as a
condition to Members’ approval of an Acquisition Contract, (d) creating a pro forma,
determining the pricing and conducting negotiations in connection with the acquisition of a
Property pursuant to an Acquisition Contract, (e) forming, to the extent necessary in
connection with a Property acquisition, a Subsidiary where such Subsidiary’s operating
agreement shall be in a form substantially similar to Exhibit G attached hereto, (f)
conducting the day-to-day operations of the Company and each Subsidiary in substantial
compliance with the Business Plan as may be varied pursuant to Section 6.2.3 and
such other guidelines as shall be approved by the Members, (g) carrying out all decisions
approved by the Members, and (h) using commercially reasonable efforts to obtain an
appropriate credit facility with a structure approved by the Members. Subject to the
limitations set forth in this Agreement, the Construction Management Agreement and Property
Management Agreement and the guidelines, if any, approved by the Members, the Managing
Member, Construction Manager and Property Manager, as applicable, acting on behalf of the
Company, shall have the power and authority to enter into contracts and leases on behalf of
the Company in connection with the operation of any Property or Subsidiary held by the
Company in accordance with any current Business Plan, Rehabilitation Plan and Rehabilitation
Budget approved by the Members, and to make expenditures as are required to implement the
decisions of the Members. Unless expressly and specifically provided for in this Agreement,
a Property Management Agreement or in a Business Plan approved by the Members, the Managing
Member shall not be entitled to reimbursement for any indirect costs or for any direct or
indirect overhead, and the Managing Member shall not be entitled to receive any other fees
or compensation in respect of its activities as the Managing Member. The Managing Member
shall be the “manager” (as such term is defined, and used, in the Act) of the Company.

          7.1.2 Day to Day Management. In addition to and without limiting any other
duties set forth in this Agreement, the Managing Member shall oversee the operations and
management on a day-to-day basis of each Property in accordance with the

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applicable budget
and Rehabilitation Budget, if applicable, for such Property, including oversight of property
management, leasing, consulting, development, disposition and tenant services. In addition
to and without limiting any other duties set forth in this Agreement, the Managing Member
shall, subject to the terms of Section 6.2 and Section 6.4 and the
availability of adequate funds therefor in the Business Plan and from receipts or other
Company sources: (a) prepare all communications with all relevant third parties; (b) use
commercially reasonable efforts to cause the Company and the Subsidiaries, and commercially
reasonable efforts for all third parties acting on behalf of either the Company or any
Subsidiary, at all times to perform and comply with the provisions (including any provisions
requiring the expenditure of funds by the Company) of all applicable laws, regulations and
other governmental requirements, and of any loan commitment, agreement, mortgage, lease, or
other contract, instrument or agreement to which the Company or a Subsidiary is a party or
which affects any Company asset or the operation thereof; (c) use best efforts to cause the
Company each Subsidiary and all third parties and Affiliates acting on behalf of either the
Company and Subsidiary to comply, to the fullest extent commercially reasonably possible,
unless otherwise approved by the Members with the Fair Housing Act and the Americans With
Disabilities Act of 1981, as amended, (d) cause the Company and the Subsidiaries to pay in a
timely manner all non-disputed operating expenses of the Company and the Subsidiaries in
accordance with the terms of the Business Plan; (e) cause the Company and the Subsidiaries
to the extent available, to obtain and maintain insurance coverage on Properties as required
by the Members and use commercially reasonable efforts to cause the Company and the
Subsidiaries to pay all non-disputed taxes, assessments, charges and fees payable in
connection with the ownership, use and occupancy of the Properties (provided that if the
Members require that the Company maintain insurance as part of UDR, Inc.’s blanket policy,
the Company’s allocable share of deductions and premiums under such insurance policy shall
be as set forth in the Business Plan), the applicable budget for the Property or as
otherwise approved by the Members; (f) deliver to the other Members promptly upon the
receipt or sending thereof, copies of all material notices, reports and communications
between the Company or the Subsidiaries and any governmental agencies, neighboring property
owners, community groups and other relevant third parties that could have a Material Adverse
Effect on the Company, a Subsidiary or any Property and material notices, reports, and
communications from any borrower under any mortgage loan or any holder of a mortgage
affecting all or any portion of any Company assets, or any of such other parties, which
relates to any existing or pending default thereunder or to any financial or operational
information required by such Person; (g) cause the Company and the Subsidiaries to deposit
all receipts into a separate account established and maintained by the Managing Member in
the name of the Company or a Subsidiary, and not commingle those receipts with any other
funds or accounts of the Managing Member or its Affiliates; (h) if the Managing Member
subcontracts with third parties or any of its Affiliates for the performance of any of the
services to be performed by the Managing Member, or otherwise with respect to the Company or
the Subsidiaries, then the Managing Member shall supervise and oversee the performance of
the services
performed by such third parties or Affiliates; (i) execute and deliver agreements,
certificates, permit applications and similar documents (in the name of the Company or
Subsidiaries, as applicable) which are necessary to obtain loans, as well as manage any

52

 

approved financing or refinancing, on terms approved by the Members; (j) execute and deliver
all zoning requests, land use applications, permit applications and other similar documents
related to the renovation of the Properties; and (k) keep Fannie Mae informed as to any
material developments concerning the Properties. The Managing Member shall not be obligated
to make any expenditures or advance any funds on behalf of the Company or a Subsidiary
except from the accounts of funds of the Company or a Subsidiary. In addition, the Managing
Member shall not, without the prior approval of the Members (unless previously approved by
the Members or specifically provided for in the Business Plan, an Operating Budget, the
budget for a Property or in this Agreement) approve, authorize, make or implement a Major
Decision without the requisite approvals as set forth therein. Unless determined otherwise
by the Members, the Managing Member may delegate to a Property Manager pursuant to a
Property Management Agreement substantially all of the duties under this Section
7.1.2 with respect to a particular Property to be performed instead under Property
Management Agreements.

     7.1.3 Construction Management of Renovation of Properties. The Managing Member
shall include in any Rehabilitation Budget for the renovation or restoration of a Property a
contingency equal to ten percent (10%) of hard costs of construction. Without the express
written agreement of the Members, all costs of any such renovation or restoration of a
Property shall be funded by Additional Capital Contributions, except to the extent such
costs are the responsibility of the Managing Member under Section 7.2.1 below. The
Managing Member or an Affiliate shall be responsible for all construction management
services and duties described in the Construction Management Agreement(s).

     Section 7.2 Special Obligations of Managing Member. Managing Member shall have the
following special obligations.

     7.2.1 Construction Completion Guaranty. If a Rehabilitation Plan and/or a
Rehabilitation Budget is approved by the Members, then, if and when Managing Member or an
Affiliate thereof is the Construction Manager, Managing Member shall use commercially
reasonable efforts to cause Completion with respect to a Property to occur on or before the
date set forth in any Rehabilitation Plan, and Managing Member shall pay for any Cost
Overruns (the “Guaranty Funds”) in an amount necessary to cause the rehabilitation
of the Property to be completed as set forth in any Rehabilitation Plan and in accordance
with any Rehabilitation Budget, as any Rehabilitation Plan and Rehabilitation Budget may be
revised from time to time by the Subsidiary with the written consent of the Members. The
Guaranty Funds shall not be treated as either loans or Capital Contributions by Managing
Member, and in no event shall the Guaranty Funds cause an adjustment in Managing Member’s
Percentage Interest. Managing Member shall obtain or cause to be obtained all approvals
necessary to proceed with the rehabilitation and operation of the Property in accordance
with the Business Plan and any applicable Rehabilitation Plan and Rehabilitation Budget.

     7.2.2 Compliance with Laws. Managing Member shall ensure that a Rehabilitation
Plan, if any, shall comply (a) in all material respects with all applicable laws, rules,
regulations and ordinances, and (b) to the fullest extent commercially

53

 

reasonable unless
otherwise approved by the Members, with the Americans With Disabilities Act of 1990, as
amended, and the Fair Housing Act, as amended, and the regulations promulgated in connection
therewith.

     7.2.3 Construction Management. Managing Member or an Affiliate shall perform
all construction management services for the Properties pursuant to a construction
management agreement in the form attached hereto as Exhibit J for each Property
(each a “Construction Management Agreement”). In connection with any Property to be
acquired by a Subsidiary and rehabilitated, Managing Member will submit a preliminary
rehabilitation budget to the Members in connection with the Members’ review of the
acquisition of such Property. Such preliminary Rehabilitation Budget must be approved by
the Members prior to closing under the applicable Acquisition Contract. Further, within
ninety (90) days following the acquisition of such Property Managing Member shall submit a
final Rehabilitation Budget for such Property to Fannie Mae for approval pursuant to
Section 6.3.9.

     7.2.4 Development. Managing Member or an Affiliate shall be responsible for
all development activities, including contract negotiation and administration, due
diligence, site planning, design, engineering and financial analysis for a Property.
Managing Member shall also manage any redevelopment activity at any Property.

     7.2.5 Property Management. Managing Member or an Affiliate shall be
responsible for providing Property Management services to the applicable Subsidiaries
pursuant to the Property Management Agreement(s).

     7.2.6 Non-Recourse Carveout Guarantees. Managing Member shall have the
obligation to enter into one or more “bad acts non-recourse carve out” guarantees and any
construction-related guarantees in connection with the Mortgage Loans.

     Section 7.3 Operating Budget. Managing Member shall prepare and formulate or cause to
be prepared and formulated a proposed budget for each Property on a yearly basis (the
“Operating Budget”). Each Operating Budget shall set forth (a) estimated revenues and a
detail of all expenses (including taxes and debt service) on a monthly basis, (b) a description of
any anticipated capital expenditures for each month of the upcoming year and in the month such
expenditures are anticipated to be made, (c) a statement of projected cash flows on a monthly basis
and (d) a description of each of Reserves, contingencies, sources and applications of funds. The
proposed Operating Budget for each Fiscal Year, or part of a Fiscal Year, shall be submitted to
Fannie Mae for its approval not less than forty-five (45) days before the first day of the Fiscal
Year covered by such Operating Budget. During such forty-five (45) day period the Members shall
cooperate with one another and endeavor in good faith to agree to the adoption of the Operating
Budget in a timely manner. The failure of the Members to agree upon an Operating Budget in writing
within the forty-five (45) day period shall be deemed to be disapproval of the proposed Operating
Budget. If the Members have not agreed upon a Operating Budget before the commencement of a Fiscal
Year, until an Operating Budget is approved by the Members,
Managing Member shall cause the Property to be operated in accordance with the Operating
Budget most recently approved by the Members, except that (i) Managing Member shall be entitled to
cause the Company or the applicable Subsidiary to expend the actual costs of required

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insurance,
real estate taxes, utilities, and any other expenses which the Company is contractually obligated
to pay pursuant to contracts or agreements which have been entered into by the Company in
accordance with the terms of this Agreement, (ii) Managing Member may unilaterally cause up to a
maximum of $25,000 to be expended in an emergency situation to prevent personal injury or to
prevent material damage to the Property, and (iii) no new capital improvement project shall be
deemed approved and undertaken except to the extent required by the terms of any Mortgage Loan.
Managing Member shall cause each Subsidiary to maintain adequate Reserves for (a) any
rehabilitation expenditures for the applicable Property, (b) a capital replacement reserve and (c)
any other reserves required to be established and maintained pursuant to this Agreement or any of
the other Basic Documents. Managing Member shall cause each Subsidiary to maintain adequate
Reserves for (a) any rehabilitation expenditures for the applicable Property, (b) a capital
replacement reserve and (c) any other Reserves required to be established and maintained pursuant
to this Agreement or any of the other Basic Documents. With respect to Tranche 1, other than
Property identified as Lincoln at Towne Square – Phase II, the Operating Budgets in the aggregate
shall include amounts for capital expenditures which for the first year of ownership by the
Subsidiary shall be an average of $600 per dwelling unit, and any additional amounts for capital
expenditures as approved by the Members. Each Operating Budget shall include a description
(including expenses required) of each agreement proposed to be entered into by the applicable
Subsidiary which, (a) shall have a term (including extensions) of one (1) year or more, (b) shall
not be cancelable upon sale without the payment of a termination fee or penalty or (c) the costs
associated therewith to the Company or a Subsidiary will not be treated as a “current expense”
under GAAP.

     Section 7.4 Business Plan. Managing Member shall prepare and formulate or cause to be
prepared and formulated a proposed annual business plan for approval by the Members (the
“Business Plan”). The proposed Business Plan for each Fiscal Year, or part of a Fiscal
Year, when prepared by Managing Member and delivered to the Members for approval, shall include, to
the extent applicable:

     7.4.1 if applicable for that Fiscal Year, any Rehabilitation Plans, Rehabilitation
Budgets and rehabilitation schedules;

     7.4.2 a leasing and marketing plan and proforma which includes an outline of the terms
under which space at all of the Properties shall be offered for lease, and a narrative
description of any marketing and leasing activities proposed to be undertaken;

     7.4.3 an insurance and risk management program listing the insurance coverage to be
maintained by the Company or third parties for the benefit of the Company and the Members;

     7.4.4 a monthly cash flow statement for the upcoming year and a narrative of the goals
and objectives of the Property Managers for the Properties for the upcoming year together
with a projection on a quarterly basis of the Net Cash Flow expected to be distributed to
the Members during such Fiscal Year; and

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     7.4.5 such other schedules and plans as are necessary for the rehabilitation,
marketing, leasing, operation, management, financing, refinancing, sale and other
disposition of the Properties.

     The proposed Business Plan shall be submitted to Fannie Mae for its approval not less than
forty-five (45) days before the first day of the Fiscal Year covered by such Business Plan. During
such forty-five (45) day period the Members shall cooperate with one another and endeavor in good
faith to agree to the adoption of the Business Plan in a timely manner. The failure of the Members
to agree upon a Business Plan in writing within the forty-five (45) day period shall be deemed to
be disapproval of the proposed Business Plan. If the Members have not agreed upon a Business Plan
before the commencement of a Fiscal Year, then, until a Business Plan is approved by the Members,
Managing Member shall cause the Property to be developed and/or operated in accordance with the
Business Plan most recently approved by the Members and shall pay any expenses which the Company is
contractually obligated to pay pursuant to contracts which have been approved in accordance with
the terms of this Agreement except that no new capital improvement project shall be deemed approved
and undertaken except to the extent required by the terms of any Mortgage Loan.

     Section 7.5 Status Reports. Managing Member shall cause Fannie Mae to receive a
report each quarter on the status of the rehabilitation of each Property and shall advise the
Members, in advance, of the need for and timing of all anticipated Major Decisions. The reports
shall also include an updated sources and uses statement, a revenue/expense variance report
detailing variances plus/minus five percent (5%) from the Business Plan, Operating Budget and the
Rehabilitation Budget, if applicable, leasing status report, status of the Capital Accounts of the
Members, litigation status report, and during any time period that the Property is being
rehabilitated, a comparison of actual costs to any applicable Rehabilitation Budget, and such other
miscellaneous information regarding the leasing/sales trends in the vicinity of each of the
Properties.

     Section 7.6 Managing Member’s Compensation. Except for the payments to Managing
Member or its Affiliates under Section 7.12, Managing Member shall not be compensated for
its services as Managing Member.

     Section 7.7 Signing of Documents. Managing Member is authorized, in the name and on
behalf of the Company and/or the Subsidiary, to sign and deliver all contracts, agreements,
leases, notes, mortgages and other documents and instruments which are necessary, appropriate or
convenient for the conduct of the Company’s day-to-day business and the furtherance of its purposes
and within the scope of Managing Member’s authority as set forth in this ARTICLE VII or
which are necessary, appropriate or convenient to carry out Major Decisions.

     Section 7.8 Right to Rely on Authority of Managing Member. Subject to Section
6.2, no Person dealing with Managing Member shall be required to determine Managing Member’s
authority to make any undertaking on behalf of the Company, or to determine any fact or
circumstance bearing upon the existence of Managing Member’s authority.

     Section 7.9 Dealing with Related Persons. Except as otherwise provided in this
Agreement, without the prior written consent of Fannie Mae, Managing Member, on behalf of

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the Company, may neither employ nor indirectly or directly cause the employment by a
Subsidiary of a Member or an Affiliate of a Member to render or perform a service; or contract to
buy property from, or sell property to, any such Member or Affiliate; or otherwise deal with (or
directly or indirectly cause the Subsidiary to deal with) any such Member or Affiliate.

     Section 7.10 Outside Activities. Managing Member shall devote such time and attention
to the business and affairs of the Company as may be necessary for the proper performance of its
duties and the operation and management of the Company. Except as otherwise provided in this
Agreement, Managing Member, the Members and any Person who is an Affiliate of Managing Member, may
engage in or hold interests in other business ventures of every kind and description for its or
their own account, whether or not such business ventures are in direct or indirect competition with
the business of the Company, subject to the provisions of Section 18.20, and whether or not
the Company also has an interest therein. Except as provided in Section 18.20, neither the
Company nor any of the Members shall have any rights by virtue of this Agreement in such business
ventures or to the income or profits derived therefrom.

     Section 7.11 No Liability. Neither Fannie Mae’s review nor approval of any
Rehabilitation Plan and Rehabilitation Budget, or any preliminary budget, shall create any
responsibility or liability on behalf of any Member for their completeness, design, sufficiency or
their compliance with all applicable laws, including, without limitation, the Americans With
Disabilities Act of 1990, as amended, and the Fair Housing Act, as amended.

     Section 7.12 Payments to Managing Member. Managing Member shall cause each Operating
Budget to include, and shall cause the Subsidiary to pay to Managing Member or its Affiliates
concurrently with and through the escrow for a Subsidiary’s purchase of a Property, the Acquisition
Fee or for a Subsidiary’s sale of a Property, the Disposition Fee. In addition, the Company shall
pay to Managing Member or its Affiliates the Development Fee and Construction Management Fee when
the Managing Member or its Affiliates are the Construction Manager, the Property Management Fee
when the Managing Member or its Affiliate is the Property Manager and the Debt Placement Fee.

     Section 7.13 Draw Requests. Managing Member shall deliver copies of any draw requests
or other requisitions to Fannie Mae contemporaneously with its delivery of such requests to the
applicable lenders.

     Section 7.14 Limitations on the Company’s Activities. Other than as approved by the
Members, the Managing Member has not caused or permitted and will not cause or permit the Company,
the Company shall not, and the Company shall not cause or permit the Subsidiary to do any of the
following:

     7.14.1 engage, either directly or indirectly, in any business other than (a) with
respect to the Subsidiary, the ownership, management and operation of any Property and
activities incidental thereto and (b) with respect to the Company, acting as the sole member
in the Subsidiary and activities incidental thereto;

     7.14.2 own any material asset other than (a) with respect to the Subsidiaries, the
Properties and such incidental personal property (including cash) as may be necessary for

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the ownership and operation of the Properties and (b) with respect to the Company, its
limited liability company interests in the Subsidiary;

     7.14.3 except pursuant to Section 6.2.21 and Section 7.9, enter into,
or be a party to, any transaction with its members or Affiliates except in the ordinary
course of its business and on terms which are no less favorable to the Company or the
Subsidiary than would be obtained in a comparable arms-length transaction with an unrelated
third party;

     7.14.4 become insolvent or fail to pay its debts and from its assets as the same shall
become due (in each case, provided there exists adequate cash flow from the Properties to do
so);

     7.14.5 fail do all things necessary to preserve its existence and observe all
formalities applicable to it;

     7.14.6 fail to conduct its business in its own name and as presently conducted and
operated;

     7.14.7 fail to hold itself out to the public as, a legal entity separate and distinct
from any other Person (including, without limitation, any Affiliate or member, as
applicable);

     7.14.8 fail to file its own tax returns, if required;

     7.14.9 subject to the availability of adequate funds therefore, fail to maintain
adequate capital for the normal obligations reasonably foreseeable in a business of its size
and character and in light of its contemplated business operations;

     7.14.10 fail to maintain its assets in such a manner that it is not costly or difficult
to segregate, ascertain or identify its individual assets from those of any Affiliate or
member, as applicable;

     7.14.11 fail to allocate fairly and reasonably any overhead for shared office space;

     7.14.12 fail to maintain separate records (including financial statements) and accounts
from those of any Affiliate including the failure to use invoices and checks separate from
Affiliates;

     7.14.13 commingle its assets with the assets of any Affiliate other than the Company or
another Subsidiary;

     7.14.14 subject to the availability of adequate funds therefore, fail to pay its own
liabilities (including, without limitation, salaries of its own employees) from its own
funds;

     7.14.15 except as may be set forth in the Mortgage Loan Documents, guarantee or become obligated
for the debts of any other Person, including any Affiliate or hold out its credit as being
available to satisfy the obligations of others; or

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     7.14.16 pledge its assets for the benefit of any other Person (other than to the
Lender), including any Affiliate.

     7.14.17 fail to hold itself out as a separate entity from UDR or any Affiliate of UDR
(other than the Company or another Subsidiary).

     The failure of the Company, or the Managing Member on behalf of the Company, to comply with
any of the foregoing covenants or any other covenants contained in this Agreement shall not affect
the status of the Company as a separate legal entity or the limited liability of the Members.

ARTICLE VIII.

BOOKS OF ACCOUNT AND REPORTS; 

ACCESS TO RECORDS; REPORTING REQUIREMENTS.

     Section 8.1 Books and Records. Managing Member shall keep, or cause to be kept, at
the principal place of business of the Company true and correct books of account, in which shall be
kept complete and accurate details of each and every transaction of the Company or the Subsidiary,
as applicable. Each Member or his designated agent shall have access at reasonable times on
Business Days at the Company’s office to inspect the Company’s or the Subsidiary’s books of account
and all other information concerning the Company or the Subsidiary required by the Act to be made
available to Members, and may make copies at such Member’s expense. A Member must give the Company
or the Subsidiary, as applicable, written notice of its desire to exercise rights under the
preceding sentence at least five (5) Business Days in advance. The Company’s books shall be kept,
and Managing Member shall cause the Subsidiary’s books to be kept, on the accrual method of
accounting in accordance with generally accepted accounting principles, consistently applied, and
for a fiscal period which is the calendar year. Managing Member shall cause to be prepared and
distributed to each Member (a) a copy of the annual financial statements of the Company and the
Subsidiary for each Fiscal Year, and (b) information necessary to complete the Member’s federal
income tax return within ninety (90) days after the close of each Fiscal Year.

     Section 8.2 Banking. Managing Member shall cause all funds of the Company and the
Subsidiary to be deposited under such entity’s respective name in a federally-insured national
commercial bank or invested in a federally-insured savings and loan account or accounts, in U.S.
Treasury obligations, or in such bank certificates of deposit, as Managing Member determines (the
“Bank Accounts”), provided that Managing Member shall give Fannie Mae notice of the
location and account numbers of such Bank Accounts. Managing Member and Fannie Mae shall each have
signatory authority for each Bank Account. All funds shall only be used for the purposes of the
Company or the Subsidiary, as applicable, as provided in this Agreement and in accordance with the
terms hereof.

     Section 8.3 Reporting Requirements. Managing Member shall provide to each Member, or
cause each Member to be provided with, financial information as follows:

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     8.3.1  Operating Statements. On a monthly basis (a) during any time period
that a Property is being rehabilitated, a comparison of actual costs to any Rehabilitation
Budget, if applicable, and (b) a comparison of operations, on a year to date basis,
reflecting income, cash flow, and operations compared to the applicable Operating Budget and
the Business Plan.

     8.3.2 Quarterly Financial Statements. As soon as available, but in any event,
within thirty (30) days after the end of each quarter of the Fiscal Year, (a) a balance
sheet of the Company and the Subsidiaries, as of the last day of such quarter, and
statements of income, retained earnings, and cash flow, for such quarter, all in reasonable
detail, setting forth in each case in comparative form to corresponding figures for the
corresponding month in the preceding year, each such statement to be certified in a
certificate of Managing Member as accurately presenting the financial position and the
results of operations of the Company and the Subsidiaries in all material respects as of its
date and for such quarter and having been prepared in accordance with generally accepted
accounting principles consistently applied (subject to year-end audit adjustments and
footnotes and other presentation items) and (b) a comparison of the actual Net Cash Flow
distributions made to the Members against the projected Net Cash Flow distributions for such
quarter included in the annual Business Plan as well as any update or reconciliation to the
projected Net Cash Flow distributions for such Fiscal Year as a result of any variance.

     8.3.3 Audited Annual Consolidated Financial Statements. Annually, as soon as
available, but in any event within one hundred twenty (120) days after the end of each
Fiscal Year, audited consolidated financial statements of the Company, including a
consolidated balance sheet of the Company, as of such last day of the Fiscal Year, and
consolidated statements of income, retained earnings, and cash flows and all required
disclosures, for such Fiscal Year, each prepared in accordance with generally accepted
accounting principles consistently applied, in reasonable detail, and certified without
qualification by the Accountant, as accurately presenting the consolidated financial
position and consolidated results of operations of the Company and the Subsidiaries for the
year ending on its date and as having been prepared in accordance with generally accepted
accounting principles.

     8.3.4 Periodic Audits At Request of Fannie Mae. In addition to the reports
described above, Fannie Mae shall be entitled, on written notice delivered to Managing
Member at least five (5) Business Days prior to conducting such audit and during normal
business hours, to audit the books and records of the Company or the Subsidiary at any time
at the expense of the Company or the Subsidiary, as applicable, provided that if Fannie Mae
conducts more than one such audit (of the same set of books and records) in any twelve (12)
consecutive months Fannie Mae shall pay all expenses relating to the audits other than the
first, provided that such limitation shall not apply if any such audit reveals that any such
books desired to be audited have been misstated in any material respect. Fannie Mae may
require or cause the Company to engage a firm of independent certified public accountants to
perform such task.

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     8.3.5 Periodic Asset Valuation. The Company’s assets shall be valued annually
on a fair market value basis, and the Managing Member shall provide to each Member a
description of the methodology used to value all Properties in connection with the
preparation of the annual valuation of such Properties.

ARTICLE IX.

TRANSFERS OF MEMBERSHIP INTERESTS

     Section 9.1 Fannie Mae’s Right to Transfer. Fannie Mae may transfer all of its
Membership Interest at any time (a) following the expiration of the Lock-Out Period or (b) in the
event a transfer is required for regulatory compliance. At any time, Fannie Mae may transfer any
portion of its Membership Interest to an Affiliate or to any other Person provided that Fannie Mae
shall (i) guarantee all of the financial and indemnity obligations provided in this Agreement that
are associated with such Membership Interest so transferred, (ii) retain, as between Managing
Member and Fannie Mae, all voting or approval rights with respect to the Membership Interest so
transferred to a non-Affiliate and (iii) concurrent with such transfer provide Managing Member with
a true and complete copy of all documents transferring such Membership Interest, redacted with
respect to all economic terms and other terms which Fannie Mae deems confidential. Managing Member
shall have a right of first refusal with respect to Fannie Mae’s (or an Affiliate of Fannie Mae’s)
transfer of its Membership Interest, or a portion thereof, to a person that is not an Affiliate of
Fannie Mae. Managing Member may exercise this right by written notice to Fannie Mae (an
“Election Notice”) within sixty (60) days after Managing Member receives written notice,
including all material information regarding the intended transfer, from Fannie Mae of its intended
transfer, in which event Managing Member shall acquire such Membership Interest on the terms and
conditions contained in Section 12.9. Managing Member’s failure to deliver written notice
of its exercise of its right of first refusal within thirty (30) days after its receipt of Fannie
Mae’s written notice shall be deemed to be Managing Member’s election not to exercise the right of
first refusal. If Managing Member elects, or is deemed to elect, not to exercise its right to
purchase the Membership Interests, Fannie Mae may transfer such Membership Interests provided that
the purchase price shall not be less than ninety-seven percent (97%) of the purchase price last
offered to Managing Member and the other terms and conditions of such transfer are not materially
more advantageous to the transferee than those last offered to Managing Member.

     Section 9.2 Other Member’s or Assignee’s Right to Transfer. Without the prior written
consent of the Members, Managing Member shall not Transfer directly or indirectly, all or any part
of its Membership Interest, provided however, that (a) so long as there has been no Change in
Control with respect to the Managing Member, Managing Member may transfer all or a portion of its
Economic Rights to a Person that is wholly owned, directly or indirectly through one or more wholly
owned subsidiaries, by the Guarantor or to an Affiliate of Managing Member listed on Exhibit
K hereto without the prior written consent of, but upon written notice to, the other Members;
and (b) Fannie Mae shall not unreasonably withhold, condition or delay its consent to a Transfer of
Managing Member’s Membership Interest to an Affiliate, further provided that a Change in Control
shall not occur thereby.

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     Section 9.3 Transferees. Except as provided in Section 6.4.7, no transferee
of all or any portion of any Membership Interest shall be admitted as a Member unless such
Membership Interest is transferred in compliance with the applicable provisions of this Section
9.3, such transferee shall have furnished evidence of satisfaction of the requirements of this
Agreement reasonably satisfactory to the remaining Members, and such transferee shall have executed
and delivered to the Company such instruments as the remaining Members reasonably deem necessary or
desirable to effectuate the admission of such transferee as a Member and to confirm the agreement
of such transferee to be bound by all of the terms and provisions of this Agreement with respect to
such Membership Interest. At the request of any of the remaining Members, each such transferee
shall also cause to be delivered to the Company, at the transferee’s sole cost and expense, an
opinion of legal counsel reasonably acceptable to the remaining Members, to the effect that such
transferee has the legal right, power and capacity to own the Membership Interest proposed to be
transferred, and such Transfer does not violate the 1933 Act, as amended any other federal or state
securities laws and will not cause the Company to become subject to the Investment Company Act of
1940, as amended. As promptly as practicable after the admission of any Person as a Member, the
books and records of the Company shall be changed to reflect such admission. All reasonable costs
and expenses incurred by the Company in connection with any Transfer of any Membership Interest
and, if applicable, the admission of any transferee as a Member shall be paid by such transferee.
Upon satisfaction of the foregoing requirements such transferee(s) shall be admitted to the Company
and the remaining Member(s) shall promptly execute such amendments hereto to properly evidence the
admission of such transferee(s).

     Section 9.4 Non-Complying Transfers Void. Any attempted Transfer of all or any part
of a Member’s Membership Interest that does not comply with the provisions of this ARTICLE
IX and the Mortgage Loan Documents shall be null and void and of no legal effect.

ARTICLE X.

ADMISSION OF ASSIGNEES

     An Assignee has no Management Rights unless (a) the assigning Member so provides in the
instrument of assignment and (b) the Assignee agrees in writing to be bound by the provisions of
this Agreement. Until such time, the only rights of an Assignee are the Economic Rights allocable
to the Transferred Membership Interest.

ARTICLE XI.

MANAGING MEMBER DEFAULT AND REMEDIES

     Section 11.1 Managing Member Default. The occurrence of each of the following events
shall be deemed a “Managing Member Default” under this Agreement:

     11.1.1 the failure of Managing Member to comply with any of the material duties or
obligations set forth in this Agreement, within ten (10) days following written notice from
Fannie Mae describing the nature of the Managing Member Default, including, without
limitation, the failure of Managing Member to cause to be delivered the Business

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Plan, Operating Budgets, Rehabilitation Budgets, any Rehabilitation Plan, status
reports and other documentation due under Section 8.3 this Agreement in a timely
manner except that no notice or cure shall apply (a) to any action taken or permitted by
Managing Member without the approval of the Members in violation of any provision of
Section 6.2 or (b) any of the specific events of defaults enumerated below.

     11.1.2 the incurrence of costs by Managing Member on behalf of the Company which is a
Cost Overrun which is not funded or otherwise paid by Managing Member pursuant to this
Agreement, except that it shall not be deemed a Managing Member Default if any excess was
the result of increased costs arising from any one or more of the following events:

     11.1.2.1 acts of God, war, acts of terrorism or insurrection, unusual and
extraordinary inclement weather (including but not limited to hurricanes and
tornados), fires, earthquakes, strikes, lockouts, unavailability, shortages or
delays in delivery of material or equipment that a similarly situated Person acting
with reasonable prudence would not have foreseen and would not have mitigated by
making reasonable alternative arrangements or any other act outside of the
reasonable control of a party (each, a “Force Majeure Event”);

     11.1.2.2 bankruptcy or insolvency of contractors (who are not Affiliates of
Managing Member or Construction Manager);

     11.1.2.3 constitutional or legislative action or changes; and

     11.1.2.4 legal and accounting costs related to the Company or any Subsidiary
taking legal action against contractors (who are not Affiliates of Managing Member)
who refuse or are unable to perform their obligations or otherwise protecting the
Property.

     11.1.3 subject to the availability of adequate funds therefor, the failure of Managing
Member to cause the Company or the Subsidiary to make any payments within any applicable
cure periods under any of the Mortgage Loan Documents or to otherwise permit or cause a
default under such loan documents, except to the extent such failure was caused by Fannie
Mae or by Fannie Mae’s failure to fund its Capital Contribution up to the Maximum Capital
Contribution or its Additional Capital Contribution;

     11.1.4 a default under the Basic Documents by the Company, a Subsidiary or an Affiliate
of Managing Member which causes a Material Adverse Effect or for which the holder of a
Mortgage Loan is entitled to accelerate such Mortgage Loan, or by Managing Member which is
not remedied within any applicable cure periods provided in such agreements;

     11.1.5 any fraudulent, criminal or knowingly wrongful or reckless action, in each case,
by Managing Member or its Affiliates in connection with this Agreement, the rehabilitation
described in any Rehabilitation Plan or in any way directly related to the Properties, the
Company, or any Subsidiary or any failure to obtain or cause to be

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obtained approved building permits, if required, for the work described in any
Rehabilitation Plan.

     11.1.6 any negligent act or inaction of Managing Member or its Affiliates (a) which is
not cured within thirty (30) days’ of written notice from Fannie Mae or in the case of any
such act or inaction which shall have a Material Adverse Effect, within ten (10) days’
written notice from Fannie Mae, or (b) any act or inaction that constitutes a breach of
Managing Member’s fiduciary duties;

     11.1.7 a Transfer by Managing Member of Managing Member’s Membership Interest in a
manner not permitted by ARTICLE IX;

     11.1.8 (a) the voluntary filing of bankruptcy proceedings by Managing Member, the
Guarantor or the Company or causing the voluntary filing of bankruptcy proceedings by the
Subsidiary, unless Fannie Mae consented to such filing, or (b) the involuntary filing of
bankruptcy proceedings with respect to Managing Member, the Company, the Guarantor or a
Subsidiary which is not dismissed, stayed or discharged within sixty (60) days of such
filing, unless Fannie Mae consented to such filing;

     11.1.9 failure to obtain and maintain or to cause a Subsidiary to obtain and maintain
insurance in accordance with Exhibit D, which failure is not remedied within ten
(10) days after written notice from Fannie Mae;

     11.1.10 subject to a Force Majeure Event, the failure of Managing Member to use
commercially reasonable efforts to cause the timely rehabilitation of the Property in
compliance with any Rehabilitation Budget and Rehabilitation Plan, which failure is not
remedied within ten (10) days after written notice from Fannie Mae, or such longer period if
such failure is not capable of being cured within ten (10) days, not to exceed thirty (30)
days in the aggregate, so long as Managing Member commenced such cure within ten (10) days
and is diligently prosecuting such cure to completion;

     11.1.11 upon the commencement of any work, if at all, pursuant to a Rehabilitation Plan
and/or a Rehabilitation Budget, the suspension of rehabilitation of the Property for more
than fifteen (15) days, unless the cause of such suspension is due to a Force Majeure Event,
in which case a Managing Member Default shall exist only if the rehabilitation work is
suspended for more than ninety (90) days from the date of the Force Majeure Event; provided
that such limitation shall not apply if the Managing Member is using commercially reasonable
efforts to recommence such rehabilitation work as soon as possible under the circumstances;

     11.1.12 failure of Managing Member or Guarantor to pay, or cause to be paid, Cost
Overruns timely; or

     11.1.13 the intentional misrepresentation by Managing Member of a material fact or any
other misrepresentation by Managing Member which has a Material Adverse Effect.

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     Section 11.2 Removal of Managing Member. If a Managing Member Default occurs, Fannie
Mae, in its sole discretion, shall have the right to remove and replace Managing Member on written
notice to Managing Member. If Fannie Mae elects to replace Managing Member in accordance with the
terms hereof, the removed Managing Member shall continue as a Member with full Economic Rights but
without the Management Rights granted to Managing Member pursuant to this Agreement. Fannie Mae
may appoint itself or another Person as the replacement managing member. Following removal of the
Managing Member in accordance with the terms hereof, Fannie Mae shall be entitled to make any and
all decisions on behalf of the Company and to do so without regard to, or any duty owed on account
of, the Membership Interests of Managing Member. Upon removal of Managing Member, any agreement
between either the Company or the Subsidiary and Managing Member or an Affiliate of Managing Member
shall terminate, except for the Guaranty executed by the Guarantor; provided however the Guarantor
shall have no liability under the Guaranty with respect to any acts or omissions of any Person
occurring after the date of the removal of the Managing Member as provided above. In addition,
commencing on the date on which Fannie Mae removes Managing Member, any right to receive fees or
other compensation which Managing Member would be otherwise entitled to receive in connection with
the Properties or this Agreement shall immediately terminate and Fannie Mae shall have the right to
use all such fees or other compensation to pay for any costs or expenses associated with executing
third party contracts terminated as a result of the Managing Member Default, including selecting,
retaining and employing a replacement Property Manager or Construction Manager for the Property.
In addition, subject to the terms of the Mortgage Loan Documents, if a Managing Member Default
occurs, Fannie Mae, in its sole discretion, shall have the right to remove and replace any or all
officers, if any, of the Subsidiaries, or manager of the Subsidiary upon providing written notice
thereof to Managing Member. Fannie Mae, in its sole discretion, shall then have the right to
select new officers and/or managers with respect to Subsidiaries. In addition, the following shall
apply:

     11.2.1 if a Managing Member default occurs that is described in Section 11.1.5,
then in addition to the foregoing, the Managing Member shall thereafter not be entitled to
its full Economic Rights but only to the Managing Member Preferred Return, return of
Managing Member’s Capital Contributions, a return on Managing Member’s Capital Contributions
and repayment of any loans by the Managing Member under Section 4.3.3, and to no
other distributions, Profits or Losses; and

     11.2.2 if a Managing Member Default occurs that is not described in Section
11.2.1, then the Managing Member shall retain its full Economic Rights.

     Section 11.3 Purchase of Managing Member’s Membership Interest. If Managing Member is
removed because of a Managing Member Default which (a) has a Material Adverse Effect or (b) that is
described in Section 11.1.5, subject to the terms of the Mortgage Loan Documents, Fannie
Mae shall have the right, subject to Section 11.4, but not the obligation, to buy all, but
not less than all, of the removed Managing Member’s Membership Interest for an amount equal to the
removed Managing Member’s Capital Account (a “Purchase Event”). The closing on such
purchase shall be held at such time as is determined by Fannie Mae and the removed Managing Member
shall cooperate fully in the Transfer.

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     Section 11.4 Removal Right. At any time, from and after the date on which a Managing
Member Default under Section 11.2.1 shall have occurred with respect to Managing Member,
Fannie Mae may give written notice to Managing Member of Fannie Mae’s intent to remove Managing
Member as the Managing Member. Upon receipt of such notice, Managing Member shall have a period of
ten (10) days to elect to purchase all of Fannie Mae’s Membership Interest pursuant to Section
11.5 and ARTICLE XII. If Managing Member does not elect to purchase Fannie Mae’s
Membership Interest within such ten (10) day period, then Managing Member shall be deemed to be
removed as the Managing Member at the end of such ten (10) day period. If Managing Member elects
to purchase Fannie Mae’s Membership Interest within such ten (10) day period, Managing Member shall
not be removed as the Managing Member for so long as it complies with the provisions of Section
11.5 and ARTICLE XII, and Fannie Mae shall have the right to immediately remove
Managing Member as the Managing Member if Managing Member fails to so comply.

     Section 11.5 Exercise of Purchase Right. Upon receipt of Fannie Mae’s notice of
intent to terminate Managing Member as the Managing Member pursuant to Section 11.4,
Managing Member shall have the period of ten (10) days referenced in Section 11.4 during
which to notify Fannie Mae that Managing Member has elected to purchase Fannie Mae’s Membership
Interest in accordance with the provisions of Section 12.9, modified as follows: (a) the
Escrow Fund shall be equal to ten percent (10%) of the Offeree Value; (b) the closing of such
purchase shall take place on the date that is sixty (60) days after agreement by the parties on the
purchase price for Fannie Mae’s Membership Interest; (c) the determination of value should be made
as of the time prior to the events giving rise to the removal of Managing Member; (d) during the
period of the pendency of the purchase, the Members shall not vote on any Major Decisions, provided
however, that any Major Decisions approved by the Members prior to the exercise by Managing Member
of its right to purchase Fannie Mae’s Membership Interest may be effectuated in the ordinary
course; and (e) the Managing Member shall indemnify, defend and hold Fannie Mae harmless from all
damages, losses, costs, liability and expenses incurred by Fannie Mae as a result of any fact or
circumstance that would otherwise have been addressed or resolved by the approval of the Members
regarding Major Decision not brought to a vote because of the operation of the preceding clause
(d).

ARTICLE XII.

BUY-SELL PROVISIONS

     Section 12.1 Master Buy-Sell Provision. At any time after the Lock-Out Period, and,
at any time pursuant to Section 6.2.30, then any Member who is not in default hereunder for
failing to make any part of its Capital Commitment (the “Offeror”), shall have the right to
make an offer as described below (the “Buy-Sell Offer”) to any other Member (collectively,
the “Offeree”) as set forth in this ARTICLE XII.

     12.1.1 The Buy-Sell Offer shall (a) be in writing and be signed by the Offeror; (b)
specify the purchase price (the “Purchase Price”) and terms on which the Offeror
would purchase all of the assets of the Company net of all liabilities of the Company; (c)
disclose all liabilities and potential liabilities of the Company known to the Offeror and
the monetary amount of such liabilities; and (d) be for a cash purchase price. The Offeror

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shall be required, as a condition precedent to sending a Buy-Sell Offer, to deposit in
escrow at a title company or trust company approved by the Members (an “Escrow
Fund”) the lesser of (a) ten percent (10%) of the Offeree Value or (b) $3,000,000, which
amount will be subject to Section 12.3 and will be (i) applied to the payment of the
total consideration paid by the Offeror at the closing, (ii) forfeited as liquidated damages
to the Offeree in accordance with Section 12.3, or (iii) returned to the Offeror if
the Offeree elects to purchase the Offeror’s interest in the Company pursuant to Section
12.1.3.1;

     12.1.2 Contemporaneously with delivery to the Offeree, a copy of the Buy-Sell Offer
shall be delivered by the Offeror to the Accountant who shall, within fifteen (15) calendar
days or soon thereafter as is reasonable, determine and notify the Members as to the amount
the Offeree would receive as a member(s) (the “Offeree Value”) and the amount the
Offeror would receive as a member(s) (the “Offeror Value”) on account of its
interest in the Company and any loans made by such Member(s) to the Company if all Company
assets were sold for the Purchase Price, allocations under Section 5.4 were made,
all liabilities of the Company (including any loans by any such Member to the Company) were
paid in full, and the remaining proceeds distributed to the Members in accordance with
Section 5.1.3

     12.1.3 The Offeree shall have the right, exercisable by delivery of notice in writing
(the “Election”) to the Offeror within sixty (60) days from the receipt of the
Buy-Sell Offer, to elect either to:

     12.1.3.1 Sell to the Offeror all of the Offeree’s right, title and interest in
and to its interest in the Company and in any loans to the Company for a cash
purchase price equal to the Offeree Value; or

     12.1.3.2 Purchase all of the Offeror’s right, title and interest in and to its
interest in the Company and in any loans to the Company for a cash purchase price
equal to the Offeror Value. If the Offeree elects to purchase all of Offeror’s
interest in the Company pursuant to this Section 12.1.3.1, the Offeree shall
be required, as a condition precedent to making its election, to deposit in an
Escrow Fund the lesser of (a) ten percent (10%) of the Offeror Value or (b)
$3,000,000, which amount will be subject to Section 12.3 and will be (i)
applied to the payment of the total consideration paid by the Offeree at the closing
or (ii) forfeited as liquidated damages to the Offeror in accordance with
Section 12.3. Upon deposit by the Offeree in the Escrow Fund of the amount
required in this Section 12.1.3.1, any amount, which had been deposited in
the Escrow Fund by the Offeror, plus all interest earned thereon, if any, will be
returned promptly to the Offeror.

Failure of the Offeree to give the Offeror notice of the Offeree’s Election shall be deemed, upon
the expiration of such sixty (60)-day period, to be an Election to sell under Section
12.1.3.

     Section 12.2 Closing. All closings of a purchase under Section 12.1 will be
held at the Company’s principal office and shall take place on the date that is one hundred twenty
(120) days (or if such day falls on a non-Business Day, the next Business Day) after the Offeree’s
Election

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or deemed Election or as otherwise agreed by the Offeror and Offeree. All transfer taxes
imposed on the transfer shall be payable equally between the Members, and all other closing costs
shall be allocated in the manner customarily allocated between buyers and sellers of membership
interests in similar joint ventures in the State of Delaware.

     Section 12.3 Remedies; Coordination of Rights. If the purchasing party (or purchasing
parties as the case may be) is unable to close the purchase of an interest in the Company in
accordance with the terms of Section 12.1 and Section 12.2 other than as a result
of a breach of this Agreement by the selling party (or selling parties, as the case may be) or the
failure of the selling party (or selling parties, as the case may be) to perform any actions or
other obligations required to close the purchase of its interest in the Company, (a) the Escrow
Fund established by the purchasing party (or purchasing parties, as the case may be) will
immediately be forfeited to the selling party, and (b) the selling party shall have the option to
purchase the interest of the purchasing party (or purchasing parties, as the case may be) on the
terms and at the price provided in the initial Buy-Sell Offer or initiate a new Buy-Sell Offer. If
the purchasing party (or purchasing parties, as the case may be) is unable to close as a result of
a breach of this Agreement by the selling party (or selling parties, as the case may be) or the
failure of the selling party (or selling parties, as the case may be) to perform any actions or
other obligations required to close the purchase of its interest in the Company, the purchasing
party shall have the right to recover all amounts it has deposited in the Escrow Fund and enforce
the obligations of the selling party (or selling parties, as the case may be) by specific
performance in addition to all other remedies available at law or in equity to the purchasing
party. No Buy-Sell Offer may be made until all periods for making elections and performing
obligations under any previous Buy-Sell Offer pursuant to Section 12.1 shall have
terminated.

     Section 12.4 Terms Governing the Escrow Funds. An Escrow Fund, if established under
Section 12.1, shall be subject to instructions binding on the escrow agent that such Escrow
Fund may be released by the escrow agent (a) to the Offeree only upon one of the following: (i)
the sworn certification by the Offeree that the Offeror has failed to close the purchase of the
Offeree’s interest in the Company by the date set forth in Section 12.2; or (ii) the joint
signatures of the Offeree and the Offeror; or (iii) closing of the transactions described in
Section 12.1 or (b) to the Offeror, upon the sworn certification by the Offeror that the
Offeree has (i) made an Election to purchase the Offeror’s interest in the Company as provided in
Section 12.1.3.1, or (ii) failed to perform its obligations required to close the sale of
the Offeree’s interest in the Company. If established under Section 12.1.3.1, an Escrow
Fund shall be subject to instructions binding on the escrow agent that such Escrow Fund may be
released by the escrow agent (y) to the Offeror only upon (i) the sworn certification by the
Offeror that the Offeree has failed to close the purchase of the Offeror’s interest in the Company
by the date set forth in Section 12.2, (ii) the joint signatures of the Offeror and the
Offeree or (iii) closing of the transactions described in Section 12.1, or (z) to the
Offeree, upon the sworn certification by the Offeree that the Offeror has failed to perform its
obligations required to close the purchase of the Offeror’s interest in the Company.

     Section 12.5 Property Buy-Sell Provision. In addition to the rights set forth in
Section 12.1, any time after the expiration of the Restricted Period and at any time
pursuant to Section 6.2.30, any Member (the “Offering Member”) shall have the right
to make an offer either (a) to purchase a Property from the Company (or the Subsidiary, as the case
may be) (a “Property Buy 

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Offer”) or (b) to sell such Property on behalf of the Company (or the Subsidiary, as
the case may be) (a “Property Sell Offer”) to the other Member (the “Non-Offering
Member”). Either a Property Buy Offer or a Property Sell Offer may be referred to hereinafter
as a “Property Buy-Sell Offer”.

     12.5.1 Any offer made pursuant to Section 12.4 shall (a) be made to the
Non-Offering Member in writing and be signed by the Offering Member; (b) specify the
Property which is the subject of such offer (the “Subject Property”), (c) specify
whether the offer is a Property Buy Offer or a Property Sell Offer, (d) specify the purchase
price of such Subject Property (the “Property Purchase Price”) and the terms on
which such Subject Property is to be purchased or sold free and clear of all liens, claims
and encumbrances; and (e) disclose the terms and details of any discussion, refinancing or
proposed sale that the Offering Member and a third party have negotiated or discussed during
the last one hundred eighty (180) calendar days for all or any portion of the Subject
Property. The Offering Member shall be required, as a condition precedent to sending a
Property Buy-Sell Offer to deposit in an Escrow Fund the lesser of (a) five percent (5%) of
the Property Purchase Price or (b) $2,000,000, which amount will be subject to Section
12.7 and will be (i) applied to the payment of the total consideration paid by the
Offering Member at the closing of the purchase of such Subject Property, (ii) forfeited to
the Non-Offering Member as liquidated damages in accordance with Section 12.7, or
(iii) returned to the Offering Member if the Non-Offering Member elects to purchase the
Subject Property pursuant to Section 12.5.2.1; and

     12.5.2 The Non-Offering Member shall have the right, exercisable by delivery of notice
in writing (the “Property Offer Election”) to the Offering Member within thirty (30)
days from the receipt of an offer pursuant to this Section 12.5, to elect either to:

     12.5.2.1 Sell on behalf of the Company (or the Subsidiary, as applicable) to
the Offering Member the Subject Property upon the terms as set forth in the Property
Buy-Sell Offer (regardless of whether the Property Buy-Sell Offer is a Property Buy
Offer or a Property Sell Offer); or

     12.5.2.2 Purchase from the Company (or the Subsidiary, as applicable) the
Subject Property upon the terms set forth in the Property Buy-Sell Offer (regardless
of whether the Property Buy-Sell Offer is a Property Buy Offer or a Property Sell
Offer) (in which case, the Non-Offering Member shall be required, as a condition
precedent to making its election, to deposit in an Escrow Fund the lesser of (a)
five percent (5%) of the Property Purchase Price or (b) $2,000,000, which amount
will be subject to Section 12.7 and will be (i) applied to the payment of
the total consideration paid by the Non-Offering Member at the closing of the
purchase of the Subject Property or (ii) forfeited to the Offering Member as
liquidated damages in accordance with Section 12.7). Upon the deposit by
the Non-Offering Member in the Escrow Fund of the amount required in this
Section 12.5.2.2, any amount which had been deposited in the Escrow Fund by
the Offering Member, plus all interest earned thereon, if any will be returned to
the Offering Member.

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Failure of the Non-Offering Member to give the Offering Member notice of the Property Offer
Election shall be deemed, upon the expiration of such sixty (60)-day period, to be an election to
sell the Subject Property pursuant to Section 12.5.2 to the extent the Property Buy-Sell
Offer is a Property Buy Offer and an election to reject the right to purchase the Subject Property
pursuant to Section 12.5.2.1 to the extent the Property Buy-Sell Offer is a Property Sell
Offer. If neither Member shall elect or be deemed to elect to acquire or sell a Property such that
it is not certain that there is a willing buyer and willing seller of the Subject Property, then
the Managing Member shall use its reasonable efforts and diligence to sell such Subject Property at
an offer price acceptable to the Members within twelve (12) months from the issuance of the
applicable Property Buy-Sell Offer.

     Section 12.6 Closing. All closings of a purchase under Section 12.5 will be
held at the Company’s principal office and shall take place on the date sixty (60) days after the
Property Offer Election or deemed Property Offer Election or as otherwise agreed by the Offering
Member and the Non-Offering Member. All transfer taxes imposed on the transfer shall be payable by
the purchaser, and all other closing costs shall be allocated in the manner customarily allocated
between buyers and sellers of real property in the state in which such Subject Property is located.

     Section 12.7 Remedies; Coordination of Rights in Connection with Property Buy-Sell.
If the purchasing party (or purchasing parties, as the case may be) is unable to close the purchase
of the Subject Property in accordance with the terms of Section 12.5 and Section
12.6 other than as a result of the failure of the selling party to perform any actions or other
obligations required to close the sale of the Subject Property, to the extent such failure is not
due to the action or inaction of the purchasing party (or purchasing parties, as the case may be),
the Escrow Fund established by the purchasing party (or purchasing parties, as the case may be)
will immediately be forfeited to (a) the Non-Offering Member if the purchasing party (or purchasing
parties, as the case may be) is the Offering Member and (b) the Offering Member if the purchasing
party (or purchasing parties, as the case may be) is the Non-Offering Member. If the purchasing
party (or purchasing parties, as the case may be) is unable to close as a result of the failure of
the selling party to perform any actions or other obligations required to close the sale of the
Subject Property, to the extent such failure is not due to the action or inaction of the purchasing
party (or purchasing parties, as the case may be), the purchasing party (or purchasing parties, as
the case may be) shall have the right to recover all amounts it has deposited in the Escrow Fund
and enforce the obligations of the selling party by specific performance in addition to all other
remedies available at law or in equity to the purchasing party (or purchasing parties, as the case
may be). No Property Buy-Sell Offer may be made until all periods for making elections and
performing obligations under (a) any previous Property Buy-Sell Offer pursuant to Section 12.5
shall have terminated or (b) any Buy-Sell Offer previously made pursuant to Section
12.1 shall have terminated.

     Section 12.8 Terms Governing the Escrow Funds in Connection with Property Buy-Sell.
An Escrow Fund, if established under Section 12.4, shall be subject to instructions binding
on the escrow agent that such Escrow Fund may be released by the escrow agent (a) to the Member
which is not the purchasing party or an Affiliate thereof only upon (i) the sworn certification by
the Member which is not the purchasing party or an Affiliate thereof, that the purchasing party or
an Affiliate thereof has failed to close the purchase of the Subject Property;

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or (ii) the joint signatures of the Offering Member and the Non-Offering Member; or (iii)
closing of the transactions described in Section 12.5, (b) to the purchasing party, upon
the sworn certification by such purchasing party that the Company (or the Subsidiary, as the case
may be) has failed to perform its obligations required to close the sale of the Subject Property
and such failure is not due to the action or inaction of the purchasing party or an Affiliate
thereof, or (c) to the Offering Member upon the sworn certification by the Offering Member that the
Non-Offering Member has made a Property Offer Election to purchase the Subject Property as provided
in Section 12.5.2.1.

     Section 12.9 Managing Member’s Right of First Refusal to Purchase Fannie Mae’s Membership
Interest. If Managing Member elects to purchase Fannie Mae’s Membership Interest pursuant to
Section 9.1 and so long as no Managing Member Default has occurred, Managing Member shall
purchase Fannie Mae’s Membership Interest at the price and in accordance with the terms and
conditions set forth below.

     12.9.1 The purchase price (the “First Refusal Purchase Price”) shall be the
price determined in accordance with Section 12.9.1.1 if Fannie Mae has proposed to
sell its Membership Interest.

     12.9.1.1 On or before 5:00 p.m. on the tenth (10th) Business Day
after receipt of Managing Member’s Election Notice, each of Fannie Mae and Managing
Member shall submit to the other such party’s (a) best good faith determination of
the fair market value of Fannie Mae’s Membership Interest and (b) designation of an
independent MAI appraiser with at least ten years experience in appraising apartment
projects in the State of Texas (a “Qualified Appraiser”). If a party fails
to deliver a determination prior to the end of such ten (10) Business Day period,
then the determination submitted by the other party alone shall be the First Refusal
Purchase Price. If the lower value submitted pursuant to this Section
12.9.1.1 is ninety-five percent (95%) or more of the higher value, the First
Refusal Purchase Price shall be the average of Fannie Mae’s and Managing Member’s
determination of fair market value. If the lower value submitted pursuant to this
Section 12.9.1.1 is less than ninety-five percent (95%) of the higher value,
then the Qualified Appraisers shall select the more accurate of Fannie Mae’s or
Managing Member’s fair market value determinations on or before the fifteenth
(15th) Business Day after the Election Notice. If a party fails to
designate a Qualified Appraiser as provided above, then the Qualified Appraiser
designated by the other party shall alone make the determination described in the
preceding sentence. If the two Qualified Appraisers do not agree within fifteen
(15) Business Days after the Election Notice upon the selection of one of Fannie
Mae’s or Managing Member’s fair market value determinations, then the Qualified
Appraisers shall select a third Qualified Appraiser (the “Final Appraiser”)
on or before the twentieth (20th) Business Day after the Election Notice.
On or before the day that is twenty (20) Business Days after such appointment, the
Final Appraiser shall select the most accurate of Fannie Mae’s or Managing Member’s
determination of fair market value as the First Refusal Purchase Price. Each party
shall pay the fees and expenses of the Qualified

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Appraiser selected by it and fifty percent (50%) of the fees and expenses of
the Final Appraiser.

     12.9.2 Terms and Conditions of Sale. The following are the terms and
conditions pursuant to which Managing Member shall purchase Fannie Mae’s Membership
Interest:

     12.9.2.1 the First Refusal Purchase Price shall be paid to Fannie Mae in cash
at the closing;

     12.9.2.2 the closing shall be held at a place in the Washington, D.C.
metropolitan area and on a date which shall not be less than sixty (60) days nor
more than ninety (90) days after the date of the Election Notice;

     12.9.2.3 there shall be full personal liability on the part of Managing Member
to pay the First Refusal Purchase Price;

     12.9.2.4 an initial earnest money deposit of ten percent (10%) of the First
Refusal Purchase Price shall be paid, within twenty (20) days after Fannie Mae’s
receipt of the Election Notice, in escrow to a title insurance company in the
Washington, D.C. metropolitan area selected by Fannie Mae and Member;

     12.9.2.5 if Managing Member defaults in purchasing Fannie Mae’s Membership
Interest, Fannie Mae shall have the right to pursue all remedies at law and in
equity against Managing Member, including the right to cancel the purchase and
retain the earnest money deposit as liquidated damages;

     12.9.2.6 Managing Member shall defend, indemnify and hold harmless Fannie Mae
from and against all liabilities and obligations of the Company of every kind and
character, known and unknown and whether arising before or after the date of
closing, except only liabilities or obligations created or incurred directly by
Fannie Mae which (a) are not reflected on the accounting records of the Company, (b)
do not arise in the ordinary course of business of the Company, and (c) were entered
into or incurred by Fannie Mae in violation of the terms of this Agreement;

     12.9.2.7 at the closing, Managing Member shall cause the Company to repay the
principal of and interest on all loans (if any) made by any Member to the Company;

     12.9.2.8 at the closing, Managing Member shall cause Fannie Mae and its
Affiliates to be released from liability (if any) with respect to all indebtedness
of the Company for borrowed money; and

     12.9.2.9 at the closing, Fannie Mae shall execute and deliver such instruments
of assignment of its Membership Interest as Managing Member shall reasonably
request.

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     Section 12.10 Sale to Third Party. After the expiration of the Lock-out Period or
unilaterally by Fannie Mae, subject to Section 11.5, following a Managing Member Default
(without regard to the Lock-out Period), either party shall have the right to sell a Property or to
cause the Managing Member to sell a Property at any time in accordance with the following procedure
(the “Third Party Sale Procedure”).

     12.10.1 The Third Party Sale Procedure may be initiated either by Fannie Mae by a
written notice (the “Third Party Sale Notice”) to Managing Member or by Managing
Member giving a Third Party Sale Notice to Fannie Mae. Upon the receipt or giving of the
Third Party Sale Notice, Managing Member shall immediately commence marketing the Property
by listing the Property with a reputable third party brokerage company and diligently
seeking a purchaser for the Property; provided, however, that so long as there is no
Managing Member Default, the Property Manager shall have the right to serve as an exclusive
listing agent for one hundred twenty (120) days after initiation of the Third Party Sale
Procedure if each of the following conditions are satisfied: (a) the term of the engagement
set forth in a written brokerage agreement shall not exceed ninety (90) days; (b) any
brokerage fee to be paid by the Company as seller shall be an amount equal to the lesser of:
(i) one percent (1%) of the consideration for the sale of the Property, or (ii) the
prevailing customary fee paid for similar transactions in the county in which the Property
is located; and (c) to the extent the price obtained for the Property does not generate
proceeds in an amount sufficient to return to Fannie Mae all of its Unreturned Capital for
such Property Managing Member shall be paid a brokerage fee equal to .05% but no Disposition
Fee. If Property Manager serves as the exclusive listing agent, so long as Property Manager
enters into a binding purchase and sale agreement for the sale of the Property prior to the
expiration of the one hundred twenty (120) day period, Property Manager shall continue to be
the exclusive listing agent for the Property until the closing (or earlier termination) of
the sale contemplated by the purchase and sale agreement (but in no event beyond the date
that is one hundred eighty (180) days after initiation of the Third Party Sale Procedure).

     12.10.2 Notwithstanding anything herein to the contrary including the provisions of
Section 6.3, upon the occurrence of a Managing Member Default, Fannie Mae shall have
the right to take such actions, on behalf of the Company or a Subsidiary, as it deems
necessary or appropriate in order to solicit and obtain a purchaser for one or more
Properties. The terms of any sale of a Property shall be subject solely to the approval of
Fannie Mae and Fannie Mae shall have the sole right to accept any offer from a bona
fide third party as it deems reasonably appropriate; provided however that the terms of
such sale shall not modify the terms of this Operating Agreement or expose a Member to
personal liability to the buyer of such Property.

     12.10.3 Any sale of a Property to a third-party Person shall contain restrictions on
the rights of such purchaser (or any assignee of such purchaser) to convert to condominiums
for a period of ten (10) years from the later of (a) the date of the certificate of
occupancy with respect to such Property or (b) the acquisition of such Property by the
Company or its Subsidiary, provided however, that Managing Member may enter into an
agreement to sell a Property to a Person who intends to convert it to condominiums if
Managing Member obtains (i) an indemnification from such purchaser

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or assignee, as applicable, which indemnification shall be satisfactory in form and
substance to the Members, (ii) insurance to cover any claims by any condominium purchasers
satisfactory in amount and substance to the Members, and (iii) an escrow for Reserves to
cover any potential claims by any condominium purchasers satisfactory in amount and
substance to the Members, provided that following a Managing Member Default, the
satisfaction of such items shall be in Fannie Mae’s sole discretion; provided however that
the terms of such sale shall not modify the terms of this Operating Agreement or expose a
Member to personal liability to the buyer of such Property.

ARTICLE XIII.

DISSOLUTION OF COMPANY

     Section 13.1 Events Causing Dissolution. The Company shall be dissolved and its
affairs wound up upon the occurrence of any of the following events:

     13.1.1 the sale, exchange, or other disposition by the Company or all Subsidiaries of
all or substantially all of their respective assets; provided, however, that
if, in connection with such sale or other disposition, the Company or the Subsidiaries, as
applicable, receives a promissory note or notes evidencing all or a part of the purchase
price of such properties, the Company shall not be dissolved until such promissory note(s)
is (are) satisfied, sold or otherwise disposed of;

     13.1.2 expiration of the term of the Company as provided in Section 1.5;

     13.1.3 the determination in writing by the Members that the Company shall be dissolved;

     13.1.4 the last remaining Member ceases to be a member of the Company, unless the
Company is continued without dissolution in accordance with the Act; or

     13.1.5 the entry of a decree of judicial dissolution under the Act.

     The Company shall not be dissolved by the death, resignation, withdrawal, bankruptcy or
dissolution of a Member. The bankruptcy (as defined in the Act) shall not cause a Member to cease
to be a member of the Company and, upon the occurrence of any such event, the Company shall
continue without dissolution.

     Section 13.2 Winding Up. If the Company is dissolved, then Managing Member shall
proceed with dispatch and without any unnecessary delay to sell or otherwise liquidate all property
of the Company. Any act or event (including the passage of time) causing a dissolution of the
Company shall in no way affect the validity of, or shorten the term of, any lease, deed of trust,
mortgage, contract or other obligation entered into by or on behalf of the Company.

     Section 13.3 Application of Assets in Winding Up. In winding up the Company, after
paying or making provision for payment of all of its liabilities and paying all other costs and
expenses incurred in connection with winding up and terminating the Company, Managing Member shall
distribute the remaining net proceeds and liquid assets among the Members in the

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manner specified in Section 5.1.3. If the Company makes distributions in kind of
Company assets which secures indebtedness, each of the Members receiving the distribution of
property subject to the indebtedness will be severally liable (as among each other, but not for the
benefit of others) for its proportionate share of the indebtedness, provided that no Member will be
deemed to have assumed any personal liability on any indebtedness secured by property distributed
to any Member for which the Member is not personally liable under the terms of the instrument
creating the indebtedness, and provided that the liability of each Member to other Members for
indebtedness secured by property distributed to it will be limited to the value of its interest in
the property distributed and indebtedness secured by property distributed to Members in kind need
not be discharged out of the proceeds of liquidation of the Company.

     Section 13.4 Negative Capital Accounts. If, after the allocation of the Profit or
Loss from a Terminating Capital Transaction pursuant to Section 5.3 or Section 5.4
and the distribution of the Capital Proceeds from the Terminating Capital Transaction among the
Members and upon final liquidation of the Company, the Capital Account of any Member is negative,
the Member shall not be obligated to restore the negative balance in its Capital Account.

     Section 13.5 Termination. The Company shall terminate, except for the purpose of
suits, other proceedings, and appropriate action as provided in the Act, when all of its property
shall have been disposed of and the net proceeds and liquid assets, after satisfaction of
liabilities to Company creditors, shall have been distributed among the Members. As soon as
practicable after the termination of the Company, Managing Member shall cause a certificate of
cancellation to be filed with the Secretary of State. With the consent of the Members, Managing
Member shall have authority to distribute any Company property discovered after dissolution, convey
real estate, and take such other action as may be necessary on behalf of and in the name of the
Company.

     Section 13.6 Effect of Bankruptcy, Death or Incompetency of a Member. The bankruptcy,
death, dissolution, liquidation, termination or adjudication of incompetency of a Member shall not
cause the termination or dissolution of the Company and the business of the Company shall continue.
Upon any such occurrence, the personal representative, trustee, receiver, executor, administrator,
committee, guardian or conservator of such Member shall have all the rights of such Member for the
purpose of settling or managing its estate or property, subject to satisfying conditions precedent
to the admission of such assignee as a substitute Member. The transfer by such personal
representative, trustee, receiver, executor, administrator, committee, guardian or conservator of
any Membership Interest shall be subject to all of the restrictions, hereunder to which such
transfer would have been subject if such transfer had been made by such bankrupt, deceased,
dissolved, liquidated, terminated or incompetent Member.

ARTICLE XIV.

AMENDMENTS

     This Agreement may not be amended or modified without the written consent of all Members;
provided that, subject to Section 6.5, following a Managing Member Default, this

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Agreement may be amended without the written consent of the Managing Member to the extent
necessary to allow Fannie Mae to effectuate its rights under Section 6.4.7 and Section
11.2.

ARTICLE XV.

INVESTMENT REPRESENTATIONS OF THE MEMBERS

     Section 15.1 Investment Intent. Each of the Members represents and warrants to the
Company and to each of the other Members that the Member has acquired its interest in the Company
for investment, solely for its own account, with the intention of holding the interest for
investment, and without any intention of participating directly or indirectly in any redistribution
or resale of any portion of the interest in violation of the 1933 Act or any applicable state
securities law.

     Section 15.2 Unregistered Company Interests. Each of the Members acknowledges that
the Member is aware that its interest in the Company has not been registered under the 1933 Act in
reliance upon exemptions contained in the 1933 Act and that its interest in the Company has not
been registered under the securities law of any state in reliance upon the exemptions contained in
such state securities law. Each of the Members further understands and acknowledges that its
representations and warranties contained in this ARTICLE XV are being relied upon by the
Company and by the Members as the basis for exemption of the issuance of the Member’s interest in
the Company from registration requirements of the 1933 Act and all applicable state securities
laws. Each of the Members further acknowledges that the Company will not and has no obligation to
register the Member’s interest in the Company under the 1933 Act or any state securities law and
that the Company shall have no obligation to recognize any sale, transfer or assignment of the
Member’s interest in the Company to any person unless the sale, transfer or assignment is otherwise
permitted under this Agreement.

     Section 15.3 Nature of Investment. Each of the Members represents that it is familiar
with this Agreement, and with the proposed business and affairs of the Company, and that except as
otherwise specifically provided in this Agreement, the Member does not desire any further
information or data relating to the Company. Each of the Members acknowledges that it understands
that the acquisition of the Member’s interest in the Company is a speculative investment involving
a high degree of risk and represents that it has been given an opportunity to ask questions and
review such financial and other matters as it deems appropriate, it has satisfied itself regarding
all matters related to this investment and it has a net worth sufficient to bear the economic risk
of the Member’s investment in the Company and to justify the Member investing in a highly
speculative venture of this type.

     Section 15.4 Legend on Agreement. Each of the Members acknowledges that a legend
reflecting the restrictions imposed upon the transfer of its interest in the Company under this
Agreement, under the 1933 Act and under applicable state securities laws has been placed on the
first page of this Agreement and may be placed on any amendments to this Agreement.

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ARTICLE XVI.

REPRESENTATIONS AND WARRANTIES

     Section 16.1 Representations and Warranties of the Members. Each Member represents
and warrants to the other Members as follows:

     16.1.1 Due Organization. It is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation with all requisite power and
authority to enter into this Agreement and to conduct the business of the Company.

     16.1.2 Legal and Binding. This Agreement was duly authorized by all necessary
action by the Member and constitutes the legal, valid and binding obligation of the Member
enforceable in accordance with its terms.

     16.1.3 No Consents. No consents or approvals are required from any
governmental authority or other person or entity for the Member to enter into this Agreement
and the Company. All limited liability company, corporate or partnership action on the part
of the Member necessary for the authorization, execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby, have been duly taken.

     16.1.4 No Conflicts. The execution and delivery of this Agreement by the
Member, and the consummation of the transactions contemplated hereby, does not conflict with
or contravene the provisions of its organizational documents or any agreement or instrument
by which it or its properties are bound or any law, rule, regulation, order or decree to
which it or its properties are subject.

     16.1.5 No Brokers. Other than placement agents for the Mortgage Loans or any
other financings for the Company or a Subsidiary and Wachovia Capital Markets (which fee(s)
are payable by Managing Member), neither Member has retained any broker, finder or other
commission or fee agent and no such person has acted on its behalf in connection with the
acquisition of the Membership Interest herein provided or the execution and delivery of this
Agreement.

     16.1.6 Prohibited Person and Transactions. Managing Member and its Affiliates
(a) are, and shall remain, in compliance with all applicable anti-money laundering laws,
including, without limitation, the USA PATRIOT Act, and the laws administered by the United
States Treasury Department’s Office of Foreign Assets Control (“OFAC”), including,
without limitation, Executive Order 13224 (as amended or modified from time to time), (b)
are not, and shall not be, on the OFAC Specially Designated Nationals and Blocked Persons
List, which, as of the date hereof, may be accessed through the following Internet address:
http://www.treas.gov/offices/enforcement/ofac, and (c) are not, and shall not be, otherwise
identified by government or legal authority as a person with whom a U.S. Person (as defined
below) is prohibited from transacting business. Managing Member covenants and agrees to
deliver to Fannie Mae any certification or other evidence requested from time to time by
Fannie Mae in its reasonable discretion

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confirming Managing Member’s compliance with this Section 16.1.6. As used
herein, “U.S. Person” shall mean any United States citizen, any permanent resident
alien, any entity organized under the laws of the United States (including foreign branches)
or its political subdivisions, or any person in the United States.

     Section 16.2 Managing Member Representations and Warranties. The Managing Member
represents and warrants to Fannie Mae that attached hereto as Exhibit K is an
organizational chart of the ownership of the Managing Member together with a listing of the
executive officers of the Managing Member as of the Effective Date.

ARTICLE XVII.

INDEMNITY

     Section 17.1 Indemnity. Each Member (“Indemnitor”) shall indemnify and hold
harmless the other Member and any employee, representative, agent or Affiliate of such Member
(collectively, the “Indemnitees”), to the fullest extent permitted by applicable law, from
and against any and all claims, losses, costs, expenses, damages, and causes of actions, including
reasonable attorney’s fees, incurred by the Indemnitees out of or in connection with (a) an
intentional misrepresentation by such Indemnitor of a material fact or other misrepresentation that
has a Material Adverse Effect and (b) any act performed or omitted by Indemnitor and arising out of
or in connection with this Agreement that (i) is not performed in good faith, (ii) is not
reasonably believed by such Indemnitor to be in the best interests of the Company, (iii) is not
within the scope of authority conferred upon such Indemnitor or (iv) constitutes fraud, bad faith,
willful misconduct or a material breach of this Agreement or (v) as to the Managing Member, a
breach of its fiduciary duties owed to the Company. Further, Fannie Mae shall indemnify, defend
and hold harmless Managing Member and the Guarantor from and against all claims, losses, costs,
expenses, damages, and causes of actions, including reasonable attorney’s fees, incurred by
Managing Member or the Guarantor proximately caused by Fannie Mae, knowingly and intentionally
requiring the Managing Member to cause the Company or a Subsidiary to violate restrictive covenants
in any “bad-boy” non-recourse carve out guaranty in connection with a Mortgage Loan, approved by
Fannie Mae that results in any liability under any “bad acts non-recourse carve out” or
construction related guaranties.

ARTICLE XVIII.

MISCELLANEOUS PROVISIONS

     Section 18.1 Notices. All notices, demands, consents, approvals or other
communications (collectively, a “Notice”) provided for in this Agreement or required by law
shall be in writing and shall be sent by overnight delivery service, private courier service,
certified or registered mail, return receipt requested, first class postage prepaid or confirmed
facsimile transmission (followed by delivery of hard copy by one of the above methods), addressed
to the Member at the address for Notices set forth opposite or beneath such Member’s signature at
the foot of this Agreement (or, in the case of a Person who becomes a Member after the Effective
Date, at the address for Notices furnished by such Person to the Company at the time of his
admission), unless Notice of a change of address is given to the Company and all

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Members pursuant to the provisions of this Section 18.1; a copy of any such notice to
Fannie Mae shall also be sent to Fannie Mae, Legal Department, Attention: Sara Todd, Esq., 3900
Wisconsin Avenue, NW, Washington, D.C. 20016, Facsimile: (301) 204-8703, and a copy of any such
notice sent to Managing Member shall also be sent to Warren L. Troupe, Esq., Morrison & Foerster
LLP, 5200 Republic Plaza, 370 Seventeenth Street, Denver, Colorado 80202, Facsimile: (303)
592-1510. Notices shall be deemed delivered (and specified response periods shall commence) three
(3) days after the date of mailing of a Notice sent by mail or on the date of receipt of a notice
delivered by courier, overnight delivery service or facsimile transmissions. Any Notice sent by
mail which is required to be given within a stated period of time shall be considered timely if
postmarked before midnight of the last day of such period. Notices given by counsel for any Member
shall be deemed valid Notices if addressed and sent in accordance with the provisions of this
Section 18.1.

     Section 18.2 Integration. This Agreement sets forth all (and is intended by all
parties hereto to be an integration of all) of the promises, agreements, conditions,
understandings, warranties and representations among the parties hereto with respect to the
Company, the Company business and the property of the Company, and there are no promises,
agreements, conditions, understanding, warranties, or representations, oral or written, express or
implied, among them other than as set forth herein.

     Section 18.3 Governing Law and Exclusive Jurisdiction. It is the intention of the
parties that all questions with respect to the construction of this Agreement and the rights and
liabilities of the parties hereto shall be determined in accordance with the laws of the State of
Delaware. Any legal action or proceeding with respect to this Agreement may be brought in the
courts of the State of Delaware or of the United States District Court in Delaware, and by
execution and delivery of this Agreement, the parties consent to the non-exclusive jurisdiction of
those courts. Each party irrevocably waives any objection, including any objection to the laying
of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this Agreement. Each party
waives personal service of any summons, complaint or other process, which may be made by any other
means permitted by the law of the State of Delaware.

     Section 18.4 Binding Effect. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective spouses, heirs, executors, administrators,
personal and legal representatives, successors and assigns.

     Section 18.5 Promotions; Signage. Subject to the limitations contained in Section
6.5, the Company may make appropriate announcements regarding the rehabilitation and operation
of the Property in local and national news media and national trade publications with the consent
of Fannie Mae.

     Section 18.6 Payments. Any and all amounts payable to Fannie Mae under or in
connection with this Agreement, including, without limitation, any and all distributions, shall be
made in immediately available good funds via wire transfer to the following account:

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Fannie Mae/NYC

ABA # 021 039 500

Acct # GR205

Attn: Market Rate
Equity

Re: UDR Texas Ventures

     Section 18.7 Action Without Dissolution. To the extent permitted by law, a Member
shall be entitled to maintain, on its own behalf or on behalf of the Company, any action or
proceeding against the other Member, Guarantor or the Company (including an action for damages,
specific performance, or injunctive or declaratory relief) for or by reason of the tortuous conduct
of such party or the breach by such party of this Agreement or any of the other Property Agreements
or any other agreement entered into with such party in connection with the transactions
contemplated hereunder, and the bringing of such action or proceeding shall not, in and of itself,
cause or require the dissolution of the Company or an accounting of the Company’s assets or
affairs.

     Section 18.8 Attorney Fees. If the Company or any Member obtains a judgment against
any Member by reason of the breach of this Agreement or the failure to comply with the terms
hereof, reasonable attorneys’ fees and costs as fixed by the court shall be included in such
judgment.

     Section 18.9 Captions. All titles or captions contained in this Agreement are
inserted only as a matter of convenience and for reference and in no way define, limit, extend, or
describe the scope of this Agreement or the intent of any provision in this Agreement.

     Section 18.10 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, and neuter, singular and plural, as the identity of the party or
parties may require.

     Section 18.11 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective executors, administrators, legal representatives, heirs,
successors and assigns, and shall inure to the benefit of the parties hereto and, except as
otherwise provided herein, their respective executors, administrators, legal representatives,
heirs, successors and assigns.

     Section 18.12 Extension Not a Waiver. No delay or omission in the exercise of any
power, remedy or right herein provided or otherwise available to a Member or the Company shall
impair or affect the right of such Member or the Company thereafter to exercise the same. Any
extension of time or other indulgence granted to a Member hereunder shall not otherwise alter or
affect any power, remedy or right of any other Member or of the Company, or the obligations of the
Member to whom such extension or indulgence is granted.

     Section 18.13 Creditors and Third Parties Not Benefited. Nothing contained in this
Agreement is intended or shall be deemed to benefit any third party or creditor of the Company or
any Member, and no third party or creditor of the Company shall be entitled to require the Company
or the Members to solicit or accept any Additional Capital Contribution for the

80

 

Company or to enforce any right which the Company or any Member may have against any Member
under this Agreement.

     Section 18.14 Recalculations of Interest. If any applicable law is ever judicially
interpreted so as to deem any distribution, contribution, payment or other amount received by any
Member or the Company under this Agreement as interest and so as to render any such amount in
excess of the maximum rate or amount of interest permitted by applicable law, then it is the
express intent of the Members and the Company that all amounts in excess of the highest lawful rate
or amount theretofore collected be credited against any other distributions, contributions,
payments or other amounts to be paid by the recipient of the excess amount or refunded to the
appropriate Person, and the provisions of this Agreement immediately be deemed reformed, without
the necessity of the execution of any new document, so as to comply with the applicable law, but so
as to permit the payment of the fullest amount otherwise required hereunder. All sums paid or
agreed to be paid that are judicially determined to be interest shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the term of such obligation
so that the rate or amount of interest on account of such obligation does not exceed the maximum
rate or amount of interest permitted under applicable law.

     Section 18.15 Severability. In case any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions contained herein and
other application thereof shall not in any way be affected or impaired thereby; provided, however,
the limitation of liability and exculpation provisions of this Agreement are an integral part
hereof.

     Section 18.16 Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the subject matter hereof and all prior agreements relative hereto which
are not contained herein are terminated. Amendments, variations, modifications or changes herein
may be made effective and binding upon the Members by, and only by, the setting forth of same in a
document duly executed by each Member, and any alleged amendment, variation, modification or change
herein which is not so documented shall not be effective as to any Member.

     Section 18.17 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original but all of which together shall constitute but one and the same
agreement.

     Section 18.18 Confidentiality.

     18.18.1 The terms of this Agreement, the identity of any person with whom the Company
may be holding discussions with respect to any investment, acquisition, disposition or other
transaction, and all other business, financial or other information relating directly to the
conduct of the business and affairs of the Company or the relative or absolute rights or
interests of any of the Members (collectively, the “Confidential Information”) that
has not been publicly disclosed pursuant to authorization by the Members is confidential and
proprietary information of the Company, the disclosure of which would cause irreparable harm
to the Company and the Members. Accordingly,

81

 

each Member represents that it has not and agrees that it will not and will direct its
shareholders, partners, directors, officers, agents, advisors and Affiliates not to,
disclose to any Person any Confidential Information or confirm any statement made by third
Persons regarding Confidential Information until the Company has publicly disclosed the
Confidential Information pursuant to authorization by the Members and has notified each
Member that it has done so; provided, however, any Member (or its Affiliates) may disclose
such Confidential Information (a) to any of its or its Affiliates, directors, officers,
investment advisors, auditors, employees, members, shareholders, outside regulators,
attorneys and accountants for whom such Member shall be responsible, (b) if required by law
(it being specifically understood and agreed that anything set forth in a registration
statement or any other document filed pursuant to law will be deemed required by law) or (c)
necessary for it to perform any of its duties or obligations hereunder or in any Property
Management Agreement to which it is a party covering any Company property or any of the
Properties.

     18.18.2 Subject to the exceptions set forth in Section 18.18.1, each Member
agrees not to disclose any Confidential Information to any Person (other than a Person set
forth in the proviso of Section 18.18 a judge, magistrate or referee or other
Persons involved in any action, suit or proceeding relating to or arising out of this
Agreement or otherwise), and to keep confidential all documents (including responses to
discovery requests) containing any Confidential Information, except to the extent such
Confidential Information is already in the public domain or in such Member’s reasonable
discretion required to be made in, or properly the subject of, any disclosure in any filings
with the United States Securities and Exchange Commission or other governmental jurisdiction
over such Member. Each Member hereby consents in advance to any motion for any protective
order brought by any other Member represented as being intended by the motion to implement
the purposes of this Section 18.18.1 provided that, if a Member receives a request
to disclose any Confidential Information under the terms of what such Member believes in
good faith to be a valid and effective order issued by a court or governmental agency and
the order was not sought by or on behalf of or consented to by such Member, then such Member
may disclose the Confidential Information to the extent required if the Member as promptly
as practicable notifies each of the other Members of the existence, terms and circumstances
of the order, consults in good faith with each of the other Members on the advisability of
taking legally available steps to resist or to narrow the order, and if disclosure of the
Confidential Information is required, exercises commercially reasonable efforts to obtain a
protective order or other reliable assurance that confidential treatment will be accorded to
the portion of the disclosed Confidential Information that any other Member designates. The
cost (including attorneys’ fees and expenses) of obtaining a protective order covering
Confidential Information designated by such other Member will be borne by the Company.

     18.18.3 The covenants contained in this Section 18.18 will survive the Transfer
of the Membership Interest of any Member and the termination of the Company.

     18.18.4 Notwithstanding anything in this Agreement to the contrary, each Member (and
each employee, representative, or other agent of such Member) may disclose to any Persons
for which such knowledge is necessary for the representation of a

82

 

Member, the Company or any Subsidiary or such disclosure is otherwise required by law,
the tax treatment and tax structure of the Company and all materials of any kind (including
opinions or other tax analyses) that are provided to the Member relating to such tax
treatment and tax structure.

     Section 18.19 Arbitration.

     18.19.1 Any dispute among the Members as to the interpretation of any provision of this
Agreement or the rights and obligations of any Member hereunder other than (a) for the
determination of fair market value or (b) as specified in Section 6.2.30 shall be
resolved through binding arbitration as hereinafter provided in Washington, DC.

     18.19.2 If arbitration is required to resolve a dispute among the Members, either the
Managing Member or Fannie Mae may notify the Washington, DC office of the American
Arbitration Association (“AAA”) and request the AAA to select one Person to act as
the arbitrator for resolution of the dispute.

     18.19.3 The arbitrator selected pursuant to Section 18.19.2 will establish the
rules for proceeding with the arbitration of the dispute, which will be binding upon all
parties to the arbitration proceeding. The arbitrator may use the rules of the AAA for
commercial arbitration but is encouraged to adopt the rules the arbitrator deems appropriate
to accomplish the arbitration in the quickest and least expensive manner possible.
Accordingly, the arbitrator may (a) dispense with any formal rules of evidence and allow
hearsay testimony so as to limit the number of witnesses required, (b) accept evidence of
property values or the values of Company interests without formal appraisals and upon such
information provided by Members or other Persons and otherwise minimize discovery procedures
as the arbitrator deems appropriate, (c) act upon his understanding or interpretation of the
law on any issue without the obligation to research the issue or accept or act upon briefs
of the issue prepared by any party, (d) limit the time for presentation of any party’s case
as well as the amount of information or number of witnesses to be presented in connection
with any hearing, and (e) impose any other rules that the arbitrator believes appropriate to
effect a resolution of the dispute as quickly and inexpensively as possible. In any event,
the arbitrator (i) shall permit each side no more than two depositions (including any
deposition of experts), which depositions may not exceed four hours each, one set of ten
interrogatories (inclusive of sub-parts) and one set of five document requests (inclusive of
sub-parts), (ii) shall not permit any requests for admissions, (iii) shall limit the
hearing, if any, to two (2) days, and (iv) shall render his or her decision within sixty
(60) days of the filing of the arbitration.

     18.19.4 The arbitrator will have the exclusive authority to determine and award costs
of arbitration and the costs incurred by any party for its attorneys, advisors and
consultants.

     18.19.5 Any award made by the arbitrator shall be binding on the Members, the Company
and all parties to the arbitration and shall be enforceable to the fullest extent of the
law.

83

 

     18.19.6 Notwithstanding the foregoing, if a dispute shall arise in connection with
Section 7.1.2(c) relating to compliance with the Fair Housing Act or the Americans
with Disabilities Act of 1981, as amended, then the Person who shall act as the arbitrator
shall be selected by Fannie Mae or otherwise approved solely by Fannie Mae in its sole
discretion; provided however such Person shall be experienced in issues relating to
compliance with the Fair Housing Act or the Americans with Disabilities Act of 1981, as
amended, as applicable, and shall not be affiliated with Fannie Mae..

     Section 18.20 Exclusivity. During the Investment Period or such earlier date as
Fannie Mae ceases to be a Member of the Company (the “Restricted Period”), Managing Member
shall present to Fannie Mae, in reasonable detail, any opportunities to acquire or develop,
directly or indirectly, any Property that Managing Member or any Affiliate thereof would reasonably
pursue for its own account and which satisfies the Investment Criteria in accordance with the
following procedures:

     18.20.1 In connection with each proposed acquisition, the Managing Member shall deliver
to Fannie Mae a written notice including the proposed terms of the transaction. Fannie Mae
shall have ten (10) Business Days following the day of its receipt of such information to
provide to Managing Member, in its sole and absolute discretion, a written disapproval or
written preliminary approval of the proposed acquisition presented to Fannie Mae. If Fannie
Mae does not initially approve or if it rejects such proposed acquisition within such ten
(10) Business Day period, then Managing Member shall have the right for an additional
forty-eight (48) hours to obtain an equity investor on the same terms as set forth in this
Agreement provided that Managing Member shall not consummate a proposed acquisition with
such other equity investor if Fannie Mae shall approve of such investment within twelve (12)
Business Days of receipt of the written notice. Fannie Mae’s failure to respond in writing
within such twelve (12) Business Day period shall be deemed a disapproval of the proposed
acquisition. If Fannie Mae disapproves or is deemed to disapprove of any proposed
acquisition, Managing Member shall no longer pursue such proposed acquisition on behalf of
the Company (although the Managing Member and/or its Affiliates shall have the right to
pursue such acquisition on behalf of itself or any Affiliate or any other client of Managing
Member, provided that (a) the offering price of such acquisition to an alternative investor
shall not be less than ninety-seven percent (97%) of, (b) the terms and conditions of the
acquisition shall not be materially more favorable than that presented to Fannie Mae, with
the Managing Member, or other Affiliate acting in good faith in connection with such
pursuit, and (c) the Managing Member shall pay, or if advanced by the Company or Subsidiary,
reimburse the Company or Subsidiary, as applicable, all third party costs incurred in
connection with due diligence conducted with respect to such Property). Managing Member
acknowledges that Fannie Mae’s preliminary approval of a proposed acquisition is not a
binding commitment to acquire such Property, and Fannie Mae may disapprove a proposed
acquisition in its sole and absolute discretion without liability hereunder at any time
after granting preliminary approval for any reason whatsoever.

     18.20.2 Once Fannie Mae has given its preliminary approval for a proposed acquisition,
a comprehensive and thorough due diligence review must be conducted

84

 

before the proposed acquisition can be considered for final approval. The Members
agree that the primary responsibility for such review shall rest with the Managing Member.
To that end, the Managing Member and counsel selected for the Company shall review all
material documentation relating to the proposed acquisition, including, without limitation,
the documentation set forth in Section 4.3.2.2 hereof and those materials identified
on Exhibit L hereto. The Managing Member shall retain copies of all of the
foregoing documentation, and shall make such documentation available to Fannie Mae at any
and all reasonable times requested by Fannie Mae. The Managing Member shall provide at a
minimum, such information to Fannie Mae as is required in that listing of due diligence
materials attached hereto as Exhibit L.

     18.20.3 Upon completion of the foregoing due diligence review, the Managing Member
shall provide such additional due diligence materials and information relating to the
proposed acquisition as may reasonably be requested by Fannie Mae or its counsel for review.
No later than five (5) Business Days after Fannie Mae’s receipt of all of the requested due
diligence materials, Fannie Mae shall provide the Managing Member with comments, questions
and issues arising from its review of such documentation.

     18.20.4 Fannie Mae’s final approval or rejection shall be provided within five (5)
Business Days of such time as all conditions as may be identified by Fannie Mae or its
counsel have been satisfied. Fannie Mae shall give or withhold its final consent to the
proposed acquisition in its sole and absolute discretion.

     18.20.5 It is acknowledged by the Members that it is in the best interests of the
Members for Fannie Mae to approve or disapprove of a proposed acquisition prior to the date
any earnest money deposit shall become non-refundable under an acquisition agreement and
Managing Member shall use its best efforts to provide to Fannie Mae all requested due
diligence materials timely in order for Fannie Mae to approve or reject a proposed
acquisition at least five (5) days prior to such earnest money deposit becoming
non-refundable under such agreement.

     18.20.6 If Fannie Mae shall not approve five (5) proposed acquisitions during the
Investment Period that satisfy all of the Investment Criteria, the Managing Member shall
have the right to terminate the exclusivity rights granted in this Section 18.20
upon notice to Fannie Mae.

     Section 18.21 No Electronic Transactions. The parties hereby acknowledge and agree
that this Agreement shall not be executed, entered into, altered, amended or modified by electronic
means. Without limiting the generality of the foregoing, the parties hereby agree that the
transactions contemplated by this Agreement shall not be conducted by electronic means, except as
specifically set forth in this Agreement.

[Signature Page S-1 attached]

85

 

     IN WITNESS WHEREOF, the undersigned parties have signed this Agreement as of the day and year
first above written.

	 	 	 	 	 	 	 
	          FANNIE MAE:	 	FANNIE MAE, a corporation organized under the laws of the
United States
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Francis P. Rooney, Jr.	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Francis P. Rooney, Jr.	 	 
	 

	 	Title:
	 	Vice President	 	 
	 
	 

	 	 	 	Address:	 	 
	 

	 	 	 	Fannie Mae	 	 
	 

	 	 	 	3900 Wisconsin Avenue, NW	 	 
	 

	 	 	 	Washington, DC 20016	 	 
	 

	 	 	 	Attention: Francis P. Rooney, Jr.	 	 
	 
	 

	 	 	 	Telephone: (301) 204-8003	 	 
	 

	 	 	 	Facsimile: (301) 280-2048	 	 
	 
	 	 	 	 	 	 
	          MANAGING MEMBER:	 	UDR TX FUND LLC
	 	 	a Delaware limited liability company
	 
	 	 	 	 	 	 
	 

	 	By:
	 	LINCOLN TC II, L.P., a Delaware	 	 
	 

	 	 	 	limited partnership, its Sole Member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	UDR WESTERN RESIDENTIAL, INC.,	 	 
	 

	 	 	 	a Virginia corporation, its General Partner	 	 

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ W. Mark Wallis	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	W. Mark Wallis
	 	 
	 

	 	Title:
	 	Senior Executive Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 	 	1745 Shea Center Drive, Suite 200	 	 
	 	 	Highlands Ranch, CO 80129	 	 
	 	 	Attention: W. Mark Wallis	 	 
	 	 	Telephone: 720-283-6120	 	 
	 	 	Facsimile: 720-283-2454	 	 

S-1

 

EXHIBIT A

Members and Member Interests

	 	 	 	 	 
	 	 	Initial	 	 
	 	 	Capital	 	Percentage
	Member	 	Contribution	 	Interest
	 
	 	 	 	 
	Fannie Mae
	 	$81,469,655.16	 	80%
	3900 Wisconsin Avenue, N.W.

Washington, D.C. 20016-2892

Attention: Francis P. Rooney, Jr.
	 	 	 	 
	 
	 	 	 	 
	TX JV Fund I, LLC
	 	$20,367,413.79	 	20%
	1745 Shea Center Drive, Suite 200

Highlands Ranch, CO 80129

Attention: W. Mark Wallis

	 	 	 	 
	Michael A. Ernst
	 	 	 	 

A-1

 

EXHIBIT A-1

LIST OF VALUES

	 	 	 	 	 
	Property	 	Value
	 
	 	 	 	 
	The Meridian
	 	$	49,382,886	 
	 
	 	 	 	 
	The Mandolin
	 	$	54,242,069	 
	 
	 	 	 	 
	The Cliffs
	 	$	29,366,250	 
	 
	 	 	 	 
	Lincoln Phase I
	 	$	47,483,315	 
	 
	 	 	 	 
	Lincoln at Towne Square — Phase II
	 	$	10,349,870	 
	 
	 	 	 	 
	Stone Canyon
	 	$	18,993,724	 
	 
	 	 	 	 
	Legend at Park Ten
	 	$	20,892,300	 
	 
	 	 	 	 
	The Bradford
	 	$	57,930,441	 
	 
	 	 	 	 
	Red Stone Ranch
	 	$	27,066,715	 
	 
	 	 	 	 
	Lakeline Villas
	 	$	20,892,300	 

A-1-1

 

EXHIBIT B

INVESTMENT CRITERIA

	•	 	Asset Type: Garden-style apartment communities with 150+ units per property
	 
	•	 	Target Markets: Located in the Austin, Dallas or Houston MSAs, or other markets as the
Partners agree
	 
	•	 	Asset Age: Completed after 1990
	 
	•	 	Target Return: Minimum leveraged return of 12%
	 
	•	 	Assets Size: Purchase price between $20 million and $100 million
	 
	•	 	LTV: Financing for each asset shall be limited to 70% of total project costs for new
acquisitions and 80% of total project costs for new development projects.
	 
	•	 	Asset Type: Stabilized properties requiring minimal to moderate rehabilitation
	 
	•	 	Affordability: Projects will provide affordable workforce housing and comply with
Fannie Mae’s Affordability Guidelines, attached.

Others to be mutually agreed upon by the parties

B-1

 

UDR Sample Apartments

 

Fannie Mae Affordability Calculation

Project Name:

UDR Sample Apartments

 

	 	 	 	 	 	 	 	 	 	 	 
	City, State
	 	MSA	 	 	 	 	 	 	 	 
	Austin, TX
	 	Austin MSA	 	Area Median Income:	 	$	50,000	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	Annual	 	Gross Income	 	Monthly	 	 
	 	 	% of	 	 	 	 	 	 	 	Family Size	 	Adjusted	 	Rental Payment	 	Max	 	 
	# of Units	 	Total	 	# of Bedrooms	 	Unit Description	 	Current Rents	 	Adjustment	 	Income	 	of 30%	 	Rent	 	Affordability
	 
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	48
	 	13.8%	 	1	 	 	 	$500	 	0.75	 	$37,500	 	$11,250	 	$938	 	53.33%
	24
	 	6.9%	 	1	 	 	 	$600	 	0.75	 	$37,500	 	$11,250	 	$938	 	64.00%
	84
	 	24.1%	 	2	 	 	 	$1,200	 	0.90	 	$45,000	 	$13,500	 	$1,125	 	106.67%
	0
	 	0.0%	 	2	 	 	 	 	 	0.90	 	$45,000	 	$13,500	 	$1,125	 	0.00%
	96
	 	27.6%	 	2	 	 	 	$1,200	 	0.90	 	$45,000	 	$13,500	 	$1,125	 	106.67%
	96
	 	27.6%	 	3	 	 	 	$2,000	 	1.04	 	$52,000	 	$15,600	 	$1,300	 	153.85%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	0
	 	0.0%	 	Studio	 	 	 	 	 	0.70	 	$35,000	 	$10,500	 	$875	 	0.00%
	 
	348
	 	100.0%	 	Weighted Avg	 	 	 	$1,283	 	 	 	 	 	 	 	Weighted Avg	 	109.38%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

PROPERTY GEOCODER ANALYSIS

Input Results From Property Geocoder Below

	 	 	 
	Project Address

	 	 
	City
	 	 
	State
	 	 
	Zip
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	HOUSING GOALS BENCHMARKS:	 	Results
	 	 	2007 Goal	 	% of Units	 	# of Units
	Units LMI Affordable
	 	 	 	55%	 	 	 	21%	 	 	72
	Units Special Affordable
	 	 	 	25%	 	 	 	14%	 	 	48
	Underserved Census Tract
	 	Yes	 	 	0	 	0	 

B-2

 

EXHIBIT C

BUSINESS PLAN

     The Members have agreed to that certain business plan included in a bound notebook dated as of
the date of the Operating Agreement, and initialed by the Members.

C-1

 

EXHIBIT D

INSURANCE REQUIREMENTS

Summary Description of Insurance Program for UDR Texas JV

As of October 3, 2007

Program Structure

The purpose of the present summary is to describe the insurance structure for the UDR Texas Joint
Venture based on carriers, deductible structure, limits of liability, breadth of coverage, and
cost. Detailed summaries of coverage are provided as appendices.

Property Insurance, Policy Period 03.15.2007 — 03.15.2008

     Carriers

Several insurers participate on a quota-share basis in the master property insurance program.
Primary carriers have AM Best Ratings of A XV.

     Deductible Structure

	 	 	 
	Common perils such as fires:

	 	$100 K. 
	Peril of named windstorm:

	 	5% of the value of the property affected. 
	Peril of non-California
earthquake:

	 	50 K. 

     Limits of Liability

	 	 	 
	Common perils such as fires:

	 	$100 M per occurrence.
	Peril of named windstorm:

	 	$50 M per occurrence and in the aggregate.
	Peril of non-California earthquake:

	 	$50 M with an additional $50 M in
coverage for fire following earthquake per occurrence.
	Peril of flood:

	 	$50 M per occurrence and in the aggregate.
	Terrorism:

	 	$25 M per occurrence and in the aggregate.

     Breadth of Coverage.

UDR’s master property insurance policy is a manuscript form and covers a broad range of perils and
loss based on the unique nature of the exposure of apartment complexes in multiple states.

Coverage highlights:

	 	•	 	Resultant damage from mold and fungus.
	 
	 	•	 	Asbestos containment and remediation resulting from an insured peril.
	 
	 	•	 	Flooding that results from rainfall as well as storm surge
	 
	 	•	 	Business Interruption

     Cost

D-1

 

UDR’s master property insurance policy contains two self-insurance components. First, a$ 100 K
deductible per occurrence (deductible) applies to all losses and second, a $5 M deductible above
$100 K per occurrence and in the aggregate (aggregate deductible) applies. In order to lower the
self-insured exposure for Texas JV properties which pay deductibles based on ownership interest, we
have obtained a “deductible buy-down” policy from third party insurance companies to cover the $5 M
aggregate deductible at a cost of $250 K, thus lowering the deductible to $100 K per occurrence.
The deductible buy-down policy will go into force upon inception of the JV agreement and remain in
effect for 12 months, regardless of the policy period related to the UDR master policy. See the
table below for comparisons of cost for stand-alone property policies for the Texas JV portfolio.

Excess layers of insurance on UDR’s master program up to the full $100 M limit of liability are
insured by third party insurance companies with the exception of 50% of the layer $25 M excess of
$25 M (please see attached graphical representation of coverage). Cost of the excess layers of
insurance is approximately $280 K. Risk of loss associated with the excess layers is assumed 100%
by UDR.

UDR has reviewed several different options for property / hazard insurance as outlined below and
believes option A provides the best combination of coverage and price.

	 	 	 	 	 	 	 	 	 
	Option	 	Type	 	Premium	 	Deductible	 	Limit1
	A
	 	UDR Master With Buydown	 	610,000	 	100,000	 	100,000,000
	B
	 	UDR Master With Buydown	 	560,000	 	1,000,000	 	100,000,000
	C
	 	Stand-alone	 	1,600,000	 	50,000	 	25,000,000
	D
	 	Stand-alone	 	500,000	 	1,000,000	 	25,000,000

Notes

 

			
	 	 	1 The limit on option A and B applies to all UDR properties in the aggregate.

The limit on options C and D applies only to the venture properties.

General Liability Insurance, Policy Period 03.15.2007 — 06.15.2008

     Carriers

Four insurers participate on a layered basis in the master liability insurance program. The primary
carriers have AM Best Ratings of A+ XV.

     Deductible Structure.

	 	 	 
	Commercial general liability loss:
	 	$500 K.
	Pollution liability loss:
	 	$500 K.

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     Limits of Liability.

	 	 	 
	Commercial general liability loss:
	 	$125 M per occurrence and in the aggregate.
	Pollution liability loss:
	 	$5 M per occurrence and in the aggregate.

     Breadth of Coverage.

UDR’s master liability policy is a non-manuscript policy that covers a broad range of losses based
on the premises liability exposure of apartment complexes in multiple states. As the commercial
general liability policy does not cover pollution loss, we have obtained a separate premises
pollution liability policy that responds to damage such as mold, lead based paint, and domestic or
foreign terrorism including nuclear, biological, and chemical attacks.

     Cost

The cost of general liability and umbrella liability coverage is $45,000 and is allocated on a per
unit basis.

Workers Compensation Insurance, Policy Period 03.15.2007 — 06.15.2008

     Carriers

Four insurers participate on a layered basis in the master liability insurance program. The primary
carriers have AM Best Ratings of A+ XV.

     Deductible Structure

	 	 	 
	National Program (excluding Texas):
	 	$250 K.
	Texas Injury Benefit Plan:
	 	$250 K.

     Limits of Liability

	 	 	 
	National Program (excluding Texas):
	 	$100 M per occurrence and in the aggregate.
	Texas Injury Benefit Plan:
	 	$35 M per occurrence and in the aggregate.

     Breadth of Coverage

UDR’s national master workers’ compensation policy is a statutory policy that covers work related
injury and lost wages as required by each state in which UDR operates. As allowed by law in Texas,
UDR has chosen to opt-out of the statutory workers’ compensation system and created an ERISA based
occupational injury benefit plan. The self-insured portion of the benefit plan in Texas is $250 K,
the same as the national master program.

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Other Insurance

UDR has obtained additional insurance policies that are customary for apartment owner operators,
including:

Employee Dishonesty Insurance, $5 M limit with a $200 K deductible. Miscellaneous Professional
Liability Insurance, $1 M limit with $10 M deductible.

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EXHIBIT E

CAPITAL CONTRIBUTION CERTIFICATE

	 	 	 	 	 
	Total Additional Capital Contribution:
	 	$	 	 
	 
	 	 	 	 
	Managing Member’s proportionate share of
such Additional Capital Contribution (20%):
	 	$	 	 
	 
	 	 	 	 
	Fannie Mae’s proportionate share of such
Additional Capital Contribution (80%):
	 	$	 	 

     1. To the knowledge of Managing Member, no default (or event which, with the giving of notice
or the passage of time or both, would constitute a default) has occurred and is continuing under
any Mortgage Loan Documents or other agreements to which the Company or any Subsidiary is a party
nor has any Lender or any other guarantor or party failed or refused to make an advance or payment
required to be made under any Mortgage Loan Document (which failure or refusal is continuing) to
which the Company or any Subsidiary is a party.

     2. If the Additional Capital Contribution is payable in connection with the Closing,
concurrently with the payment of the Additional Capital Contribution, to the knowledge of Managing
Member, Company or a Subsidiary will own a fee simple interest in the applicable Property, free and
clear of any liens, charges or encumbrances other than the matters set forth in the Title Policy
for such Property approved by the Members.

     3. To the knowledge of Managing Member, no party to any of the Basic Documents is in breach of
any provision thereof to be observed or performed by such party.

     4. If the Additional Capital Contribution is payable in connection with the Closing, to the
knowledge of Managing Member and based upon the Environmental Report: (a) the applicable Property
contains no substance known to be hazardous such as (without limitation) hazardous waste,
lead-based paint, asbestos, methane gas, urea formaldehyde insulation, oil, toxic substances,
underground storage tanks, polychlorinated biphenyls (PCBs) and radon in quantities or form which
violates Hazardous Materials Laws; and (b) the applicable Property is not affected by the presence
of oil, toxic substances or other pollutants that could be a detriment to the applicable Property;
nor is it in violation of any Hazardous Materials Laws and no violation thereof has occurred or is
continuing. Except as disclosed in the Environmental Report obtained for the Property, a copy of
which has been provided to Fannie Mae, Managing Member has received no notice from any source
whatsoever of the existence of any such hazardous condition on the Property or of a violation of
any Hazardous Materials Laws with respect to the Property.

E-1

 

     5. If the Additional Capital Contribution is payable in connection with the Closing, the
Company, and the applicable Subsidiary and Property comply (a) with all terms, conditions and
representations of the Mortgage Loan Documents, and (b) to the knowledge of Managing Member, other
than with respect to building code violations that will be corrected as part of a Rehabilitation
Plan, in all material respects with all applicable federal, regional, state and local laws, rules,
regulations, statutes, decisions, orders, judgments, directives, decrees, codes, guidelines or
ordinances of any governmental or regulatory authority, court or arbitrator. Managing Member has
caused the Company or Subsidiary, as applicable, to make all required filings and take all other
actions within applicable time limits as may be necessary to comply with the covenant expressed in
the foregoing sentence.

     6. The Company does not have any employees; no Subsidiary has any employees.

     7. The Members have approved the Additional Capital Contribution.

     8. The Additional Capital Contribution is required pursuant to Section 4.3 of the Agreement.

     9. To the knowledge of Managing Member, Managing Member is not in breach of the Agreement, and
Guarantor is not in breach of the Guaranty.

     10. Managing Member will advance its proportionate share of the Additional Capital
Contribution.

     11. To the knowledge of Managing Member, there is no Managing Member Default under the
Agreement.

     12. All conditions to advances of Additional Capital Contributions set forth in Section 4.3.2
of the Agreement have been satisfied in full.

     13. As of the date hereof, each and every one of the representations and warranties by
Managing Member set forth in Section 16.1 of the Agreement remains true, complete and correct in
all material respects.

     14. To the Managing Member’s knowledge, all insurance (including flood insurance) required by
the Agreement and the Mortgage Loan Documents is in full force and effect.

     Managing Member understands that Fannie Mae is relying on the above certification in agreeing
to fund its portion of the Additional Capital Contribution. All capitalized terms in this Capital
Contribution Certificate, which are not otherwise defined, have the meanings set forth in the that
certain Limited Liability Company Agreement of UDR Texas Ventures LLC (“Agreement”).

     This Capital Contribution Certificate is made this      day of                     200_.

     For the purposes of this Capital Contribution Certificate, the term “Hazardous Materials Laws
” shall mean any federal, state, or law, statute, code, ordinance, rule, regulation, requirement,
permit, license, approval, policy or guidance, resolution, or judicial or

E-2

 

administrative decision, order, judgment, injunction, award, decree, writ, or similar item
(including without limitation consent decrees) relating to environmental matters, the protection of
the environment or the protection of human health and safety from environmental concerns, including
without limitation all those relating to or regulating the presence, use, generation, handling,
storage, treatment, transportation, decontamination, processing, clean-up, removal, encapsulation,
enclosure, abatement, disposal, reporting, licensing, permitting, monitoring, investigation,
remediation, or release (including, without limitation, to ambient air, surface water, ground
water, land surface or subsurface strata) of any Hazardous Material, pollutant, contaminant, or
other substance or waste, including without limitation:

          (a) the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et
seq., the Toxic Substance Control Act, 15 U.S.C. Sections 2601, et seq., the Clean Water Act, 33
U.S.C. Sections 1251 et seq., the Clean Air Act, 42 U.S.C. Sections 7401, et seq., and their
District and local counterparts and related regulations; and

          (b) any other legal requirement, legal rule, or order regulating, relating to, imposing
standards of conduct for, or imposing or allocating any liability concerning any Hazardous
Material, pollutant, or contamination.

     “Hazardous Material ” shall mean any substance or material:

          (i) the presence or suspected presence of which requires or may require investigation,
response, clean-up, remediation, or monitoring, or may result in liability, under any applicable
governmental requirement; or

          (ii) that is or contains a hazardous substance, waste, extremely hazardous substance,
hazardous material, hazardous waste, hazardous constituent, solid waste, special waste, toxic
substance, pollutant, contaminant, petroleum or petroleum derived substance or waste, and related
materials, including without limitation, any such materials defined, listed, identified under or
described in any Hazardous Materials Laws; or

          (iii) which is flammable, explosive, radioactive, reactive, toxic, corrosive, infectious,
carcinogenic, mutagenic, or otherwise hazardous, or is or becomes regulated under any Laws; or

          (iv) which is or contains asbestos (whether friable or non-friable), any polychlorinated
biphenyls or compounds or equipment containing polychlorinated biphenyls, or medical waste; or

          (v) without limitation, which is or contains or once contained gasoline, diesel fuel, oil,
diesel and gasoline range organics (TPH-DRO / GRO), or any other petroleum products or petroleum
hydrocarbons, or additives to petroleum products, or any breakdown products or compounds of any of
the foregoing; or

          (vi) without limitation, radon gas.

E-3

 

Except as expressly provided herein, initially capitalized terms used in this Capital Contribution
Certificate without definition are defined in that certain Agreement .

EXECUTED as of                     , 200_.

	 	 	 	 	 	 	 
	 	 	UDR TX FUND LLC
	 	 	a Delaware limited liability company
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	LINCOLN TC II, L.P., a Delaware limited partnership, its Sole Member
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	UDR WESTERN RESIDENTIAL, INC., a Virginia corporation, its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	Name:
	 	 	 	 	Title:
	 
	 	 	 	 	 	 
	 	 	 	 	Address:
	 	 	 	 	1745 Shea Center Drive, Suite 200
	 	 	 	 	Highlands Ranch, CO 80129
	 	 	 	 	Attention:
	 	 	 	 	Telephone:
	 	 	 	 	Facsimile:

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EXHIBIT F

PROPERTY MANAGEMENT AGREEMENT

     This Property Management Agreement (this “Agreement”) is entered into as of the ___day of
November, 2007 (the “Effective Date”), between UDR LAKELINE VILLAS LLC, a Delaware limited
liability company (“Owner”) and UDR WESTERN RESIDENTIAL, INC., a Virginia corporation (“Manager”).

ARTICLE I.

ESTABLISHMENT OF AGENCY AND RENTAL RESPONSIBILITY

     Section
1.1  Exclusive Agency. Owner hereby appoints Manager and Manager hereby accepts appointment on the
terms and conditions set forth herein as the sole and exclusive renting and management operating
agent of the apartment project known as Lakeline Villas, located at 2201 South Lakeline Boulevard,
Cedar Park, TX 78613 (such project referred to herein as the “Project”). Owner warrants and
represents to Manager that Owner owns fee simple title to the Project with all requisite authority
to appoint Manager and enter into this Agreement.

     Section
1.2  Owner’s Representatives. Owner shall designate one or more persons to serve as Owner’s
Representatives (“Owner’s Representatives”) in all dealings with Manager hereunder. Whenever the
approval, consent or other action of Owner is called for hereunder, such approval, consent or
action shall be binding on Owner if specified in writing and signed by the Owner’s Representatives.
The initial Owner’s Representatives shall be Kathy Clem and Jamie LaCaze. The Owner’s
Representatives may be changed at the discretion of Owner, at any time, and such change, with
respect to Manager, shall be effective upon Manager’s receipt of written notice from Owner
identifying the new Owner’s Representatives.

     Section
1.3  Leasing of Premises. Manager shall perform all promotional, leasing and management activities
required to lease apartment units in the Project as directed by Owner. Throughout the term of this
Agreement, Manager shall use its commercially reasonable efforts to lease apartment units in the
Project. Subject to reimbursement by Owner and pursuant to the Operating Budget (as defined
below), Manager shall advertise the Project, or portions thereof, prepare and secure advertising
signs, space plans, circular matter, marketing brochures and other forms of advertising. Owner may
authorize Manager to advertise the Project in conjunction with institutional advertising campaigns
and allocate costs on a prorata basis among the projects being advertised (to the extent authorized
by the Annual Business Plan defined below). All inquiries for any leases or renewals or agreements
for the rental of the Project or portions thereof shall be referred to Manager and all negotiations
connected therewith shall be conducted solely by or under the direction of Manager. Owner shall
notify Manager of any requirements with respect to affordable dwelling units applicable to the
Project and Manager shall comply with any such requirements. Manager is hereby authorized to
execute, deliver and renew leases on behalf of Owner including, but not limited to tenant and
commercial leases (such as laundry room leases), provided that such new leases are on forms
previously agreed to by Owner or that are used at

F-1

 

other properties within the State of Texas operated by Manager or its affiliates and are at
rates (including concessions) previously agreed to by Owner, including those approved as part of
the Annual Business Plan. Manager is authorized to utilize the services of apartment locator
services and web or internet based advertising and the fees of such services shall be (to the
extent included in the Operating Budget) operating expenses of the Project and, to the extent paid
by Manager, reimbursable by Owner.

     Section
1.4 Manager’s Standard of Care. In performing Manager’s duties under this Agreement, or otherwise
discharging the agency established by this Agreement, Manager shall exercise the same degree of
care, prudence, and skill that Manager exercises in the management of Manager’s own properties
and/or that is generally exercised in the apartment management industry. Manager will not be
liable to Owner for any act or omission that is undertaken in good faith and with the same degree
of care, prudence, and skill as Manager exercises in the management of its own properties and/or
that is generally exercised in the apartment management industry.

     Section
1.5 Owner’s Representations. Owner assumes all liability as to the quality and construction of
the Property other than for damages caused by Manager’s failure to oversee a construction project
in a manner consistent with the provisions of this Agreement. Owner further represents and
warrants that as of the date of the execution of this Agreement the Property is in compliance with
all applicable Federal, state and local laws, rules, regulations, guidelines and ordinances,
including but not limited to, the Americans with Disabilities Act, the Federal Fair Housing Act,
the Federal 1990 Clean Air Act, all other state and local accessibility requirements and the
applicable building code affecting the Property. Further Owner agrees, subject to Section 1.4, to
defend and indemnify Manager against, and hold it harmless from, all damages, claims, loss, cost or
expense arising out of the breach of the foregoing representations and warranties and from any
violation, breach or failure to comply with any environmental or hazardous materials laws
(including those environmental matters enumerated in Article VI of this Agreement), rules,
regulations and/or ordinances of applicable governmental entities regarding the Property. Owner
shall further protect and indemnify Manager against, and hold it harmless from, all damages,
claims, loss, cost or expenses arising out of actual or alleged defects, whether latent or patent,
in the Property including but not limited to, water damage, indoor air quality issues, mold growth,
structural defects, and second hand smoke of the Property, or for any breach or alleged breach of
any legal duty or obligation which is by law or under this Agreement the responsibility of Owner.
In no event will Manager be liable to Owner for any consequential loss or damage, unless Manager is
required to provide indemnification to Owner pursuant to Section 2.7(c) of this Agreement in
connection with the action giving rise to such loss or damage.

ARTICLE
II.

SERVICES TO BE PERFORMED BY MANAGER

     Section
2.1 Expense of Owner. All acts performed by Manager in accordance with this Agreement and in
connection with the performance of its obligations under this Agreement shall be performed as the
agent of Owner, and all obligations or expenses incurred thereby, shall be for the account of, on
behalf of, and at the expense of Owner, except as otherwise specifically provided in this Article
II and except that Owner shall not be obligated to reimburse Manager for

F-2

 

any expense (i) allocable to time spent on projects other than the Project, (ii) related to
any personnel other than personnel located at the Project site and personnel spending a portion of
their working hours (to be charged on a prorata basis) at the Project site or in specifically
performing Manager’s obligations hereunder, whether on or off the Project site or (iii) not
included in the Operating Budget or otherwise approved by Owner. Manager may use employees
normally assigned to other work centers or part-time employees to properly staff the Project,
including staffing related to reduced, increased or emergency work load and the like, including the
property manager, business manager, assistant managers, leasing directors, or other administrative
personnel, maintenance employees or maintenance supervisors. Any property manager or business
manager at the Project and any other persons performing functions substantially similar to those of
a business manager, including but not limited to assistant managers, leasing directors, leasing
agents, sales directors, sales agents, bookkeepers, and other administrative and/or maintenance
personnel performing work on behalf of the property, and on-site maintenance personnel, shall not
be considered executive employees of Manager. Owner acknowledges that the following miscellaneous
expenses, when incurred solely in respect to the performance of Manager’s obligations under this
Agreement, shall be reimbursable by Owner (which list of expenses is not intended to be
all-inclusive): courier services, postage, photocopies, signage, check printing, marketing
expenses, bank charges, telephone and answering service (which may be allocated on a prorata basis
among the Project and other projects managed by Manager). All reimbursable payments made by
Manager hereunder shall be reimbursed from funds deposited in an account established pursuant to
Section 4.2 of this Agreement. Manager shall not be obligated to make any advance to or for the
account of Owner or to pay any sums, except out of funds held in an account maintained under
Section 4.2, nor shall Manager be obligated to incur any liability or obligation for the account of
Owner without assurance that the necessary funds for the discharge thereof will be provided by
Owner. All debts and liabilities to third persons incurred by Manager in the course of its
operation and management of the Project and in accordance with this Agreement shall be the debts
and liabilities of the Owner only, and Manager shall not be liable for any such debt or
liabilities, except to the extent Manager has exceeded its authority hereunder.

     Notwithstanding any provision of this Agreement to the contrary, Manager shall not be entitled
to be reimbursed by Owner for any expense(s) or cost(s) to the extent that such expense(s) or
cost(s) are not set forth in the Operating Budget or the Capital Budget.

     Section
2.2 Covenants Concerning Payment of Operating Expenses. Owner covenants to pay all sums for
operating expenses required to operate the Project in excess of gross receipts upon written notice
and demand from Manager within ten (10) days after receipt of written notice. Owner further
recognizes that the Project may be operated in conjunction with other properties, and costs may be
allocated or shared between such other properties in order to create more efficient or less
expensive services. In such regard, Owner consents to the allocation of costs and/or the sharing
of any expenses in an effort to save cost or operate the Project in a more efficient manner so long
as such allocation is done on an equitable basis and so long as the computations of such
allocations are provided to Owner pursuant to Section 2.12 hereof. Further, Manager agrees that
Owner shall be entitled to receive, either as cost reductions or by rebate from Manager, its pro
rata (based on the number of projects or properties benefiting therefrom) share of such expense
reductions.

F-3

 

     Section 2.3 Employment of Personnel. Manager shall use its diligent efforts to investigate, hire, pay,
supervise and discharge the personnel necessary to be employed by it to properly maintain, operate
and lease the Project, including without limitation a property manager or business manager at the
Project. Such personnel shall in every instance be deemed agents or employees, as the case may be,
of the Manager. Owner has no right of supervision or direction of agents or employees of the
Manager whatsoever. All Owner directives shall be communicated to Manager’s senior level
management employees. Manager shall provide Owner with either: (i) evidence of a professional
liability insurance policy with a limit of at least $1,000,000 per claim and a deductible of no
more than $10,000 per claim or (ii) a surety bond in favor of Owner with equivalent coverage. All
reasonable salaries, wages and other compensation of personnel employed by Manager to perform
services in connection with the Project, including so-called fringe benefits, Worker’s
Compensation, medical and health insurance and the like, shall be deemed to be reimbursable
expenses of Manager. Manager may allow its employees to reside at the Project for reduced rents,
provided that such leases shall be on a month-to-month basis and provide for termination on no more
than 30 days notice to the applicable tenant.

     Section 2.4 Utility and Service Contracts. Manager shall enter into, at Owner’s expense and in Owner’s
name or in Manager’s name, as agent for Owner, contracts on commercially reasonable terms for
water, electricity, gas, fuel, oil, telephone, vermin extermination, trash removal, cable
television, security protection and other services reasonably deemed by Manager to be necessary or
advisable for the operation of the Project. Manager shall also place orders in the name of Owner
for such equipment, tools, appliances, materials, and supplies as are reasonable and necessary to
properly maintain the Project. Manager may make such contracts and place such orders in Owner’s
name or in its own name, as Owner’s agent. Owner agrees to pay or reimburse Manager for all
expenses and liabilities incurred by reason of this Section 2.4.

     Section 2.5 Maintenance and Repair of Property. Manager shall use its diligent efforts to maintain, at
Owner’s expense, the buildings, appurtenances and grounds of the Project in good condition and
repair and in accordance with standards established by Owner in writing from time to time,
including interior and exterior cleaning, painting and decorating, plumbing, carpentry,
landscaping, clean-up and such other normal maintenance and repair work as may be reasonably
desirable taking into consideration the amount allocated therefore in the Annual Business Plan (as
defined below). With respect to any expenditure not contemplated by the Annual Business Plan,
Manager shall not incur any individual item or repair or replacement in excess of Five Thousand
Dollars ($5,000.00) unless authorized in writing by Owner’s Representatives, excepting, however,
that emergency repairs immediately necessary for the preservation and safety of the Project or to
avoid the suspension of any service to the Project or danger of injury to persons or damage to
property may be made by Manager without the approval of Owner’s Representatives. Owner shall not
establish standards of maintenance and repair which violate or may violate any laws, rules,
restrictions or regulations applicable to Manager or the Project. Manager shall not be obligated
by this Section 2.5 to perform any major capital improvements.

     Section 2.6 Supervision of Capital Improvements or Major Repairs. When requested in writing by the Owner
or set forth in an Approved Business Plan, Manager, at Owner’s expense and in Owner’s name or in
Manager’s name, as agent for Owner, shall supervise the installation and construction of all
capital improvements or major repairs to the Project where such work

F-4

 

constitutes other than normal maintenance and repair, for additional compensation as set forth
in a separate agreement. In such events, Manager may negotiate contracts with all necessary
contractors, subcontractors, materialmen, suppliers, architects, and engineers on behalf of, and in
the name of, Owner, and may compromise and settle any dispute or claim arising therefrom on behalf
of and in the name of Owner; provided only that the Manager shall act in good faith at all times.
Manager will furnish all personnel necessary for proper supervision of the work and may assign
personnel located at the Project to such supervisory work (and such assignment shall not reduce or
abate any other fees or compensation owed to Manager under this Agreement). Owner acknowledges
that Manager, or an affiliate of the Manager, may bid on any such work, and that the Manager, or an
affiliate of the Manager, may be selected to perform part or all of the work; provided that if the
Manager desires to select itself, or its affiliate to do any work, it shall first notify the Owner
of the terms upon which it, or its affiliate, proposes to contract for the work, and terms upon
which the independent contractors have offered to perform, and shall state the reasons for
preferring itself, or its affiliate, over independent contractors and Owner shall have ten (10)
days to disapprove the Manager, or its affiliate, and to request performance by an independent
contractor. Only Owner shall have the power to compromise or settle any dispute or claim arising
from work performed by the Manager, or its affiliate; and it is expressly understood that the
selection of the Manger, or its affiliate, will not affect any fee or other compensation payable to
Manager hereunder.

     Section 2.7 Insurance.

     (a) At Owner’s written request and expense, Manager shall obtain and keep in force all
forms of insurance required by law or reasonably deemed by Owner or Manager necessary or
needed to adequately protect Owner and Manager, including but not limited to worker’s
compensation insurance, public liability insurance, boiler insurance, fire and extended
coverage insurance, and burglary and theft insurance. All insurance coverage shall be
placed with such companies, in such amounts and with such beneficial interest appearing
therein as shall be reasonably acceptable to Owner, and reasonably obtainable by Manager and
shall be in conformity with the requirements of any mortgage on the Project. If Manager
obtains the insurance coverage requested by Owner, Owner assumes all risks in connection
with the adequacy of any insurance coverage, and waives any claim against Manager for any
liability, cost of expense arising out of any uninsured property or casualty, in part or in
full, of any nature whatsoever; provided, however, that public liability insurance shall be
maintained in such amounts as Owner and Manager jointly agree. All general public liability
and other liability policies carried by or for Owner shall name Owner and Manager as
insureds and obtaining said coverage is a condition precedent to Manager performing its
responsibilities hereunder. Owner or Manager, as applicable, shall provide to the other
party certificates evidencing such insurance coverage prior to Manager’s actually assuming
management of the Project. Manager shall use its diligent efforts to investigate and make a
written report to the insurance company as to all accidents, claims for damage relating to
the ownership, operation and maintenance of the Project, any damage or destruction to the
Project and the estimated cost of repair thereof, and shall prepare any and all reports for
any insurance company in connection therewith. All such reports shall be timely filed with
the insurance company as required under the terms of the insurance policy involved.

F-5

 

Nothing in this Section 2.7 nor any insurance obtained or applied for by Owner or
Manager shall be construed as implying that Owner or Manager is subject to a liability it
would not otherwise be subject to.

     (b) Owner and Manager mutually agree for the benefit of each other to look first to the
appropriate insurance coverage in effect pursuant to this Agreement in the event any demand,
claim, action, damage, loss, liability or expense occurs as a result of injury to person or
damage to property, regardless whether any such demand, claim, action, damage, loss,
liability or expense is caused or contributed to, by or results from the negligence of Owner
or Manager or their respective subsidiaries, affiliates, employees, directors, officers,
agents or independent contractors and regardless whether the injury to person or damage to
property occurs in and about the Project or elsewhere as a result of the performance of this
Agreement, except for claims arising out of or relating to the gross negligence or willful
misconduct of Manager to which Section 2.7(c) shall apply. Except for claims that are
covered by the indemnity contained in Section 2.7(c) below, Owner agrees that Owner’s
insurance shall be primary without right of subrogation against Manager with respect to all
claims, actions, damage, loss or liability in or about the Project. Nevertheless, in the
event such insurance proceeds are insufficient to satisfy (or such insurance does not cover)
the demand, claim, action, loss, liability or expense, Owner agrees, at its expense, to
indemnify and hold Manager and its subsidiaries, affiliates, officers, directors,
employment, agents or independent contractors harmless to the extent of the excess
liability. For purposes of this Section 2.7(b), any deductible amount under any policy of
insurance shall not be deemed to be included as part of collectible insurance proceeds.

     (c) Notwithstanding anything contained in this Agreement to the contrary, Manager shall
indemnify and hold harmless Owner, and its representative subsidiaries, affiliates,
officers, directors, employees, agents or independent contractors, from all demands, claims,
actions, loss, liability or expense which is determined to have resulted from a breach of
this Agreement by Manager in connection with the performance of its duties and obligations
under this Agreement.

     (d) Subject to Section 2.7(c), in no event shall Manager have any liability to Owner or
others for any acts of vandalism, trespass or criminal activity of any kind by tenants or
third parties on or with respect to the Project and Owner’s insurance shall be primary
insurance without right of subrogation against Manager regarding claims arising out of or
resulting from acts of vandalism, trespass or criminal activity.

     Section
2.8
Collection of Monies. Manager shall use its commercially reasonable efforts to collect all
rents and other charges due from tenants, users of garage spaces (if any), commercial lessees (if
any) and concessionaires (if any) in respect of the Project and otherwise due to Owner with respect
to the Project in the ordinary course of business, provided that Manager does not guarantee the
credit worthiness of any tenants, users, lessees, concessionaires or collectibility of accounts
receivable from any of the foregoing. Owner authorizes Manager to request, demand, collect,
receive and receipt for all such rent and other charges and to institute legal proceedings in the
name of Owner, and at Owner’s expense, for the collection thereof, and for the

F-6

 

dispossession of tenants and other persons from the Project or to cancel or terminate any
lease, license or concession agreement for breach or default thereunder, and such expense may
include the engaging legal counsel for any such matter; provided that Manager may not expend more
than $3,000 with respect to any one such action or $10,000 in aggregate in any 12-month period
without Owner’s prior written consent. All monies collected by Manager shall be deposited in the
separate bank account referred to in Section 4.2 herein.

     Section
2.9
Manager Disbursements.

     (a) Manager shall, from the funds collected and deposited, cause to be disbursed
regularly and punctually (1) Manager’s compensation in accordance with Section 3.1, together
with all sales or other taxes (other than income taxes), which Manager is obligated to
collect and pay to the State of Texas or any other governmental authority with respect to
such compensation, (2) the amounts reimbursable to Manager under this Agreement, (3) the
amount of all real estate taxes and other impositions levied by appropriate authorities
which, if not escrowed with any mortgagee, shall be paid upon specific written direction of
Owner before interest begins to accrue thereon; and (4) amounts otherwise due and payable as
operating expenses of the Project authorized to be incurred under the terms of this
Agreement. After disbursements as herein specified and after establishing a cash reserve to
pay taxes, insurance, and/or other costs and expenses incidental to the operation of the
Project, including nonrecurring emergency repairs and capital expenditures which shall
become due and payable within the succeeding calendar month and for which the cash to make
such payments may not be generated by operations during such period, any balance remaining
at the end of each calendar month during the term of this Agreement shall be disbursed or
transferred as generally or specifically directed from time to time by Owner’s
Representatives.

     (b) The provisions of this Section 2.9 regarding disbursements by Manager shall not
include the payment of debt service related to any mortgages of the Project. Owner agrees
that payments of this nature shall be the responsibility of Owner.

     (c) All costs, expenses, debts and liabilities owed to third persons that are incurred
by Manager pursuant to the terms of this Agreement and in the course of managing, leasing
and operating the Project shall be the responsibility of Owner and not Manager. Owner
agrees to provide sufficient working capital funds to Manager so that all amounts due and
owing may be promptly paid by Manager. Manager is not obligated to advance any funds. As
of the first day of each month during the term of this Agreement, Manager will project the
cash requirements for such month and (if it shall reasonably determine that collections will
be insufficient to meet such cash requirements) request, such request including appropriate
supporting documentation, the necessary additional funds from the Owner, which funds will be
deposited with the Manager in the segregated bank account referred to in Section 4.2 upon
ten (10) days notice. If at any month end, the bank balance exceeds the projected cash
requirements, such excess shall be returned to the Owner within five (5) days. If at any
time there is not sufficient cash in the account with which to promptly pay the bills due
and owing, the Manager will request that the necessary additional funds be deposited in an
amount sufficient to create an

F-7

 

operating reserve pursuant to Section 4.4. Subject to its receipt of appropriate
documentation supporting such request, Owner will deposit the additional funds requested by
the Manager within five (5) days.

     (d) The provisions of this Section 2.9 regarding reimbursements to Manager shall not
limit Manager’s rights under any other provisions of this Agreement.

     Section 2.10 Use and Maintenance of the Project. Manager agrees that it will not knowingly permit the use
of the Project for any purpose which might void any policy of insurance held by Owner or which
might render any loss thereunder uncollectible, or which would be in violation of any government
restriction or any covenant or restriction of any lease of the Project. Manager shall use its good
faith efforts to secure substantial compliance by the tenants with the terms and conditions of
their respective leases. All costs of correcting or complying with, and all fines payable in
connection with, all orders or violations affecting the Project placed thereon by any governmental
authority or Board of Fire Underwriters or other similar body shall be at the cost and expense of
Owner; provided that any such costs or fines caused by the gross negligence or willful misconduct
(by act or omission) of Manager shall be at the cost and expense of Manager.

     Section
2.11 Annual Business Plan.

     (a) On or before the day 45 days before the first day of the next fiscal year during
the term of this Agreement, Manager shall prepare and submit to Owner for Owner’s approval,
an Annual Business Plan (herein so called) for the Project for the promotion, leasing,
operations, repair and maintenance of the Project for the subsequent calendar year. The
Annual Business Plan shall include a detailed budget of projected income and expenses for
the Project for such calendar year (the “Operating Budget”) and a detailed budget of
projected capital improvements for the Project for such calendar year (the “Capital
Budget”).

     (b) During the 45 day period prior to the first day of the next fiscal year, Manager
and Owner shall cooperate with each other and endeavor in good faith to agree on the
adoption of the Annual Business Plan in a timely manner. If Manager and Owner have not
agreed on an Annual Business Plan by the first day of a fiscal year, Manager shall cause the
Project to be operated in accordance with the Annual Business Plan most recently approved
except that no new capital improvement project shall be deemed approved or undertaken except
as otherwise approved by Owner. Owner acknowledges that the Operating Budget is intended
only to be a reasonable estimate of the Project’s income and expenses for the ensuing
calendar year. Manager shall not be deemed to have made any guarantee, warranty or
representation whatsoever in connection with the Operating Budget.

     (c) Manager may revise the Operating Budget from time to time, as necessary, to reflect
any unpredicted significant changes, variables or events or to include significant
additional, unanticipated items of revenue and expense. Any such revision, together with an
explanation regarding the necessity of such revision, shall be submitted

F-8

 

to Owner for approval, which approval shall not be unreasonably withheld, delayed or
conditioned.

     (d) Manager agrees to use diligence and to employ all reasonable efforts to ensure that
the actual costs of maintaining and operating the Project shall not exceed the Operating
Budget which is a part of the approved Annual Business Plan either in total or in any one
accounting category. Any expense causing or likely to cause a variance of greater than ten
percent (10%) or $2,000, whichever is greater, in any one accounting category for the
current month cumulative year-to-date total shall be promptly explained to Owner by Manager
in the next monthly report submitted by Manager to Owner pursuant to Section 2.13(a).
During the calendar year Manager shall inform Owner of, and seek approval pursuant to
Section 2.11(c) for, any major increases or decreases in costs, expenses, and income that
were not reflected in the Annual Business Plan.

     Section 2.12
Records, Reporting. Manager shall maintain at the regular business office of Manager or at
such other address as Manager shall advise Owner in writing, separate Project books and journals
and orderly files, containing rental records, insurance policies, leases, correspondence, receipts,
bills and vouchers, and all other documents and papers pertaining directly to the Project or the
operation thereof. All corporate statements, receipts, invoices, checks, leases, contracts,
worksheets, financial statements, books and records, and all other instruments and documents
relating to or arising from the operation or management of the Project shall be and remain the
property of Manager; provided, however, Owner shall have the right to inspect and to copy all such
matters, at Owner’s sole cost and expense, at all reasonable times during the term of this
Agreement, and for a reasonable time thereafter not to exceed three years. All on-site records,
including leases, rent rolls, and other related documents shall remain at the Project as property
of Owner.

     Section 2.13
Financial Reports.

     (a) Monthly Reports. On or before the fifteenth day of each month during the term of
this Agreement, Manager shall deliver to Owner’s Representatives a statement of cash flows
for the Project (on a cash and not an accrual basis) for the preceding calendar month. All
notices from any mortgagee claiming any default in any mortgage on the Project, and any
other notice from any mortgagee not of a routine nature, shall, if received by Manager, be
promptly delivered by Manager to Owner’s Representatives.

     (b) Annual Report. Within sixty (60) days after the end of each calendar year of the
Project, Manager shall deliver to Owner’s Representatives a statement of cash flows showing
the results of operations for the calendar year or portion thereof during which the
provisions of this Agreement were in effect.

     (c) Returns Required by Law. Manager shall execute and file punctually when due all
forms, reports and returns required by law relating to the employment of personnel.

F-9

 

     Section 2.14
Compliance with Legal Requirements. Owner acknowledges that Manager does not hold itself out
to be an expert or consultant with respect to, or represent that, the Project currently complies
with applicable ordinances, regulations, rules, statutes, or laws of governmental entities having
jurisdiction over the Project or the requirements of the Board of Fire Underwriters or other
similar bodies (collectively, “Governmental Requirements”). Manager shall take such action as may
be reasonably necessary to comply with any Governmental Requirements applicable to Manager,
including the collection and payment of all sales and other taxes (other than income taxes) which
may be assessed or charged by the State of Texas or any governmental entities in connection with
Manager’s Compensation. If Manager discovers the Project does not comply with any Governmental
Requirements, Manager shall promptly notify Owner and take such action as may be reasonably
necessary to bring the Project into compliance with such Governmental Requirements, subject to the
limitation contained in Section 2.5 of this Agreement regarding the making of alterations and
repairs. Manager, however, shall not take any such action as long as Owner is contesting or has
affirmed its intention to contest and promptly institute proceedings contesting any such order or
requirement. If, however, failure to comply promptly with any such order or requirement would or
might expose Manager to civil or criminal liability, Manager shall have the right, but not the
obligation, to cause the same to be complied with and Owner promptly reimburse Manager for expenses
incurred thereby. Manager shall promptly, and in no event later than seventy-two (72) hours from
the time of receipt, notify Owner’s Representatives in writing of all such orders or notices. The
Manager also shall not be liable for any effort or judgment or for any mistake of fact of law, or
for anything which it may do or refrain from doing hereinafter, except in cases of willful
misconduct or gross negligence of Manager.

ARTICLE
III.

MANAGER’S COMPENSATION, TERM

     Section 3.1
Management Fee.

     (a) Commencing on the date hereof, Owner shall pay Manager a monthly management fee
equal to four percent (4%) of Gross Collections (as defined below) for such month, payable
monthly in arrears (the “Management Fee”). The term “Gross Collections” shall mean all
amounts actually collected as rents or other charges for use and occupancy of apartment
units and from users of garage spaces (if any), leases of other non-dwelling facilities in
the Project and concessionaires (if any) in respect of the Project, including furniture
rental, parking fees, forfeited security deposits applied to unpaid rent, application fees,
late charges, revenue from coin operated machines, proceeds from rental interruption
insurance, and other miscellaneous revenue collected at the Project; but shall exclude all
other receipts, including but not limited to, revenue derived from interest on investments
or otherwise, proceeds of claims on account of insurance policies (other than rental
interruptions insurance), abatement of taxes, awards arising out of eminent domain
proceedings, discounts, dividends on insurance policies, utility reimbursements and any
portion of a forfeited security deposit that is applied to an expense reimbursement.

F-10

 

     (b) Owner and Manager acknowledge and agree that Owner is entering into a $15,004,000
Mortgage Loan (the “Loan”), evidenced by that certain Multifamily Note dated as of the
Effective Date (the “Note”), from Owner to Holliday Fenoglio Fowler, L.P., and secured by
that certain Multifamily Deed of Trust, Assignment of Rents and Security Agreement and
Fixture Filing dated as of the Effective Date (the “Security Instrument”). Notwithstanding
anything in this Agreement to the contrary, so long as any indebtedness is outstanding under
the Loan Documents (as defined below): (i) Owner shall not pay and Manager shall not collect
any Management Fees in excess of three percent (3)% of Gross Collections (any amount in
excess thereof the “Excess Management Fees”), until Owner has paid all operating expenses
(including the management fee), monthly principal, interest, escrows, insurance reserves and
other required items or charges due under the Loan Documents if Manager has notice of or
acquires actual knowledge of an Event of Default under the Security Instrument (a “Default
Notice”); (ii) if payment of Excess Management Fees is included with payment of Management
Fees after a Default Notice is received by Manager, Manager will be entitled to retain only
that part of the payment which is not Excess Management Fees; and (iii) if Manager receives
Excess Management Fees after the Default Notice has been received by Manager, Manager agrees
that such Excess Management fees will be received and held in trust for Lender, to be
applied to amounts due under the Security Instrument. For purposes hereof, the term “Loan
Documents” has the meaning assigned to that term in the Security Instrument, and the term
“Lender” means the owner and holder from time to time of the Note and the other Loan
Documents.

     Section
3.2 Term. This Agreement shall commence as of the Effective Date, and shall continue thereafter
so long as UDR, Inc. or its affiliates have an ownership interest in, directly or indirectly, the
Project, unless otherwise terminated for cause as provided herein. If all or any substantial
portion of the Project is damaged or destroyed or in the event of condemnation of a substantial
portion of the Project, Owner may terminate this Agreement by thirty (30) days written notice to
Manager. Notwithstanding any other provision on this Agreement to the contrary, if a receiver,
liquidator or trustee of either party shall be appointed by court order, or if a petition to
reorganize shall be filed against either party under any bankruptcy, reorganization or insolvency
laws and such petition is not dismissed within one hundred twenty (120) days, or if any assignment
for the benefit of creditors is made, then either party may forthwith terminate this Agreement,
without cause and without penalty, upon thirty (30) days written notice to the other party. If
Owner or Manager shall materially breach its obligations hereunder, and such breach remains uncured
for a period of ten (10) days after written notification of such breach, the party not in breach
hereunder may terminate this Agreement by giving written notice to the other. In addition, Fannie
Mae may terminate this Agreement immediately on written notice to Manager if UDR TX Fund LLC is
removed as Managing Member of UDR Texas Ventures LLC pursuant to Sections 11.2 and 11.4 of that
certain Limited Liability Company Agreement of UDR Texas Ventures LLC dated as of ___, 2007
between Fannie Mae and UDR TX Fund LLC (the “LLC Agreement”). Upon any termination of this
Agreement, Manager shall be entitled to receive all compensation and reimbursements, if any, due to
Manager through the date of termination. Such amounts will be due Manager no later than thirty
(30) days from the date of such termination. Within thirty (30) days after any such termination,
Manager shall deliver to Owner’s Representatives, the report required by Section 2.13(a) for any
period not covered by

F-11

 

such a report at time of termination, and within sixty (60) days after any such termination,
Manager shall deliver to Owner’s Representatives, as required by Section 2.13(b), the statement of
cash flow for the fiscal year or portion thereof ending on the date of termination.

ARTICLE IV.

PROCEDURES FOR HANDLING RECEIPTS AND OPERATING CAPITAL

     Section 4.1 Security Deposits. A separate interest bearing account shall be opened by Manager for tenant
security deposits or a bond shall be obtained securing such deposits, the cost of which shall be a
reimbursable expense. Owner agrees to indemnify and hold harmless Manager, and Manager’s
representatives, officers, directors and employees for any loss or liability with respect to any
use by Owner of the tenant security deposits that is inconsistent with the terms of the leases and
applicable laws.

     Section 4.2 Separation of Owner’s Monies. Manager shall establish and maintain, in a bank of Manager’s
choice whose deposits are insured by the Federal Deposit Insurance Corporation, and in a manner
that indicates the custodial nature thereof, a separate bank account for the deposit of all monies
of Owner. Manager shall also establish such other special bank accounts as may be reasonably
required by Owner.

     Section 4.3 Depository Accounts. Owner and Manager agree that Manager shall have no liability for loss of
funds of Owner contained in the bank accounts for the Project maintained by Manager pursuant to
this Agreement due to insolvency of the bank or financial institution in which its accounts are
kept, whether or not the amounts in such accounts exceed the maximum amount federal or other
deposit insurance applicable with respect to the financial institution in question.

     Section 4.4 Working Capital. In addition to the funds derived from the operation of the Project, Owner
shall furnish and maintain in the operating accounts of the Project such other funds as may be
necessary to discharge financial commitments required to efficiently operate the Project and to
meet all payrolls and satisfy, before delinquency, and to discharge all accounts payable. Manager
shall have no responsibility or obligation with respect to the furnishing of any such funds.
Nevertheless, Manager shall have the right, but not the obligation, to advance funds or contribute
property on behalf of Owner to satisfy obligations of Owner in connection with this Agreement and
the Project. Manager shall keep appropriate records to document all reimbursable expenses paid by
Manager, which records shall be made available for inspection by Owner or its agents on request.
Owner agrees to reimburse Manager with interest at a rate equal to ten percent (10%) upon demand
for money paid or property contributed by Manager in connection with the Project and this
Agreement.

     Section 4.5 Authorized Signatures. Any persons from time to time designated by Manager shall be
authorized signatories on all bank accounts established by Manager pursuant to this Agreement and
shall have authority to make disbursements from such accounts. Funds may be withdrawn from all
bank accounts established by Manager, in accordance with this Article IV, only upon the signature
of an individual who has been granted that authority by Manager and funds may not be withdrawn from
such accounts by Owner unless Agent is in default hereunder.

F-12

 

ARTICLE V.

MISCELLANEOUS

     Section 5.1 Assignment. Upon thirty (30) days written notification, Owner may assign its rights and
obligations under this Agreement to any successor in title to the Project that is an affiliate of
Owner and upon such assignment shall be relieved of all liability accruing after the effective date
of such assignment. Manager may not assign its rights or obligations under this Agreement, other
than to an Affiliate (as defined in the LLC Agreement) of UDR, Inc. without Owner’s prior written
consent.

     Section 5.2 Notices. All notices required or permitted by this Agreement shall be in writing and shall be
sent by prepaid registered or certified mail (to be effective three (3) days following the date
sent), recognized overnight delivery service with receipt confirmation requested (to be effective
the business day following the date sent), by facsimile with return receipt requested (to be
effective the date sent, or if not sent on a business day or during normal business hours, the next
business day) or delivered personally (to be effective when delivered), addressed in the case of
Owner to UDR Lakeline Villas LLC, c/o UDR, Inc., 1745 Shea Center Drive, Suite 200, Highlands
Ranch, Colorado 80129, Attention: W. Mark Wallis, Senior Executive Vice President and in the case
of Manager to UDR Western Residential, Inc., 1745 Shea Center Drive, Suite 200, Highlands Ranch,
Colorado 80129, Attention: W. Mark Wallis, Senior Executive Vice President or to such other address
as shall, from time to time, have been designated by written notice by either party given to the
other party as herein provided.

     Section 5.3 Entire Agreement. This Agreement shall constitute the entire agreement between the parties
hereto and no modification thereof shall be effective unless in writing executed by the parties
hereto.

     Section 5.4 No Partnership. Nothing contained in this Agreement shall constitute or be construed to be or
create a partnership or joint venture between the Owner, its successors or assigns, on the one
part, and Manager, its successors and assigns, on the other part.

     Section 5.5 No Third Party Beneficiaries. Neither this Agreement nor any part hereof nor any service
relationship shall inure to the benefit of any third party, to any trustee in bankruptcy, to any
assignee for the benefit of creditors, to any receiver by reason of insolvency, to any other
fiduciary or officer representing a bankrupt or insolvent estate of either party, or to the
creditors or claimants of such an estate. Without limiting the generality of the foregoing
sentence, it is specifically understood and agreed that insolvency or bankruptcy of either party
hereto shall, at the option of the other party, void all rights of such insolvent or bankrupt party
hereunder (or so many of such rights as the other party shall elect to void).

     Section 5.6 Severability. If any one or more of the provisions of this Agreement, or the applicability of
any such provision to a specific situation shall be held invalid or unenforceable, such provision
should be modified to the minimum extent necessary to make it or its application valid and
enforceable, and the validity and enforceability of all other provisions of this Agreement and all
other applications of such provisions shall not be affected thereby.

F-13

 

     Section
5.7 Captions, Plural Terms. Unless the context clearly requires otherwise, the singular number
herein shall include the plural, the plural number shall include the singular and any gender shall
include all genders. Titles and captions herein shall not affect the construction of this
Agreement.

     Section
5.8 Attorneys’ Fees. Should either party employ an attorney to enforce any of the provisions of
this Agreement, or to recover damages for breach of this Agreement, the non-prevailing party in any
action agrees to pay to the prevailing party all reasonable costs, damages and expenses, including
reasonable attorneys’ fees, expended or incurred by the prevailing party in connection therewith.

     Section
5.9 Signs. During the term of this Agreement, Manager shall have the right to place signs on the
Project in accordance with applicable Governmental Requirements stating that Manager is the manager
and leasing agent for the Project.

     Section
5.10 Survival of Indemnities. The indemnification obligations of the parties to this Agreement
shall survive the termination of this Agreement to the extent of any claim or cause of action based
on an event occurring prior to the date of termination.

     Section
5.11 Governing Law, Venue. This Agreement shall be construed under and in accordance with the laws
of the State of Texas.

     Section
5.12 Competitive Projects. Manager may, individually or with others, engage or possess an interest
in any other project or venture of every nature and description, including but not limited to, the
ownership, financing, leasing, operation, management, brokerage and sale of real estate projects
including apartment projects other than the Project, whether or not such other venture or projects
are competitive with the Project and Owner shall not have any claim as to such project or venture
or to the income or profits derived therefrom.

     Section
5.13 Interest. Any amount payable to Manager under this Agreement which is not paid when due shall
accrue interest at the lesser of 18% per annum or the maximum lawful rate.

     Section
5.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original.

ARTICLE
VI.

ENVIRONMENTAL MATTERS

     Section
6.1 Environmental Representations and Indemnification. Owner hereby warrants and represents to
Manager that to Owner’s actual knowledge, the Project has not previously been nor is presently
being used to treat, deposit, store, dispose of, or place any hazardous substance on the Project,
or any part thereof. In the event a release of any hazardous substance on the Project occurs, or
is threatened, prior to the termination of this Agreement, which release or threatened release, in
Manager’s sole opinion, may subject Manager to liability or claims under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. Section 9607; under any
law of the State of Texas, or any ordinance of the city of Cedar Park,

F-14

 

Texas; or any other Governmental Requirement (collectively, “Environmental Laws”), Manager
shall be entitled to immediately terminate this Agreement. Furthermore, Owner hereby agrees to
indemnify and hold Manager harmless from any claims, liabilities, causes of Action, and other
expenses which may be incurred by Manager, including reasonable attorneys’ fees, due to any
violation of the Environmental Laws unless the violation of the Environmental Laws is directly
attributable to a breach by Manager of its duties and obligations under this Agreement or Manager’s
gross negligence or intentional misconduct (by act or omission).

[Signature Page Follows]

F-15

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective duly authorized representatives as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	Manager:	 	UDR WESTERN RESIDENTIAL, INC., a Virginia corporation
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	W. Mark Wallis
	 

	 	 	 	 	 	Senior Executive Vice President
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Grantee:	 	UDR LAKELINE VILLAS LLC, a Delaware limited liability company
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	UDR TEXAS VENTURES LLC, a Delaware limited liability company, its Sole Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	UDR TX FUND LLC, a Delaware limited liability company, its Managing Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	LINCOLN TC II, L.P., a Delaware limited partnership, its Sole Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	UDR WESTERN RESIDENTIAL, INC., a Virginia corporation, its General Partner
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	W. Mark Wallis
	 

	 	 	 	 	 	Senior Executive Vice President

F-16

 

EXHIBIT G

LIMITED LIABILITY COMPANY AGREEMENT

OF

                                        .

A DELAWARE LIMITED LIABILITY COMPANY

(i)

     This Limited Liability Company Agreement (“Agreement”) of ___, a Delaware limited
liability company (the “Company”), is made and entered into as of ___, 200___, by UDR Texas
Ventures LLC, a Delaware limited liability company (the “Member”), with reference to the following
facts:

	 	A.	 	The Member caused a Certificate of Formation (the “Certificate”) for the
Company to be filed with the Delaware Secretary of State on ___, 200___under the
laws of the State of Delaware.

	 	B.	 	The Member desires to adopt and approve a limited liability company agreement
for the Company under the Delaware Limited Liability Company Act (the “Act”).

     NOW, THEREFORE, the Member by this Agreement sets forth the limited liability company
agreement for the Company upon the terms and subject to the conditions of this Agreement.

ARTICLE I

ORGANIZATIONAL MATTERS

     1.1 Name. The name of the Company shall be “___.” The Company may conduct
business under that name or any other name approved by the Member.

     1.2 Term. The term of the Company commenced as of the date of the filing of the Certificate
under Section 18-201 of the Act and is perpetual.

     1.3 Registered Office. The Company’s registered office in the State of Delaware shall be
located at The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, 19801, County
of New Castle, until changed by designation of the Member.

     1.4 Business of the Company. The purpose of the Company is to engage in any lawful business,
purpose or activity for which a limited liability company may be organized under the Act.

     1.5 Agent for Service of Process. The initial registered agent for service of process for the
Company shall be The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, 19801,
County of New Castle. The Member may change the agent for service of process at any time.

G-1

 

ARTICLE II

CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS

     2.1 Capital Contributions. The Member shall contribute the amount of cash set forth on
Exhibit A to the Company as its initial capital contribution. The Member may make additional
capital contributions to the Company in its discretion.

     2.2 Allocation of Profits and Losses; Tax Status. The Company’s profits and losses shall be
allocated to the Member. At all times that the Company has only one member (who owns 100% of the
limited liability company interests in the Company), it is the intention of the Member that the
Company be disregarded for federal, state, local and foreign income tax purposes and that the
Company be treated as a division of the Member, except as otherwise required by applicable law.

     2.3 Distributions. Distributions shall be made from time to time as determined by the Member
in its sole discretion.

ARTICLE III

MANAGEMENT AND CONTROL OF THE COMPANY

     3.1 Exclusive Management by the Member. The Member shall have full, complete and exclusive
authority, power, and discretion to manage and control the business, property and affairs of the
Company, to make all decisions regarding those matters and to perform any and all other acts or
activities customary or incident to the management of the Company’s business, property and affairs.

     3.2 Reliance by Third Parties. Any person or entity dealing with the Company or the Member
may rely upon a certificate signed by the Member as to:

     (a) the identity of the Member;

     (b) the existence or non-existence of any fact or facts that constitute a condition
precedent to acts by the Member or are in any other manner germane to the affairs of the
Company;

     (c) the persons who, or entities that, are authorized to execute and deliver any
instrument or document of, or on behalf of, the Company; or

     (d) any act or failure to act by the Company or as to any other matter whatsoever,
involving the Company or the Member.

     3.3 Records and Information. Unless otherwise required by a mandatory provision of law,
neither the Company nor the Member shall have any obligation to maintain any books or records of
the Company; provided that the Member may keep books and records of the Company and may, from time
to time, designate recordkeeping requirements for the Company.

G-2

 

     3.4 Additional Members. Except where the Member assigns or otherwise transfers 100% of its
limited liability company interest to one other person or entity (such that after the assignment or
transfer there will remain only one Member of the Company), in the event that the Member desires to
admit one or more person(s) or entity(ies) as a Member(s), or in the event that the Member desires
to appoint one or more manager(s) to manage the Company, then this Agreement shall be amended as
directed by the Member.

     3.5 Liability of Member. The Member shall not have any liability for the obligations or
liabilities of the Company except to the extent provided in the Act.

ARTICLE IV

DISSOLUTION AND WINDING UP

     4.1
Conditions of Dissolution  The Company shall dissolve upon the occurrence of any of the
following events:

     (a) upon the entry of a decree of judicial dissolution pursuant to Section 18-802 of
the Act;

     (b) the Member votes to dissolve the Company; or

     (c) the sale of all or substantially all of the assets of Company.

     4.2 Winding Up. Upon the dissolution of the Company, the Company’s assets shall be disposed
of and its affairs wound up. The Company shall give written notice of the commencement of the
dissolution to all of its known creditors.

ARTICLE V

INDEMNIFICATION

     5.1 Exculpation.

     (a) For purposes of this Agreement, the term “Covered Persons” means the Member and any
members of the Member, and their respective officers, directors, shareholders, partners,
members and employees.

     (b) No Covered Person shall be liable to the Company for any loss, damage or claim
incurred by reason of any act or omission performed (whether or not constituting negligence)
or omitted by such Covered Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of authority conferred on such Covered Person by
this Agreement, except that a Covered Person shall be liable for any such loss, damage or
claim incurred by reason of such Covered Person’s gross negligence or willful misconduct.

     (c) A Covered Person shall be fully protected in relying in good faith upon the records
of the Company and upon such information, opinions, reports or statements presented to the
Company by any person or entity as to matters the Covered Person

G-3

 

reasonably believes are within the professional or expert competence of such person or
entity and who or which has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value and amount
of the assets, liabilities, profits, losses, or any other facts pertinent to the existence
and amount of assets from which distributions to the Member might properly be paid. The
foregoing provision shall in no way be deemed to reduce the limitation on liability of a
Covered Person provided in Section 5.1(b).

     (d) Notwithstanding the provision of this Sections 5.1 and Section 5.2, nothing herein
shall amend or modify any of the obligations of such Covered Persons to the Company or to
any other Covered Person set forth in the operating agreement of the Member and to the
extent the provisions of this Agreement shall conflict with the provisions of such operating
agreement of the Member, the terms of the operating agreement of the Member shall control.

     5.2 Indemnification. The Company, its receiver, or its trustee shall indemnify, defend and
hold harmless a Covered Person from and against any and all Damages (as defined below) arising out
of or resulting from the fact that such Covered Person is or was a Member or any act or omission in
connection with such Covered Person’s activities on behalf of the Company or in furtherance of the
interests of the Company, including, without limitation, any Damages incurred in connection with
the defense of any actual or threatened action, proceeding, or claim to the fullest extent
permitted by applicable law in effect on the date hereof and to such greater extent as applicable
law may hereafter from time to time permit. Reasonable expenses incurred by an indemnified party
may, in connection with the foregoing matters, be paid or reimbursed by the Company in advance of
the final disposition of such proceedings upon receipt by the Company of (i) written affirmation by
the indemnified party of its good faith belief that such person is entitled to indemnification by
the Company, and (ii) a written undertaking by or on behalf of the indemnified party to repay such
amount if a court of competent jurisdiction ultimately determines that the indemnified party is not
entitled to indemnification.

     As used in this Section 5.2, “Damages” shall mean all claims, actions, losses, damages,
expenses, liabilities, judgments, awards, fines, sanctions, penalties, taxes, and amounts paid in
settlement, including, without limitation, costs, fees and expenses of attorneys, experts,
accountants, appraisers, consultants, witnesses, investigators and any other agents.

     5.3 Insurance. The Company may purchase and maintain insurance, to the extent and in such
amounts as the Member shall, in its sole discretion, deem reasonable, on behalf of Covered Persons
and such other persons or entities as the Member shall determine, against any liability that may be
asserted against, or expenses that may be incurred by, any such person or entity in connection with
the activities of the Company or such indemnities, regardless of whether the Company would have the
power to indemnify such person or entity against such liability under the provisions of this
Agreement.

     5.4 Outside Business. The Member may engage in or possess an interest in any business venture
of any nature or description, independently or with others, similar or dissimilar to the business
of the Company, and the Company and the Member shall have no rights by virtue

G-4

 

of this Agreement in and to such independent ventures or the income or profits derived
therefrom, and the pursuit of any such venture, even if competitive with the business of the
Company, shall not be deemed wrongful or improper. The Member shall not be obligated to present
any particular investment opportunity to the Company even if such opportunity is of a character
that, if presented to the Company, could be taken by the Company, and the Member shall have the
right to take for its own account (individually or as a partner, shareholder, fiduciary or
otherwise) or to recommend to others any such particular investment opportunity.

ARTICLE VI

MISCELLANEOUS

     6.1 Governing Law. This Agreement shall be governed by and construed under the laws of the
State of Delaware as applied to agreements among Delaware residents made and to be performed
entirely within Delaware.

     6.2 Conflict with Certificate of Formation. To the extent that any provision of the
Certificate conflicts with any provision of this Agreement, the Certificate shall control.

     6.3 Binding Effect. Subject to the provisions of this Agreement relating to transferability,
this Agreement will be binding upon and inure to the benefit of the Member, and its respective
successors and assigns.

     6.4 Severability. 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 to which it is held
invalid shall not be affected thereby.

     6.5 Parties in Interest. Except as expressly provided in the Act, nothing in this Agreement
shall confer any rights or remedies under or by reason of this Agreement on any individual,
corporation, limited liability company, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or governmental authority or agency, other than the
Member and its respective successors and assigns, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third person to any party to this Agreement, nor shall
any provision give any third person any right of subrogation or action over or against any party to
this Agreement.

[THE REMAINDER OF THE PAGE IS INTENTIONALLY BLANK]

G-5

 

     IN WITNESS WHEREOF, the sole Member of the Company has executed this Limited Liability Company
Agreement, effective as of the date written above.

	 	 	 	 	 
	 	 	MEMBER:
	 
	 	 	 	 
	 	 	UDR Texas Ventures LLC, a Delaware limited
liability company
	 
	 	 	 	 
	 	 	By: UDR TX Fund LLC, a Delaware limited

liability company, its Managing Member
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

G-6

 

EXHIBIT H

INTERNAL RATE OF RETURN CALCULATION

H-1

 

UDR Texas Ventures LLC

IRR Calculation Example

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1/15/2007	 	 	3/30/2007	 	 	6/29/2007	 	 	9/28/2007	 	 	12/31/2007	 	 	3/31/2008	 	 	6/30/2008	 	 	9/30/2008	 	 	12/31/2008	 	 	3/23/2009	 
	 	 	Monday	 	 	Friday	 	 	Friday	 	 	Friday	 	 	Monday	 	 	Monday	 	 	Monday	 	 	Tuesday	 	 	Wednesday	 	 	Monday	 
	Total Cash Flows
	 	 	($400,000,000	)	 	$	5,000,000	 	 	$	10,000,000	 	 	$	15,000,000	 	 	$	20,000,000	 	 	$	25,000,000	 	 	$	30,000,000	 	 	$	35,000,000	 	 	$	40,000,000	 	 	$	375,000,000	 
	VENTURE IRR
	 	 	18.78	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

UDR Texas Ventures LLC

Waterfall Example

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1/15/2007	 	 	3/30/2007	 	 	6/29/2007	 	 	9/28/2007	 	 	12/31/2007	 	 	3/31/2008	 	 	6/30/2008	 	 	9/30/2008	 	 	12/31/2008	 	 	3/23/2009	 
	 	 	Monday	 	 	Friday	 	 	Friday	 	 	Friday	 	 	Monday	 	 	Monday	 	 	Monday	 	 	Tuesday	 	 	Wednesday	 	 	Monday	 
	Total Cash Flows
	 	 	($400,000,000	)	 	$	5,000,000	 	 	$	10,000,000	 	 	$	15,000,000	 	 	$	20,000,000	 	 	$	25,000,000	 	 	$	30,000,000	 	 	$	35,000,000	 	 	$	40,000,000	 	 	$	375,000,000	 
	Cash Flows to UDR (20%)
	 	 	($80,000,000	)	 	$	1,000,000	 	 	$	2,000,000	 	 	$	3,000,000	 	 	$	4,000,000	 	 	$	5,000,000	 	 	$	6,000,000	 	 	$	7,000,000	 	 	$	8,000,000	 	 	$	57,931,800	 
	Cash Flows to Fannie Mae (80%)
	 	 	($320,000,000	)	 	$	4,000,000	 	 	$	8,000,000	 	 	$	12,000,000	 	 	$	16,000,000	 	 	$	20,000,000	 	 	$	24,000,000	 	 	$	28,000,000	 	 	$	32,000,000	 	 	$	231,727,200	 
	First Ownership Shift Hurdle @ 9.0%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	289,659,000	 
	Cash Available for First Ownership Shift
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	20,445,000	 
	Cash Flow to UDR at 35.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	7,155,750	 
	Cash Flow to Fannie Mae at 65.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13,289,250	 
	First Holdback Hurdle @ 11.0%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	310,104,000	 
	Cash Available for First Holdback
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	First Holdback Payment to UDR of $5,000,000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	Second Ownership Shift Hurdle @ 11.0% (After Payment of FIRST Holdback)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	315,104,000	 
	Cash Available for Second Ownership Shift
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	22,701,000	 
	Cash Flow to UDR at 40.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9,080,400	 
	Cash Flow to Fannie Mae at 60.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13,620,600	 
	Second Holdback Hurdle @ 13.0%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	337,805,000	 
	Cash Available for Second Holdback
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	Second Holdback Payment to UDR of $5,000,000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	Second Ownership Shift Hurdle @ 11.0% (After Payment of SECOND Holdback)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	342,805,000	 
	Cash Available for Second Ownership Shift
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	23,255,000	 
	Cash Flow to UDR at 40.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9,302,000	 
	Cash Flow to Fannie Mae at 60.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13,953,000	 
	Third Holdback Hurdle @ 15.0%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	366,060,000	 
	Cash Available for Third Holdback
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	Second Holdback Payment to UDR of $5,000,000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,000,000	 
	Third Ownership Shift Hurdle @ 15.0% (After Payment of THIRD Holdback)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	371,060,000	 
	Cash Available for Third Ownership Shift
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,940,000	 
	Cash Flow to UDR at 50.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,970,000	 
	Cash Flow to Fannie Mae at 50.0% Ownership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,970,000	 
	Pari Passu Share of Cash Flows
	 	 	($80,000,000	)	 	$	1,000,000	 	 	$	2,000,000	 	 	$	3,000,000	 	 	$	4,000,000	 	 	$	5,000,000	 	 	$	6,000,000	 	 	$	7,000,000	 	 	$	8,000,000	 	 	$	72,000,000	 
	Holdback
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	15,000,000	 
	Promote (cash flow in excess of pari passu excluding holdback)
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	13,439,950	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total UDR Cash Flows
	 	 	($80,000,000	)	 	$	1,000,000	 	 	$	2,000,000	 	 	$	3,000,000	 	 	$	4,000,000	 	 	$	5,000,000	 	 	$	6,000,000	 	 	$	7,000,000	 	 	$	8,000,000	 	 	$	100,439,950	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Fannie Mae Cash Flows
	 	 	($320,000,000	)	 	$	4,000,000	 	 	$	8,000,000	 	 	$	12,000,000	 	 	$	16,000,000	 	 	$	20,000,000	 	 	$	24,000,000	 	 	$	28,000,000	 	 	$	32,000,000	 	 	$	274,560,050	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Cash Distributed
	 	 	($400,000,000	)	 	$	5,000,000	 	 	$	10,000,000	 	 	$	15,000,000	 	 	$	20,000,000	 	 	$	25,000,000	 	 	$	30,000,000	 	 	$	35,000,000	 	 	$	40,000,000	 	 	$	375,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

EXHIBIT I

FORM OF GUARANTY

     This Guaranty (this “Guaranty”) is made as of November 5, 2007, by UDR, Inc., a Maryland
corporation with its principal address at 1745 Shea Center Drive, Suite 200, Highlands Ranch, CO
80129 (“Guarantor”) in favor of FANNIE MAE, a corporation organized under the laws of the United
States (“Fannie Mae”), and the Company (defined below) (Fannie Mae and the Company are collectively
referred to as the “Guaranteed Party”; provided, however, at Fannie Mae’s sole election, Fannie Mae
may be the sole Guaranteed Party hereunder and may exercise all rights and remedies granted to
Guaranteed Party hereunder, and be entitled to all benefits afforded to Guaranteed Party hereunder,
in its individual capacity).

RECITALS

     A. Concurrently herewith, UDR TX Fund LLC, a Delaware limited liability company
(“Managing Member”), and Fannie Mae are entering into that certain Limited Liability Company
Agreement of UDR Texas Ventures LLC of even date herewith (the “Operating Agreement”),
whereby Fannie Mae and Managing Member have agreed to form a Delaware limited liability
company under the name of UDR Texas Ventures LLC (the “Company”) subject to the terms and
conditions set forth in the Operating Agreement.

     B. Pursuant to the Operating Agreement, (a) the Company will own an interest in
Subsidiaries (as defined in the Operating Agreement) which will, own, operate, manage and
lease certain Properties subject to Mortgage Loans, and (b) Fannie Mae will make certain
capital contributions to the Company as more particularly set forth in the Operating
Agreement.

     C. In connection with the transactions contemplated in the Operating Agreement,
Guarantor shall cause or has caused its affiliates to sell certain Properties to
Subsidiaries pursuant to purchase and sale agreements approved by the Members and to
contribute the Property known as Lincoln at Towne Square II to UDR Lincoln at Town Square II
LLC pursuant to that certain Contribution Agreement, dated as of November 5, 2007 between
Lincoln TC II, L.P. and UDR Lincoln at Towne Square II LLC (the “Contribution Agreement”).

     D. To induce Fannie Mae to, among other things, execute the Operating Agreement,
acquire a membership interest in the Company, and make Fannie Mae’s capital contributions,
all as provided in the Operating Agreement, Guarantor is willing and desires to execute and
deliver this Guaranty for the benefit of Fannie Mae and the Company.

     E. As a condition to entering into or approving, as the case may be, the agreements,
contracts and transactions described above, and pursuant to the Operating Agreement, Fannie
Mae requires that Guarantor enter into this Guaranty.

I-1

 

     F. Guarantor has a substantial direct or indirect economic and ownership interest in
Managing Member, Lincoln TC II, L.P., and the above referenced sellers of Properties, and
will derive substantial benefit from Fannie Mae entering into or approving, as the case may
be, the agreements, contracts and transactions described above.

     NOW, THEREFORE, in consideration of Fannie Mae entering into the Operating Agreement, the
anticipated capital contribution of Fannie Mae, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows:

     1. Definitions. All capitalized terms used in this Guaranty which are
not otherwise defined shall have the meanings set forth in the Operating Agreement.

     2. Guaranteed Obligations. Guarantor hereby unconditionally and
irrevocably guarantees to Fannie Mae and the Company (i) the full and complete
payment of all of Managing Member’s financial obligations including without
limitation, obligations to make Capital Contributions, to satisfy Managing Member’s
indemnity obligations, and to pay damages arising from the Managing Member’s
breach of its obligations under the Operating Agreement (including but not limited
to a Managing Member Default) all as set forth in the Operating Agreement
and (ii) the full and complete payment of (a) all of the respective seller’s
indemnification obligations under Section 5.01(c) of the respective purchase and
sales agreements and, (b) the indemnification obligations of Lincoln TC II, L.P.
under Section 5.01(c) of the Contribution Agreement. The obligations of Guarantor
set forth in this Section 2 shall hereinafter be collectively referred to herein as
the “Guaranteed Obligations”.

     3. Not Capital Contributions. Any amounts funded by Guarantor
hereunder are not capital contributions of Managing Member or any other Person to
the Company but represent the personal obligations of Guarantor in its individual
capacity without regard to the Operating Agreement. Guarantor acknowledges that it
will not be entitled to reimbursement or distribution from the Company or Fannie Mae
on account of any sums paid by it pursuant to this Guaranty, and that Guarantor
shall not have any right of subrogation by reason of such payments until all
Guaranteed Obligations have been irrevocably paid in full. Fannie Mae may (but
shall not be obligated to) direct Guarantor, however, to make payments under this
Guaranty directly to the Company.

     4. Financial Statements. Within one hundred twenty (120) days
following the end of each fiscal year, Guarantor shall deliver to Fannie Mae (a)
copies of such updated audited financial statements and unaudited balance sheets,
profit and loss statements, cash flows, other financial reports and other financial
information of Guarantor as previously delivered to Fannie Mae and (b) a statement
of material change, if any, in Guarantor’s net worth, certified by such Guarantor as
being true, correct and complete, together with a certified statement

I-2

 

that there ahs been no material adverse change in the financial condition of
such Guarantor since the date of the previous financial statements delivered to
Fannie Mae. Guarantor hereby represents, warrants and covenants that all financial
statements heretofore delivered to Fannie Mae are, and hereafter to be delivered to
Fannie Mae will be, true, complete and correct in all material respects and fair
representations of the financial condition of the Guarantor as of the dates thereof.
Notwithstanding the foregoing, so long as Guarantor shall file all reports required
to be filed by it under the Securities Act of 1933, as amended, and the Securities
and Exchange Act of 1934, as amended, on a timely basis or has timely filed a valid
extension of such time of filing and has filed any such reports prior to the
expiration of any such extension, such reports include the financial statements of
Guarantor, and as of the effective date of such filings such financial statements
complied as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the Securities and Exchange Commission
with respect thereto as in effect at the time of filing, Guarantor shall not be
required to submit financial statements and or balance sheets or other financial
information directly to Fannie Mae.

     5. No Discharge of Obligations. Except in the event of a written
amendment to this Guaranty signed by the Guarantor, Fannie Mae and the Company, if
applicable, if any, and then except only to the extent expressly provided therein,
none of Guarantor’s obligations and no right against Guarantor shall be in any way
discharged, impaired or otherwise affected by:

     a. The modification, amendment or waiver, by change order, directive or otherwise, or any
extension of time for performance of, or other modification in or of any Rehabilitation Plan,
Business Plan, the Operating Agreement, and any other agreement relating to the acquisition,
financing, rehabilitation or operation of any Property or the Basic Documents.

     b. The release or waiver of or delay in the enforcement of any right or remedy by or against
Fannie Mae, Managing Member, the Company, the Guarantor, any Subsidiary, Lincoln TC II,
L.P., or any seller of any of the Properties; whether pursuant to or involving the Operating
Agreement or any other agreement relating to the acquisition, contribution, financing,
rehabilitation or operation of any Property, or the compromise or settlement by any of the above
parties of any amount or matter in dispute relating to any of the foregoing agreements.

     c. The exercise by Fannie Mae, Managing Member, the Company, any guarantor, mortgage lender or
any other party of any of their respective rights and remedies under any Mortgage Loan Documents,
any Operating Agreement, any Subsidiary’s operating agreement, any other agreement relating to the
acquisition, contribution, financing, rehabilitation or operation of any Property or the Basic
Documents.

     d. The approval, disapproval, inspection, review or failure to inspect or review by Fannie Mae
of the progress, status, or quality of construction or any costs, expenses, financing, contracts,
or other matters relating thereto, in connection with the rehabilitation of any Property or
otherwise.

I-3

 

     e. The release or discharge of Fannie Mae, the Company, Managing Member, or the Guarantor from
any obligation in any receivership, bankruptcy, winding-up or other creditor proceeding.

     It is expressly agreed by Guarantor that none of the forgoing events shall release or
discharge the obligations of Guarantor hereunder, whether or not such event may otherwise be deemed
a legal or equitable discharge of a guarantor or surety. Guarantor agrees that neither Fannie Mae
nor any other party shall have any duty to disclose to Guarantor any information they receive
regarding the financial status of Managing Member, the Company or any contractor, subcontractor,
materialmen involved in the rehabilitation of the Property, or any information relating to any
Property, whether such information indicates that the risk or obligations of Guarantor have or may
increase. Guarantor assumes full responsibility for keeping informed of such matters.

     No change in the composition of Fannie Mae, Managing Member, the Company, any Subsidiary or
any other party shall in any way affect, impair or diminish the liability of Guarantor hereunder,
and Fannie Mae shall have no obligation to inquire into the powers of any of them to perform the
Guaranteed Obligations.

     This Guaranty is being delivered free of any conditions and no representations have been made
to Guarantor affecting or limiting the liability of Guarantor hereunder. The obligations of
Guarantor hereunder are independent of any obligations which such Guarantor may have to Fannie Mae,
directly or indirectly, under the Operating Agreement or any other obligation whatsoever, if any.

     6. Nature of Guaranty. This Guaranty is irrevocable and continuing in
nature and relates to any Guaranteed Obligations now existing or hereafter arising.
This Guaranty is a guaranty of prompt and punctual payment and is not merely a
guaranty of collection. The liability of Guarantor hereunder is independent of the
obligations of Managing Member, or the Company and a separate action or separate
actions may be brought or prosecuted against Guarantor whether or not any action is
brought or prosecuted against Managing Member, Lincoln TC II, L.P., or any seller of
any of the Properties or whether Managing Member, Lincoln TC II, L.P., or any seller
of any of the Properties, or the Company is joined in any such action or actions.
The liability of Guarantor hereunder is independent of, and not in consideration of
or contingent upon the liability of any other person under any similar instrument
and the release of, or cancellation by, any signer of a similar instrument shall not
act to release or otherwise affect the liability of Guarantor unless Guarantor is
independently released in writing. This Guaranty shall be construed as a
continuing, absolute and unconditional guaranty of payment and performance (and not
merely of collection) without regard to:

     a. the legality, validity or enforceability of any of the Property Agreements, any
Construction Management Agreement, any Property Management Agreement, any Subsidiary’s agreement,
any of the indebtedness evidenced thereby, or any other guaranty of such indebtedness or the
Guaranteed Obligations;

I-4

 

     b. any defense (other than payment), setoff or counterclaim that may at any time be available
to Managing Member, the Company or any other guarantor against, and any right of setoff at any time
held by, Fannie Mae; or

     c. any other circumstances whatsoever (with or without notice to or knowledge of Guarantor or
any other guarantor), whether or not similar to any of the foregoing, that constitutes, or might be
construed to constitute, an equitable or legal discharge of Managing Member, the Company or any
other guarantor, in bankruptcy or in any other instance.

     7. Relationship to Other Agreements; Fannie Mae Option. Nothing herein
shall in any way modify or limit the effect of terms or conditions set forth in any
other document, instrument or agreement executed by Guarantor in connection with the
Guaranteed Obligations, but each and every term and condition hereof shall be in
addition thereto. Upon the occurrence of any Managing Member Default under the
Operating Agreement, in addition to all of Fannie Mae’s other rights hereunder and
under the Operating Agreement, Fannie Mae will have the option, to be exercised in
its sole discretion, to either require Guarantor to complete the rehabilitation
pursuant to any Rehabilitation Plan or to complete the rehabilitation itself or to
cause the rehabilitation to be completed by a third party, substantially in
accordance with the Rehabilitation Plan or otherwise in accordance with the
Operating Agreement. If Fannie Mae elects to complete the rehabilitation itself or
to cause a third party to complete the rehabilitation, Guarantor shall pay to Fannie
Mae, immediately upon demand therefor, an amount equal to the difference between the
actual costs reasonably incurred by Fannie Mae in completing the rehabilitation as
referenced above, minus the sum of Project Costs reflected in any Rehabilitation
Budget and directly related to the rehabilitation. In no event will Guarantor’s
liability hereunder be reduced as a result of any evidence that the cost to perform
the Guaranteed Obligations exceeds the enhancement in value to the property
resulting from performance of the Guaranteed Obligations.

     8. Subordination of Indebtedness. Guarantor agrees that:

     a. Any rights of Guarantor, whether now existing or later arising, to receive payment on
account of any indebtedness (including interest) owed to Guarantor by Managing Member, any
Subsidiary, or the Company, shall at all times be subordinate as to lien and time of payment and in
all other respects to the full and prior indefeasible performance of all obligations owed to Fannie
Mae under the Operating Agreement. Guarantor shall not be entitled to enforce or receive payment
of any sums hereby subordinated until all such obligations have been paid and performed in full.

     b. Upon the occurrence of a default of the Guaranteed Obligations or a default by Guarantor in
the performance of any other obligations owed to Fannie Mae under the terms hereof, if Fannie Mae
so requests, any such obligation of Managing Member, any Subsidiary or the Company now or hereafter
owed to Guarantor shall be collected, enforced and received by such Guarantor as trustee for Fannie
Mae on account of the Guaranteed Obligations, but without

I-5

 

reducing or affecting in any manner the obligations of Guarantor under the other provisions of
this Guaranty.

     c. Upon the occurrence of a default of the Guaranteed Obligations or a default by Guarantor of
any other obligations owed to Fannie Mae under the terms hereof, should Guarantor fail to collect
or enforce any such indebtedness of Managing Member, any Subsidiary or the Company now or hereafter
owed to Guarantor and pay the proceeds thereof to Fannie Mae, Fannie Mae, as Guarantor’s
attorney-in-fact, may do such acts and sign such documents in Guarantor’s name as Fannie Mae
considers necessary or desirable to effect such collection, enforcement and/or payment.

     9. Statute of Limitations and Other Laws. Until the Guaranteed
Obligations shall have been irrevocably paid and performed in full (except to the
extent the Guaranteed Obligations are limited as provided in Section 11.2 of the
Operating Agreement), all of the rights, privileges, powers and remedies
granted to Fannie Mae hereunder shall continue to exist and may be exercised by
Fannie Mae at any time and from time to time, irrespective of the fact that any of
the Guaranteed Obligations may have become barred by any statute of limitations.
Guarantor expressly waives the benefit of any and all statutes of limitation, and
any and all laws providing for exemption of property from execution or for valuation
and appraisal upon foreclosure, and any and all rights and benefits, if any, arising
under the laws of the State of Delaware.

     10. Rights Upon Default. Upon the occurrence of any default in the
performance of the Guaranteed Obligations or default by Guarantor of any other
obligations owed to Fannie Mae under the terms hereof, Fannie Mae may enforce this
Guaranty independently of any other remedy or security Fannie Mae at any time may
have or hold in connection with the Guaranteed Obligations, and it shall not be
necessary for Fannie Mae to marshal assets in favor of Managing Member, Subsidiary
or Guarantor or any other person or to proceed upon or against and/or exhaust any
security or remedy before proceeding to enforce this Guaranty. Fannie Mae may file
a separate action or actions against Guarantor, whether action is brought or
prosecuted with respect to any security or against any other person, or whether any
other person is joined in any such action or actions. Guarantor agrees that Fannie
Mae and Managing Member, Lincoln TC II, L.P., or any seller of a Property
may deal with each other in connection with the Guaranteed Obligations or otherwise,
or alter any contracts or agreements now or hereafter existing between them, in any
manner whatsoever, all without in any way altering or affecting the security of
this Guaranty. Fannie Mae’s rights hereunder shall be reinstated and revived, and
the enforceability of this Guaranty shall continue, with respect to any amount at
any time paid on account of the Guaranteed Obligations which thereafter shall be
required to be restored or returned by Fannie Mae upon the bankruptcy, insolvency or
reorganization of Managing Member, any Subsidiary, Guarantor, Lincoln TC II, L.P.,
or any seller of a Property, or for any other reason, all as though such amount had
not been paid. The rights of Guaranteed Party created or granted herein and the

I-6

 

enforceability of this Guaranty at all times shall remain effective to
guarantee the full amount of all of the Guaranteed Obligations even though the
Guaranteed Obligations, including any part thereof or any other security or guaranty
therefor, may be or hereafter may become invalid or otherwise unenforceable as
against Managing Member, a Subsidiary, Lincoln TC II, L.P. or any seller of
a Property. Guarantor expressly waives any and all defenses now or hereafter
arising or asserted by reason of (a) any disability or other defense of Managing
Member, a Subsidiary, the Company, Lincoln TC II, L.P., or any seller of a
Property, or any other guarantor with respect to the Guaranteed Obligations, (b) the
unenforceability or invalidity of any security or guaranty for the Guaranteed
Obligations or the lack of perfection or continuing perfection or failure of
priority of any security for the Guaranteed Obligations, (c) the cessation for any
cause whatsoever of the liability, in whole or in part, of Managing Member, a
Subsidiary, the Company, Lincoln TC II, L.P., or any seller of a Property, or any
other Guarantor (other than by reason of the full payment and performance of all
Guaranteed Obligations), (d) any failure of Fannie Mae to marshal assets in favor of
Managing Member, the Company or any other guarantor, or any other person, (e) any
failure of Guaranteed Party to give notice of sale or other disposition of any
collateral (now or hereafter securing the Guaranteed Obligations) to Managing Member
or any other guarantor, or any other person or any defect in any notice that may be
given in connection with any sale or disposition of collateral, (f) any failure of
Guaranteed Party to comply with applicable law in connection with the sale or other
disposition of any collateral or other security for any Guaranteed Obligation,
including any failure of Guaranteed Party to conduct a commercially reasonable sale
or other disposition of any collateral or other security for any Guaranteed
Obligation, (g) any act or omission of Fannie Mae, or others, that directly or
indirectly results in or aids the discharge or release of Managing Member, Lincoln
TC II, L.P., or any seller of a Property, or any other guarantor, or the Guaranteed
Obligations or any security or guaranty therefor by operation of law or otherwise
(other than by reason of the full payment and performance of all Guaranteed
Obligations), (h) any applicable law which provides that the obligation of a surety
or guarantor must neither be larger in amount nor in other respects more burdensome
than that of the principal or which reduces a surety’s or guarantor’s obligation in
proportion to the principal obligation, including, without limitation, all rights
and benefits under the laws of the District of Columbia purporting to reduce a
guarantor’s obligation in proportion to the obligation of the principal, (i) any
failure of Guaranteed Party to file or enforce a claim in any bankruptcy or other
proceeding with respect to any person, (j) the election by Guaranteed Party in any
bankruptcy proceeding of any person, of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (m) any agreement or
stipulation with respect to the provision of adequate protection in any bankruptcy
proceeding of any person, (n) the avoidance of any lien in favor of Guaranteed Party
for any reason, (o) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or against
any person, including any discharge of, or bar or stay against collecting, all or
any of the

I-7

 

Guaranteed Obligations (or any interest thereon) in or as a result of any such
proceedings, (p) all rights or defenses Guarantor may have by reason of protection
afforded to the principal with respect to the Guaranteed Obligations or to any other
guarantor’s obligations under its guaranty, in either case, pursuant to the
antideficiency laws or other laws of the District of Columbia or other states
limiting or discharging the principal’s obligations. Guarantor expressly waives all
setoffs and counterclaims and all presentments, demands for payment or performance,
notices of nonpayment or nonperformance, protests, notices of protest, notices of
dishonor and all other notices or demands of any kind or nature whatsoever with
respect to the Guaranteed Obligations, and all notices of acceptance of this
Guaranty or of the existence, creation or incurring of new, or additional Guaranteed
Obligations. Guarantor further waives the effect of any law which provides that a
continuing guaranty may be revoked at any time by the guarantor in respect to future
transactions and, by virtue of this waiver, Guarantor acknowledges that, except to
the extent the Guaranteed Obligations are limited as provided in Section
11.2 of the Operating Agreement, Guarantor does not have any right to revoke
this Guaranty as to future advances or additional loans under the Operating
Agreement and, thus, Guarantor may essentially have no control over its ultimate
responsibility for Managing Member’s obligations guaranteed hereunder. Finally,
Guarantor agrees that all advances and Capital Contributions under the Operating
Agreement, if any, are to be construed as components of but a single transaction.

     11. Waivers and Consents. Guarantor acknowledges that the Guaranteed
Obligations involve the guaranty of obligations of a Person other than Guarantor
and, in full recognition of that fact, Guarantor consents and agrees that Guaranteed
Party may, at any time and from time to time, without notice or demand, and without
affecting the enforceability or continuing effectiveness hereof but subject to the
terms and provisions of the Operating Agreement: (a) supplement, modify, amend,
extend, renew, accelerate or otherwise change the time for payment or the terms of
the Guaranteed Obligations or any part thereof, including any increase or decrease
of the rate(s) of interest thereon; (b) supplement, modify, amend or waive, or enter
into or give any agreement, approval or consent with respect to, the Guaranteed
Obligations or any part thereof, or any additional security or guaranties, or any
condition, covenant, default, remedy, right, representation or term thereof or
thereunder; (c) accept new or additional instruments, documents or agreements in
exchange for or relative to any of the Guaranteed Obligations or any part thereof;
(d) accept partial payments on, or performance of, the Guaranteed Obligations and
apply any and all payments or recoveries from Managing Member, Lincoln TC II, L.P.,
or any seller of a Property, or any guarantor to such of the Guaranteed Obligations
as Fannie Mae may elect in its sole discretion; (e) receive and hold additional
security or guaranties for the Guaranteed Obligations or any part thereof; (f)
release, reconvey, terminate, waive, abandon, fail to perfect, subordinate,
exchange, substitute, transfer and/or enforce any security or guaranties, and apply
any security and direct the order or manner of sale thereof as Fannie Mae in its

I-8

 

sole and absolute discretion may determine; (g) release any other Person from
any personal liability with respect to the Guaranteed Obligations or any party
thereof; (h) settle, release on terms satisfactory to Fannie Mae, as the case may
be, or by operation of applicable law or otherwise liquidate or enforce any
Guaranteed Obligations and any security or guaranty in any manner, consent to the
transfer of any security and bid and purchase at any sale (other than by reason of
the full payment and performance of all Guaranteed Obligations); (i) consent to the
merger, change of any other restructuring or termination of the corporate existence
of Managing Member, the Company and correspondingly restructure the Guaranteed
Obligations, and any such merger, change, restructuring or termination shall not
affect the liability of Guarantor or the continuing effectiveness hereof, or the
enforceability thereof with respect to all or any part of the Guaranteed
Obligations; and/or extend other credit to Managing Member, and may take and hold
security for the credit so extended, all without affecting Guarantor’s liability
under this Guaranty; (j) otherwise deal with Managing Member, the Company, Lincoln
TC II, L.P., or any seller of any Property, or any other guarantor as Fannie Mae may
elect in its sole discretion. Guarantor expressly agrees that until the Guaranteed
Obligations are paid and performed in full and each and every term, covenant and
condition of this Guaranty is fully performed, Guarantor shall not be released by or
because of:

     (i) Any act or event which might otherwise discharge, reduce, limit or modify Guarantor’s
obligations under this Guaranty;

     (ii) Any waiver, extension, modification, forbearance, delay, or other act or omission of
Guaranteed Party, or Guaranteed Party’s failure to proceed promptly or otherwise as against the
Managing Member, Lincoln TC II, L.P., or any seller of any Property, any other guarantor, or any
security;

     (iii) Any action, omission or circumstance which might increase the likelihood that Guarantor
may be called upon to perform under this Guaranty or which might affect the rights or remedies of
Guarantor as against Managing Member, Lincoln TC II, L.P., or any seller of any Property; or

     (iv) Any dealings occurring at any time between the Managing Member, any Subsidiary, the
Company, or Lincoln TC II, L.P., or any seller of any Property, on the one hand, and Fannie Mae, on
the other hand, whether relating to Property Agreements, Fannie Mae’s Capital Contributions to the
Company or otherwise.

     Guarantor waives all rights and defenses arising out of an election of remedies by Guaranteed
Party, even though that election of remedies, such as a nonjudicial foreclosure with respect to
security for the Guaranteed Obligations, has destroyed such Guarantor’s rights of subrogation and
reimbursement against Managing Member, the Company, any Subsidiary, any other guarantor or any
other Person (as the case may be), and even though that election of remedies by Guaranteed Party
has destroyed such Guarantor’s rights of contribution against another guarantor of any of the
Guaranteed Obligations.

I-9

 

     No other provision of this Guaranty shall be construed as limiting the generality of any of
the covenants and waivers set forth in Sections 10 and 11.

     Guarantor, to the extent not prohibited by law, waives all rights, defenses and claims arising
out of or based in whole or in part on the exercise of Guaranteed Party’s rights under Section 11.2
of the Operating Agreement.

     Guarantor hereby expressly waives and surrenders any defense to its liability under this
Guaranty based upon any of the foregoing acts, omissions, agreements, waivers or matters. It is the
purpose and intent of this Guaranty that the obligations of Guarantor under it shall be absolute
and unconditional under any and all circumstances.

     12. Completion by Fannie Mae or the Company. Guarantor agrees that
upon the occurrence of a default of the Guaranteed Obligations or a default by
Guarantor in the performance of any other obligations owed to Fannie Mae under the
terms hereof that Fannie Mae may provide written notice of such default to Guarantor
and if such default has not been cured, in the case of a default capable of being
cured with the payment of money, within five (5) days after written notice, and, in
the case of a default not capable of being cured with money, then within thirty (30)
days after such written notice, then Guaranteed Party shall have the right, but not
the obligation, either before, after or in concurrence with any such actions taken
by any lender, if applicable, to take any or all of the following actions:

     a. Complete, or cause of completion of, the rehabilitation of the Property substantially in
accordance with any Rehabilitation Plan;

     b. Engage, or cause to be engaged, builders, contractors, engineers, architects and others for
the purpose of furnishing labor, materials and equipment in connection with any rehabilitation of
the Property substantially in accordance with any Rehabilitation Plan;

     c. Pay, compromise or settle, or cause the payment, compromise, or settlement of, all bills or
claims incurred in connection with any rehabilitation of the Property substantially in accordance
with any Rehabilitation Plan or otherwise in accordance with the Operating Agreement;

     d. Take or refrain from taking such other action to enforce the provisions of this Guaranty as
it may from time to time determine in its sole discretion, including without limitation initiating
one or more actions for damages.

     Guarantor shall, immediately upon demand therefor, reimburse the Guaranteed Party for any and
all expenditures incurred by Guaranteed Party under this Section 12.

     13. Remedies. In addition to all other remedies provided at law or in
equity and such other remedies as may be provided herein, Guaranteed Party may
enforce Guarantor’s obligations hereunder with regard to the payment of any money by
charging the same against any distributions, fees, or other amounts

I-10

 

which Managing Member would otherwise be entitled to receive under the
Operating Agreement or any Subsidiary’s operating agreement, if any, whether such
amounts are accrued or unearned. GUARANTOR ACKNOWLEDGES THAT SUCH GUARANTOR HAS
BEEN AFFORDED THE OPPORTUNITY TO READ THIS DOCUMENT CAREFULLY AND TO REVIEW IT WITH
AN ATTORNEY OF GUARANTOR’S CHOICE BEFORE SIGNING IT. GUARANTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.

     14. No Amendment. Neither this Guaranty nor any provision hereof may
be modified, amended, waived, terminated or changed orally, but only by an agreement
in writing signed by Fannie Mae and the Guarantor to be bound by such agreement.

     15. Successors and Assigns. This Guaranty shall be binding upon and
inure to the benefit of the heirs, administrators, legal representatives, successors
and assigns of the parties hereto; this Agreement shall only benefit Guaranteed
Party and their respective successors and assigns permitted in the Operating
Agreement.

     16. Irrevocable Survival. This Guaranty shall be irrevocable by the
Guarantor until all Guaranteed Obligations have been completely and indefeasibly
paid and all obligations and undertakings of undersigned hereunder have been
completely performed and Fannie Mae is no longer a member in the Company.

     17. Unenforceability. If any term or provision of this Guaranty shall
be determined to be illegal, invalid, or unenforceable, this Guaranty and all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by law.

     18. Entire Agreement. This Guaranty constitutes the entire agreement
with respect to the subject matter hereof, and supersedes all prior discussions,
negotiations, commitments, representations, agreements and understandings between
the parties. As used herein, the singular includes the plural, and the masculine
includes the feminine and neuter and vice versa, if the context so requires.

     19. WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (1) THIS GUARANTY, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR
FUTURE MODIFICATION THEREOF, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
GUARANTY (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS

I-11

 

RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, COUNTERCLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS
GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 19 WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE GUARANTOR TO THE WAIVER OF HIS RIGHT
TO TRIAL BY JURY.

                                        

INITIAL HERE

     20. Notice. All notices, demands, consents, approvals or other
communications (collectively, a “Notice”) provided for in this Guaranty or required
by law shall be in writing and shall be sent by overnight delivery service, private
courier service, certified or registered mail, return receipt requested, first class
postage prepaid or confirmed facsimile transmission (followed by delivery of hard
copy by one of the above methods), addressed to the party at the address for Notices
set forth below, unless Notice of a change of address is given to the parties
pursuant to the provisions of this Section 20. Notices shall be deemed delivered
(and specified response periods shall commence) three (3) days after the date of
mailing of a Notice sent by mail or on the date of receipt of a notice delivered by
courier, overnight delivery service or facsimile transmissions. Any Notice sent by
mail which is required to be given within a stated period of time shall be
considered timely if postmarked before midnight of the last day of such period.
Notices given by counsel for any party shall be deemed valid Notices if addressed
and sent in accordance with the provisions of this Section 20.

	 	 	 
	Guarantor:

	 	UDR, Inc.
	 

	 	1745 Shea Center Drive, Suite 200
	 

	 	Highlands Ranch, CO 80129
	 

	 	Attn: W. Mark Wallis

Senior Executive Vice President
	 
	 	 
	with a copy to:

	 	Morrison & Foerster LLP
	 

	 	5200 Republic Plaza 370
	 

	 	Seventeenth Street Denver,
	 

	 	CO 80202
	 

	 	Attn: Warren L. Troupe, Esq.
	 
	 	 
	Fannie Mae:

	 	Fannie Mae
	 

	 	3900 Wisconsin Avenue, NW Mail 
	 

	 	Stop 11H — 736 Washington, D.C. 
	 

	 	20016 Attn: Francis P. Rooney, Jr.

I-12

 

	 	 	 
	with a copy to:

	 	Fannie Mae
	 

	 	3900 Wisconsin Avenue, NW Mail
	 

	 	Stop 11H — 1103 Washington, D.C.
	 

	 	20016 Attn: Sara Todd, Esq.

     21. Costs. Guarantor hereby agrees to indemnify Guaranteed Party for
all costs, fees and expenses, including without limitation, all court costs and
attorneys fees incurred or paid by the Guaranteed Party in enforcing this Guaranty.
In the event of any dispute or litigation regarding the enforcement or validity of
this Guaranty, Guarantor shall pay all charges, costs and expenses (including,
without limitation, attorneys’ fees) incurred by Fannie Mae, whether any action or
proceeding is commenced regarding such dispute and whether such litigation is
prosecuted to judgment. Guarantor shall not, however, be responsible for such
charges, costs and expenses to the extent a court of competent jurisdiction shall
determine that Guarantor is not in default of any of the Guaranteed Obligations and
such determination is not appealable.

     22. Governing Law and Consent to Jurisdiction. This Guaranty is to be
performed in the District of Columbia and shall be governed by and construed in
accordance with the laws of the District of Columbia. In the event of any litigation
arising out of this Guaranty, Guarantor agrees that the substantive law of the
District of Columbia shall apply. Guarantor hereby consents to jurisdiction within
the District of Columbia for purposes of such litigation and agrees that service of
process may be made and personal jurisdiction over such Guarantor obtained by
serving a copy of the summons and complaint upon Guarantor at the address set forth
herein, in accordance with the applicable laws of the District of Columbia. Nothing
contained herein, however, shall prevent Guaranteed Party from bringing any action
or exercising the rights against any security or against Guarantor personally, or
against any property of Guarantor within any other state.

     23. Counterparts. This Guaranty may be executed in counterparts, each
of which shall be deemed to be an original. In proving this Guaranty it shall not be
necessary to produce or account for more than one counterpart.

[Signature Page Attached]

I-13

 

     IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first above written.

	 	 	 	 	 
	 	 	GUARANTOR:
	 
	 	 	 	 
	 	 	UDR, INC. a Maryland corporation
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	(SEAL)

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

I-14

 

EXHIBIT J

J-1

 

EXHIBIT J

Form of Construction Management Agreement

     THIS CONSTRUCTION
 MANAGEMENT AGREEMENT (“Agreement") is made and entered into as of
                    
 ___, ___, by and between            
 
        , a Delaware limited liability company
(“Owner”), and                     , a                      (“Manager”).

R E C I T A L S

     A. Owner owns that certain real property located in                     , improved with a
___-unit apartment complex commonly known as “                    ”, as more particularly
described in Exhibit “A” attached hereto and incorporated herein by reference (hereinafter
referred to as the “Property”).

     B. Owner desires to implement a program to rehabilitate the Property as more particularly
described in the Rehabilitation Plan (the “Project”).

     C. Owner wishes to engage Manager to coordinate, manage and supervise the prosecution and
completion of all construction and related services required to complete the Work (as defined
below), all in accordance with the terms hereof, and Manager wishes to accept such engagement, all
upon the terms, covenants and conditions set forth in this Agreement.

     D. Manager is an affiliate of UDR TX Fund LLC, a Delaware limited liability company, the
Managing Member of UDR Texas Ventures, LLC (“Company”), which is the sole member of Owner. Managing
Member and Fannie Mae, a corporation organized under the laws of the United States (“Fannie Mae”)
have executed a Limited Liability Company Agreement dated of even date herewith (“Operating
Agreement”) regarding the Company.

     E. All capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Operating Agreement.

     NOW, THEREFORE, for and in consideration of the foregoing, the mutual covenants and agreements
contained herein, and other good and valuable consideration received by each of the parties hereto,
Owner and Manager hereby agree as follows:

     1. Engagement.

     (a) Owner hereby engages Manager to coordinate, manage and supervise the prosecution and
completion of all construction and related services required to complete the work described in the
Rehabilitation Plan approved by the members of the Company (the “Work”) in accordance with the
Rehabilitation Budget, as described in Section 4(a) of this Agreement. Manager hereby
accepts such engagement.

     (b) All services to be performed by Manager hereunder shall be performed by Manager as an
independent contractor. Subject only to the express limitations contained herein

J-1

 

and in the Operating Agreement, Manager shall have full power, authority and control to select
the means, manner and method of performing its duties hereunder without control or direction of
Owner. Neither Manager nor any agent, employee, servant or contractor of Manager shall be deemed
to be the partner, joint venturer, agent, employee, servant or contractor of Owner. Except as
otherwise expressly provided herein, Manager shall have sole direction of and responsibility for
its acts and the acts of its agents, employees, servants and contractors in the performance of its
obligations under this Agreement.

     (c) All contracts, agreements and instruments to be executed in connection with the Project
(collectively, the “Property Agreements”) shall be executed and entered into by Manager with a copy
of such executed Property Agreements promptly provided to Owner.

     (d) Owner has entered into this Agreement with Manager because of Manager’s special knowledge
and skill in the planning, conversion and renovation of projects similar to the Project, and is
relying on Manager to see that all work performed to complete the Project shall be done in a
professional, safe and workmanlike manner in accordance with this Agreement, the Property
Agreements and all applicable permits, and in compliance with governmental approvals, laws, rules,
regulations and ordinances, including, without limitation, the Americans With Disabilities Act of
1990, as amended, and the Fair Housing Act, as amended.

     (e) Manager is familiar with the terms of the Operating Agreement, including all limitations
on Managing Member’s authority regarding the Rehabilitation Plan and Rehabilitation Budget,
modifications to such Rehabilitation Plan and Rehabilitation Budget and Major Decisions, pursuant
to the terms thereof; and is bound by such limitations such that if in connection with any act
purportedly by the Company or Owner, Managing Member fails to obtain the approval of Fannie Mae
when such approval is required under the Operating Agreement, such act shall be null and void and
Manager shall not be able to rely thereon.

2. Description of the Work.

     (a) Manager shall coordinate, manage and supervise all construction services, including labor
and the provision of materials, to complete (i) the Work in accordance with the requirements of
this Agreement, the Property Agreements and all applicable laws, codes, regulations and
restrictions, and (ii) all redesign, corrective work and additions to the Work which are necessary
due to omissions, errors or other deficiencies in the design or performance of the Work. In such
connection, Manager’s responsibilities shall include without limitation, the following:

          (1) Supervise and coordinate the activities of architects, engineers, contractors, attorneys,
and other professional consultants and tradesmen involved in the Project;

          (2) Establish and administer field order and change order programs satisfactory to Owner (as
approved in advance in writing by Owner);

          (3) Negotiate (for Owner’s approval and execution) and administer all contractual documents
relating to the construction of the Project, including the review and approval of all progress
payments before they are processed for payment;

J-2

 

          (4) Establish construction schedules with Owner’s written approval, establish critical path
and completion dates and coordinate general contractors and others to effect compliance with
critical path and completion dates;

          (5) Obtain all approvals, permits and other governmental entitlements and approvals required
for the construction and timely completion of the Work from all governmental agencies having
jurisdiction over the Project, and furnish such legal and auditing services as may be necessary in
connection therewith;

          (6) Obtain, review and approve evidence of insurance from the general contractors,
subcontractors, and sub-subcontractors as is required by Owner or lender and in accordance with the
construction contracts;

          (7) Cause the rehabilitation of the Project to commence timely and thereafter diligently
proceed to completion;

          (8) Maintain all contracts and sub-contracts for labor and materials relating to the Project
for inspection by Owner upon Owner’s request, and provide a copy of same to Owner at its request;

          (9) To the extent sufficient funds are provided by Owner, pay and discharge all claims for
labor performed and materials and services furnished in connection with any work for the Project
and where applicable, diligently record or cause to be recorded such notices of completion upon
completion of construction or notice of cessation in the event of the cessation of labor on the
work of improvements for a continuous period of thirty (30) days or more and take all other steps
necessary to forestall the assertion of claims of all liens either against the Project or any part
thereof or right or interest appurtenant thereto. To the extent that Manager disputes in good faith
any claims, it shall notify Owner and diligently contest such claims;

          (10) Obtain, review and recommend approval or denial to Owner of all requisitions and invoices
for payment submitted by contractors, consultants, professionals and materialmen and collect all
materials and certificates supporting such requests for payment; and

          (11) Obtain, review and approve all mechanics and materialmen’s lien waivers required by the
Mortgage Loan Documents or otherwise required by Owner.

     (b) The performance of Manager’s responsibilities set forth in Section 2(a) and
elsewhere in this Agreement are contingent upon, and expressly conditioned upon, Owner’s funding of
all costs and expenses incurred or to be incurred in connection with the performance of such
responsibilities in accordance with the provisions of this Agreement, other than any amounts
required to by paid by Managing Member pursuant to Section 7.2.1 of the Operating Agreement
or Guarantor pursuant to the Guaranty, provided all such costs and expenses are included within the
Rehabilitation Budget, as such Rehabilitation Budget may be modified only by Change Orders pursuant
to Section 12 of this Agreement and the Operating Agreement. Notwithstanding anything to
the contrary in the foregoing, Manager shall perform its obligations under Section 2(a) and
elsewhere in this Agreement notwithstanding Owner’s failure to fund any Cost Overrun (as such term
is defined in the Operating Agreement) that Managing Member or

J-3

 

Guarantor are required to pay pursuant to the Section 7.2.1 of the Operating Agreement
or Guaranty.

     3. Time of Commencement and Completion. Manager shall cause the Work to commence
within the commencement period set forth in the Material Terms, attached hereto as Exhibit
B and incorporated herein by this reference, and shall subject to the availability of funds
therefor and the provisions of Section 8(b) achieve completion of the Work on or before the
completion date set forth in the Material Terms, subject to extensions as hereinafter provided.
The foregoing commencement period shall commence upon receipt by Manager of Owner’s notice to
proceed.

     4. Rehabilitation Budget/Guaranteed Maximum Cost/Contractor’s Fees.

     (a) Rehabilitation Budget. Attached hereto as Exhibit C is the preliminary budget for
the Project (“Preliminary Rehabilitation Budget”). The Preliminary Rehabilitation Budget will be
updated and finalized (and thereby becoming the “Rehabilitation Budget”) no later than thirty (30)
days prior to the commencement of the Work.

     (b) Guaranteed Maximum Cost. Manager shall guarantee to Owner that the cost to Owner to
complete the Work in accordance with this Agreement shall not exceed the sum specified in the
Rehabilitation Budget (“Guaranteed Maximum Cost”), as such Rehabilitation Budget (and Guaranteed
Maximum Cost) may be adjusted solely pursuant to Section 11 of this Agreement.

     (c) Manager’s Fee. Owner agrees to pay to Manager, as a fee for the satisfaction of its
obligations hereunder, only reimbursable expenses set forth in the Rehabilitation Budget, as
Manager is otherwise compensated for services as set forth in the Operating Agreement.

     5. Payments to Contractors and Materialmen. The Contract Documents, as defined below,
shall include the following provisions and limitations: (a) provide for progress payments on not
more than a monthly basis and (b) limit the disbursement of general administrative and overhead
costs (“G&A”), if applicable, to actual expenses evidenced by invoices submitted to and approved by
Owner and otherwise be acceptable in form and substance to Fannie Mae.

     6. Designated Personnel. Owner hereby designates the person set forth in the Material
Terms as its representative in connection with the Work with authority to bind Owner with respect
to the Work. Manager hereby designates the person set forth in the Material Terms as its
representative in connection with the Work with authority to bind Manager with respect to the Work.
Either such designated person may be changed at any time in accordance with this Agreement by
written notice from one party to the other.

     7. Contract Documents. The contract documents (“Contract Documents”) pursuant to
which the Work is to be performed shall mean and refer collectively to the written scope of work
utilized in connection with the Project, approved in writing by Owner, necessary for the proper
execution of the Work, any Property Agreements and other related contracts for the Work, entered
into by Manager as agent for Owner or by Owner as reviewed and approved by Manager pursuant to this
Agreement, any Change Orders (as hereinafter defined) issued pursuant to Section 12 of this
Agreement, and any changes in the Work approved pursuant to Section 12

J-4

 

of this Agreement, the Rehabilitation Plan and the Rehabilitation Budget. The parties agree to
notify each other promptly in writing of any conflict, discrepancy, error or omission which they
find in any of the Contract Documents. Manager shall promptly investigate the circumstances of any
such conflict, discrepancy, error or omission and provide Owner appropriate written recommendations
for resolution of the conflict, discrepancy, error or omission, and upon Owner’s approval of same,
Manager shall cause such resolution to be prosecuted. If Manager observes that any Contract
Documents or portions thereof do not comply in all material respects with applicable laws,
statutes, ordinances, building codes and rules and regulations, then Manager shall promptly notify
Owner in writing, and necessary changes shall be accomplished by appropriate modification.

     8. Completion of the Work.

     (a) Time of Commencement and Completion. Time is of the essence with respect to this
Agreement. Manager shall cause the Work to be completed in accordance with the schedule for
completion and shall deliver the improvements pursuant to the terms of this Agreement, as approved
by Owner and, except as otherwise provided in Section 8(b) of this Agreement, within the
time specified in Section 3 of this Agreement.

     (b) Delays. Time (up to ninety (90) days, provided that such limitation shall not
apply if Manager is using commercially reasonable efforts to recommence the Work) during which the
Work is delayed by acts of God, war, terrorism or insurrections, unusual and extraordinary
inclement weather (including but not limited to hurricanes and tornados), fires, earthquakes,
strikes, lockouts, unavailability, shortages or delays in delivery of materials, labor or energy
generally, that a similarly situated person acting with reasonable prudence would not have foreseen
and would not have mitigated by making reasonable alternative arrangements or any other act outside
of the reasonable control of Manager, or its contractors, subcontractors or suppliers, shall be
added to the aforesaid time of completion; provided that Manager shall have notified Owner in
writing of the occurrence of any such delay and of the expected period of delay, promptly after
discovery of such occurrence, and provided further that Manager shall use reasonable efforts and
diligence to minimize any such delay.

     (c) Progress Reports. Manager shall provide Owner with monthly written reports of the
progress towards completion of the Work, as set forth in Section 7.5 of the Operating
Agreement, which shall include copies of contractor requests, together with all attachments
thereto, and, if provided to Manager, copies of the inspection reports of the engineering
consultant retained by Owner to inspect the Work.

     (d) Lien-Free Completion. In consideration for Owner’s covenants herein, and to the
extent sufficient funds are provided by Owner, Manager hereby unconditionally covenants to Owner
that Manager shall fully and punctually pay and discharge any and all costs incurred for or in
connection with the completion of the Project, including, without limitation, any and all claims
and demands for labor and materials used and services rendered for and in connection with the
completion of the Project, and diligently record or cause to be recorded such notices of completion
upon completion of renovations or notices of cessation in the event of the cessation of labor on
the Project for a continuous period of thirty (30) days, and to take all other steps

J-5

 

necessary to forestall the assertion of claims of all liens against the Property or any part
thereof or right or interest appurtenant thereto.

     9. General Contractor. All fees, overhead and general conditions due to the general
contractor in connection with Work shall be competitive with the fees, overhead and general
conditions otherwise payable in the industry and in the locale of the Project to non-affiliated
contractors with respect to the line items set forth in the Rehabilitation Budget. The general
contractor, if any, shall not be an Affiliate of Manager, Managing Member or Guarantor, without the
approval of Owner.

     10. Supervision; Responsibility for Employees and Contractors. Manager shall maintain
competent supervision of the Work at all times and shall coordinate the performance of all portions
of the Work under the Contract Documents. Notwithstanding any other provisions of this Agreement,
Manager shall not be responsible for, or incur any liability with respect to, the negligent acts or
omissions of engineers, architects or other licensed professionals whose efforts are supervised and
coordinated by Manager hereunder (except for its own negligent supervision of such Persons);
provided, however, if any such negligent act or omission occurs, Manager shall diligently enforce
all claims against such professionals in accordance with the Contract Documents.

     11. Guaranteed Maximum Cost. The Guaranteed Maximum Cost shall be increased or
decreased for changes in the Work as authorized by Owner in writing pursuant to the Operating
Agreement pursuant to the process described in Section 12 of this Agreement and shall be
increased by the amount of any increases in the Cost of the Work due to any delay in the
performance of the Work which is added to the time for completion of the Work pursuant to
Section 8(b) of this Agreement. In no event shall the Guaranteed Maximum Cost be increased
for changes in the Work required by any public body or inspector or public utility if Manager
observed that portions of the Contract Documents did not comply with applicable laws, statutes,
ordinances, building codes or rules and regulations, and failed to notify Owner that the Contract
Documents did not so comply or for changes required to address defective workmanship or material.
If the Cost of the Work exceeds the Guaranteed Maximum Cost, as adjusted pursuant to this Agreement
and the other Contract Documents, then Manager shall bear the amount of excess.

     12. Changes in the Work. Subject to compliance with the terms of the Operating
Agreement and Section 11 of this Agreement, the parties may, without affecting the validity
of this Agreement and the Contract Documents, agree in writing to changes in the Work within the
general scope of the Contract Documents consisting of additions, deletions or other revisions and
in such event, the Guaranteed Maximum Cost and the time for completion of the Work shall be
adjusted accordingly. In addition, (a) all changes in the Work shall be authorized by written
order issued by Owner and approved, in writing, by Manager (“Change Order”), and shall be performed
under the conditions and requirements of this Agreement and the Contract Documents, (b) Manager
shall not permit any changes in the Work or deviations from the requirements of the Contract
Documents without the prior issuance of a Change Order by Owner and (c) Manager shall not be
entitled to compensation or reimbursement for any additional Work performed unless a Change Order
for such additional Work has been issued and approved prior to the performance thereof.

J-6

 

          The amount of any increase or decrease in the Guaranteed Maximum Cost and any increase in the
time for completion resulting from a change in the Work shall be determined before the performance
of any Work necessitated by such change and incorporated in the Change Order. Any change orders,
additional work and purchase orders for additional materials or equipment submitted to contractors
or suppliers by Manager will not constitute changes in the Work contemplated by this Section
12 to the extent that change orders, additional work and purchase orders are in accordance with
and contemplated by the written scope of Work and Rehabilitation Budget.

     13. Indemnification. Except as otherwise provided herein, Manager shall indemnify,
defend, and hold harmless Owner and the Company and its respective members and each of their
respective officers, agents, shareholders, directors and employees (the “Owner Indemnitees”) from
and against all claims, damages, demands, liabilities, penalties and costs (including reasonable
attorneys’ fees and costs) arising out of or related to Manager’s default under this Agreement
and/or the Contract Documents or the gross negligence or intentional misconduct of Manager, its
agents, employees or contractors, their agents or employees (including subcontractors) or arising
out of Manager’s failure or alleged failure to timely pay any of its agents, employees, and
subcontractors. Manager, at its own expense, cost and risk, shall defend any and all actions, suits
or other legal proceedings that may be brought against Owner or the other Owner Indemnitees on any
such claim or demand and pay or satisfy any judgment that may be rendered against Owner or the
other Owner Indemnitees in any such proceedings; provided, however, that Manager shall not be
responsible to Owner and the Owner Indemnitees and Owner shall defend, indemnify and hold harmless
Manager and its agents and employees from and against all claims, damages, demands, liabilities,
penalties and costs (including reasonable attorneys’ fees and costs) arising out of or related to
Owner’s default under this Agreement. The provisions of this Section 13 shall survive the
termination of this Agreement and the Contract Documents by Owner or Manager pursuant to any
provisions of this Agreement.

     14. Termination of Agreement.

     (a) Termination by Owner For Cause. Following the occurrence of any of the following
events, Owner or Fannie Mae shall have the right, without prejudice to any other right or remedy it
may have, to terminate this Agreement for cause upon giving Manager written notice and, subject to
the provisions hereof, to take possession of the Project and finish the Work by whatever method it
may deem expedient either by its own forces or by another manager or managers engaged by Owner in
its sole discretion.

          (1) Manager files a petition in bankruptcy or other insolvency proceedings or an involuntary
petition in bankruptcy is filed against Manager and not dismissed within ninety (90) days of such
filing, unless consented to by Fannie Mae;

          (2) Manager makes a general assignment for the benefit of its creditors;

          (3) Manager refuses or fails to perform any of its material obligations under this Agreement
and/or the Contract Documents and such failure is not cured within twenty (20) days of written
notice thereof (or such longer period, not to exceed sixty (60) days, as shall be reasonably
required to effect a cure so long as Manager diligently puts efforts to achieve

J-7

 

compliance during such 20 day period and thereafter diligently pursues compliance until
compliance is achieved) by Owner to Manager;

          (4) Manager acts or fails to act in a negligent manner and such failure is not cured within
thirty (30) days after written notice thereof (or such longer period, not to exceed sixty (60) days
as shall be reasonably required to effect a cure so long as Manager diligently puts efforts to
achieve compliance during such thirty (30) day period and thereafter diligently pursues compliance
until compliance is achieved, provided that no such extension shall apply if Manager’s failure
causes a Material Adverse Effect as defined in the Operating Agreement) by Owner to Manager;

          (5) Manager commits any fraudulent, criminal or knowingly wrongful action, intentional
misrepresentation of a material fact or any misappropriation of Owner’s property or breaches any
fiduciary duties owed to Owner by Manager or any of its Affiliates or any of their officers,
directors, partners, employees or agents in connection with the Project or the Work or the
performance of Manager’s duties under this Agreement; or

          (6) Managing Member withdraws or a Managing Member Default occurs under the Operating
Agreement.

     (b) Termination by Manager. Following the occurrence of any of the following event, Manager
may without prejudice to any other right or remedy it may have, and after giving Owner twenty (20)
days written notice of its intention to do so, terminate this Agreement.

          (1) Through no fault of Manager or Managing Member, the Work is stopped for a period of thirty
(30) consecutive days under an order of any court or other public authority having jurisdiction or
as a result of an act of government (such as a declaration of an emergency) making materials
unavailable;

          (2) Fannie Mae files a petition in bankruptcy or other insolvency proceedings or an
involuntary petition in bankruptcy is filed against Fannie Mae and not dismissed within sixty (60)
days of such filing;

(3) Fannie Mae or Owner makes a general assignment for the benefit of its creditors; or

          (4) Owner refuses or fails to perform any of its material obligations under this Agreement
and/or the Contract Documents after receipt of written notice of such failure from Manager or Owner
and the failure to cure such failure within thirty (30) days after written notice thereof (or such
longer period as shall be reasonably required to effect a cure so long as Fannie Mae diligently
puts efforts to achieve compliance during such thirty (30) day period and thereafter diligently
pursues compliance until compliance is achieved).

     15. Responsibilities Upon Termination.

     (a) Upon the termination of this Agreement, Manager shall render to Owner a final accounting
which shall cover the period from the date of the last statement rendered to Owner, or, if no such
statement has been furnished, from the date of this Agreement, to the termination

J-8

 

date; provided, however, that if such termination date shall be a date other
than the last day of a calendar month, the final accounting shall be prepared as of the last day of
the month in which termination occurs.

     (b) Upon the termination of this Agreement, Manager shall forthwith (i) surrender and deliver
to Owner the Project and all monies of the Project or Owner in the possession or under the control
of Manager, (ii) deliver to Owner all materials, supplies, contracts, drawings, proposals,
schedules, diagrams, surveys, reports, tests, studies, permits documents, accountings, papers and
records pertaining to the Project or this Agreement and (iii) assign to Owner or its designee
existing contracts (previously approved by Owner) and other rights in Manager’s name, if any,
relating to the Project.

     (c) Upon the termination of this Agreement, Owner shall promptly pay Manager (i) all
compensation then due Manager hereunder as provided in Section 4(c) of this Agreement, and
(ii) all other amounts to which Manager is entitled hereunder; provided, however,
Manager acknowledges and agrees that sums payable to Manager hereunder are subject to offset for
(x) amounts payable by Managing Member to Fannie Mae pursuant to the Operating Agreement, a copy of
which has been provided to Manager, and (y) amounts to pay or reimburse Owner for actual damages
suffered by Owner as finally determined by a court of competent jurisdiction as a consequence of
any actions or omissions by Manager giving rise to Manager’s termination for cause under
Section 14(a) of this Agreement.

     16. Access to Work; Inspection and Testing. Manager shall at all times provide safe
access and the proper facilities to enable Owner to conduct inspections of all parts of the Work.
Owner shall pay all of its costs in connection with such inspections, unless otherwise provided.

     17. Destruction of Work. If the Work is destroyed or damaged by any fire or other
catastrophe, natural or otherwise, or by theft or vandalism, then any work done in rebuilding or
restoring the Work shall be paid for by Owner as a change order under Section 12 of this
Agreement. If, however, the loss is uninsured and the estimated cost of replacement of Work
already accomplished exceeds twenty percent (20%) of the Guaranteed Maximum Cost, then Owner shall
have the right to terminate this Agreement. Notwithstanding the foregoing, Owner reserves the right
to pursue all of its rights and remedies at law or in equity, including the right to seek damages,
against Manager in the event any such Work is destroyed or damaged due to Manager’s or Manager’s
employees’, agents’ or contractors’ failure to satisfy their obligations under this Agreement.

     18. Miscellaneous Provisions.

     (a) Relationship of Parties. Neither this Agreement nor any of the Contract Documents
shall be construed as creating a general agency or partnership between the parties and neither
Manager nor Owner shall have the authority, express or implied, to bind the other, except as
specifically provided herein. Owner and Manager do, however, agree to cooperate with each other to
facilitate the timely and economical completion of the Work in accordance with the terms of this
Agreement and the Contract Documents.

J-9

 

     (b) Access to Records. Owner shall be afforded, upon reasonable notice and during
normal business hours, access to all of Manager’s records, books, correspondence, instructions,
drawings, receipts, vouchers, memoranda and similar data relating to the Work and/or the Project.

     (c) Notices. All notices and other written communications which are required or
called for under any provision of this Agreement shall be effective only if they are in writing,
addressed to the proper party and sent in one of the following ways: (i) by U.S. Mail; (ii) by a
recognized overnight carrier, such as Federal Express, marked for next day delivery; (iii) by
facsimile transmission; or (iv) personal delivery; in each case with delivery charges (if any)
prepaid and addressed as provided in Section 18.1 of the Operating Agreement. Any party
may change its address for notice by giving notice to the other parties in the manner provided
herein. Such a notice or other communication shall be deemed delivered at the following times: if
sent by U.S. Mail, then three (3) days after the deposit thereof into the U.S. Mail, certified mail
return receipt requested; if sent by a recognized overnight carrier, then one (1) business day
after the acceptance by the carrier for next day delivery; and if by facsimile, on the business day
it is sent if the sender verifies that the notice was received at the recipient’s facsimile machine
during regular business hours on the day sent — otherwise, on the next business day; provided, that
any notice or other communication sent by facsimile must be reasonably legible when received by a
properly operating facsimile receiver.

     (d) Entire Agreement. This Agreement is made up of the body of the agreement and the
exhibits attached hereto, all of which are hereby incorporated by reference into the body hereof.
Other than this Agreement, there are no other agreements between the parties with respect to the
matters covered by this Agreement, and any prior agreements with respect to such matters to such
matters are superseded.

     (e) Amendments. The only way to amend or otherwise modify this Agreement is for the
parties to sign a written instrument which expresses the intent to amend or otherwise modify this
Agreement.

     (f) Waivers. No party hereto shall be deemed to have waived any material provision of
this Agreement unless it does so in writing, and no “course of conduct” shall be considered to be
such a waiver, absent such a writing.

     (g) Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware. For this purpose all parties shall be deemed to reside in
such state and this Agreement shall be deemed to be performed exclusively in such state.

     (h) Time. Time is of the essence with respect to each provision of this Agreement in
which time is a factor.

     (i) Attorneys’ Fees. In the event any litigation, arbitration, mediation or other
proceeding (“Proceeding”) is initiated by any party against any other party to enforce, interpret
or otherwise obtain judicial or quasi-judicial relief in connection with this Agreement, the
prevailing party or parties in such proceeding shall be entitled to recover from the unsuccessful

J-10

 

party or parties all costs, expenses and reasonable attorney’s fees relating to or arising out
of such Proceeding (whether or not the Proceeding results in a judgment), including any
post-judgment or post-award Proceeding, including, without limitation, one to enforce any judgment
or award resulting from any such Proceeding. Any such judgment or award shall contain a specific
provision for the recovery of all such subsequently incurred costs, expenses and reasonable
attorneys’ fees.

     (j) Assignment. No party may assign this Agreement or any part thereof or interest
therein, directly or indirectly, without the prior written consent of all of the other parties.
Subject to the foregoing sentence, this Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, successors and assigns.

     (k) Further Assurances. Each party agrees that it will, from time to time at the
request of each other party, and for no further consideration execute, acknowledge and deliver any
further reasonable assurances, documents and instruments reasonably requested by another party, and
take such action consistent with the terms of this Agreement, as may be reasonably requested by
another party for the purposes of consummating the transactions contemplated by this Agreement.

     (l) No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is
intended to confer any rights or remedies on any person other than the parties, Fannie Mae and
their respective permitted successors and assigns. Nothing in this Agreement intended to discharge
any obligation of any third person to any party or give any third person any right of subrogation
or action against any party. Fannie Mae is a third party beneficiary of this Agreement.

     (m) Counterparts. This Agreement may be executed in counterparts, each of which (when
delivered) shall be the same agreement. Only one fully executed counterpart need be produced in
order to prove this Agreement. The parties may execute this Agreement by executing signature pages
and authorizing them to be attached to the body of this Agreement.

[Signature page follows.]

J-11

 

     IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first written
above.

	 	 	 	 	 	 	 	 	 
	OWNER:	 	 
	 
	 	 	 	 	 	 	 	 
	UDR Texas Ventures, LLC	 	 
	a Delaware limited liability company	 	 
	 
	 	 	 	 	 	 	 	 
	By:	 	UDR TX Fund LLC	 	 
	 	 	a Delaware limited liability company	 	 
	 	 	its sole member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	UDR, Inc.	 	 
	 	 	 	 	its managing member	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	MANAGER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 
	a
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 
	 	 	 	 	 

J-12

 

EXHIBIT A

LEGAL DESCRIPTION

Exhibit A-1

 

EXHIBIT B

MATERIAL TERMS

Exhibit B-1

 

EXHIBIT C

PRELIMINARY REHABILITATION BUDGET

Exhibit C-1

 

EXHIBIT K

Organization
Client/Officer List

K-1

 

EXHIBIT L

DUE DILIGENCE CHECKLIST

               UDR Texas Ventures LLC:

Property Due Diligence Checklist:

	 	•	 	Existing surveys (ALTA standards and flood zone)
	 
	 	•	 	Title commitments with copies of title exceptions
	 
	 	•	 	Environmental reports, [Phase I environmental reports (and Phase 2 reports if
recommended)] Physical Needs Assessments and any other third party reports (including
ADA/FHA analyses)
	 
	 	•	 	Any recent (last three years) appraisals
	 
	 	•	 	Three years’ operating history and current operating statements for each asset
	 
	 	•	 	Current rent rolls, current business plans, then proposed operating budget for each
asset
	 
	 	•	 	Cap ex history for past five years on each asset
	 
	 	•	 	Sales comp survey and rent comp survey for each asset
	 
	 	•	 	Replacement cost information for each of the markets and sub-markets the Properties are
located in
	 
	 	•	 	Information on any impact this JV might have on real estate taxes and provide past
three years’ tax bills
	 
	 	•	 	Existing insurance coverage for the Properties
	 
	 	•	 	Excel models of all of the proformas with assumptions for each asset
	 
	 	•	 	For development Properties, soils reports
	 
	 	•	 	Any unusual elements (e.g., copies of commercial lease, zoning orders, notices of
assessment, condemnation, insurance Board of Underwriters notices, etc.
	 
	 	•	 	Evidence of matter of right zoning
	 
	 	•	 	Loan term sheet/commitment

L-1

 

	EXHIBIT M INSURANCE CERTIFICATE/POLICY ACORDTM EVIDENCE OF COMMERCIAL PROPERTY INSURANCE DATE
(MM/DD/YYY) 10/24/07 THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY. PRODUCER NAME, CONTACT
PERSON AND ADDRESS PHONE: (A/C, No, Ext): 303.782.3390 COMPANY NAME AND ADDRESS NAIC NO: Mike
Rosenbach CRM Account Executive PHONE: (A/C, No): VARIOUS — SEE ATTACHED Low E-MAIL ADDRESS: Aon
Risk Services Inc. of Denver 4100 E. Mississippi Avenue, Suite 1500 Denver, CO 80246 CODE: SUBCODE:
AGENCY CUSTOMER ID#: IF MULTIPLE COMPANIES, COMPLETE SEPARATE FORM FOR EACH NAMED INSURED AND
ADDRESS UDR. Inc. 400 East Cary Street Richmond, VA 23219 LOAN NUMBER POLICY NUMBER SEE ATTACHED
EFFECTIVE DATE 03/15/07 EXPIRATION DATE 03/15/08 o CONTINUED UNTIL TERMINATED IF CHECKED
ADDITIONAL NAMED INSURED(S) THIS REPLACES PRIOR EVIDENCE DATED: PROPERTY INFORMATION (Use
additional sheets if more space is required) LOCATION/DESCRIPTION SEE ATTACHED FOR LISTING OF
LOCATIONS COVERAGE INFORMATION CAUSE OF LOSS FORM o BASIC o BROAD x SPECIAL
o OTHER All Risk Coverage COMMERCIAL PROPERTY COVERAGE AMOUNT OF INSURANCE: $100,000,000 Per
Occurrence DED: $100,000 YES NO BUSINESS INCOME / RENTAL VALUE x o If YES, LIMIT:
Included x Actual Loss Sustained # of months: BLANKET COVERAGE x o If YES,
indicate amount of insurance on properties identified above: $ TERRORISM COVERAGE x o
Attach signed Disclosure Notice / DEC IS COVERAGE PROVIDED FOR “CERTIFIED ACTS” ONLY? o
x If YES, SUBLIMIT: DED: IS COVERAGE A STAND ALONE POLICY? x o If YES, LIMIT:
$25,000,000 DED: 100,000 DOES COVERAGE INCLUDE DOMESTIC TERRORISM? o x If YES,
SUBLIMIT: DED: COVERAGE FOR MOLD o x If YES, LIMIT: DED: MOLD EXCLUSION (If “YES,”
specify organization’s form used) x o Resultant Mold Included REPLACE COST 100% x
o AGREED AMOUNT x o COINSURANCE o x If YES, % EQUIPMENT BREAKDOWN (If
Applicable) x o If YES, LIMIT: $10,000,000 DED: 100,000 LAW AND ORDINANCE — Coverage
for loss to undamaged portion of building x o If YES, LIMIT: $10,000,000 DED: 100,000 -
Demolition Costs x o If YES, LIMIT: $10,000,000 DED: — Incr. Cost of construction
x o
 If YES, LIMIT: Included DED: EARTHQUAKE (If Applicable) x o If YES,
LIMIT: $100,000,000 DED: 100,000 excpt 5% Value CA FLOOD (If Applicable) x o If YES,
LIMIT: $100,000,000 DED: 100,000 excpt 3% Value SHFA WIND/HAIL (If Separate Policy) x o
If YES, LIMIT: $100,000,000 DED: 100,000 excpt 5% Value FL and 3% Value Tier 1 Counties PERMISSION
TO WAIVE SUBROGATION PRIOR TO LOSS x o REMARKS — Including Special conditions (Use
additional sheets if more space is required) CANCELLATION THE POLICY IS SUBJECT TO THE PREMIUMS,
FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY
WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICE, AND WILL SEND
NOTIFICATION OF ANY CHANGES TO THE POLICY THAT COULD AFFECT THAT INTEREST, IN ACCORDANCE WITH THE
POLICY PROVISIONS OR AS REQUIRED BY LAW. ADDITIONAL INTEREST NAME AND ADDRESS Fannie Mae and/or Its
Assigns Attn: Francis P. Rooney, Jr. 3900 Wisconsin Avenue NW Washington, DC 20016 LENDER SERVICING
AGENT NAME AND ADDRESS o MORTGAGEE x ADDITIONAL INSURED o LOSS PAYEE o
AUTHORIZED REPRESENTATIVE /s/ John Bolger Aon Risk Services Inc., of Colorado ACORD 28 (2003/10) ©
ACORD CORPORATION 2003

M-1

 

	DATE (MM/DD/YYY) ACORDTM ADDITIONAL INFORMATION 10/31/2007 PRODUCER Aon Risk Services, Inc. of

Colorado 4100 E. Mississippi Ave., Suite 1500 Denver, CO 80246-3058 303-758-7688 THIS CERTIFICATE
IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. COMPANIES
AFFORDING COVERAGE Company A ACE American Insurance Company Company B Lexington Insurance Company
INSURED UDR, Inc. 400 East Cary Street Richmond, VA 23219 Company C Company D Company E
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/RESTRICTIONS/SPECIAL ITEMS LOCATIONS: The Meridian (I
& II) — 3620 Huffines Blvd., Carrolton, TX 75010 The Mandolin — 2525 Highway 360, Euless, TX 76039
The Cliffs — 1635 Jefferson Cliffs Way, Arlington, TX 76006 Lincoln at Towne Square — 8205 Towne
Maine Dr., Plano, TX 75024 Stone Canyon — 10919 West Road, Houston, TX 77064 The Legend at Park Ten
- 15000 Park Row, Houston, TX 77084 The Bradford — 15902 Highway 3, Webster, TX 77598 Red Stone
Ranch — 1600 South Lake Line Blvd., Cedar Park, TX 78613 Lakeline Villas — 2201 South Lakeline
Blvd., Cedar Park, TX 78613 CERTIFICATE HOLDER Fannie Mae and/or Its Assigns Attn: Francis P.
Rooney, Jr. 3900 Wisconsin Avenue NW Washington DC 20016 CANCELLATION SHOULD ANY OF THE ABOVE
DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL
ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO
MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES AUTHORIZED Aon Risk Services, Inc. of Colorado REPRESENTATIVE ACORD 25-S (3/88)

M-2

 

	ACORDTM EVIDENCE OF COMMERCIAL PROPERTY INSURANCE DATE (MM/DD/YYY) 10/24/07 THIS IS EVIDENCE
THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND
PRIVILEGES AFFORDED UNDER THE POLICY. PRODUCER NAME, CONTACT PERSON AND ADDRESS PHONE: (A/C, No,
Ext): 303.782.3390 COMPANY NAME AND ADDRESS NAIC NO: Mike Rosenbach CRM Account Executive PHONE:
(A/C, No): VARIOUS — SEE ATTACHED Low E-MAIL ADDRESS: Aon Risk Services Inc. of Denver 4100 E.
Mississippi Avenue, Suite 1500 Denver, CO 80246 CODE: SUBCODE: AGENCY CUSTOMER ID#: IF MULTIPLE
COMPANIES, COMPLETE SEPARATE FORM FOR EACH REMARKS: CARRIER: LIMITS NOT TO EXCEED $10,000,000
COMPANY AFFORDING COVERAGE POLICY PARTICIPATION Lloyds of London A7626G100 100.00% TOTAL: 100.00%
LIMITS NOT TO EXCEED $15,000,000 X/S $10,000,000 COMPANY AFFORDING COVERAGE POLICY PARTICIPATION
Crum & Forster Specialty Ins. Co. PPX0012380 33.33% Allied World Assurance Co. A7626G103 12.50%
Lloyds of London A7626G101 25.00% Global Excess Partners GEP1799 6.67% Commonwealth Insurance Co.
US755 18.33% American International Specialty Lines Ins. Co. 5738828 4.17% TOTAL: 100.00% LIMITS
NOT TO EXCEED $25,000,000 X/S $25,000,000 COMPANY AFFORDING COVERAGE POLICY PARTICIPATION Ironshore
Insurance Ltd. A7626G102 50.00% UDR N/A 50.00% TOTAL: 100.00% LIMITS NOT TO EXCEED $50,000,000 X/S
$50,000,000 COMPANY AFFORDING COVERAGES POLICY PARTICIPATION RSUI Indemnity Company NHD351526
100.00% TOTAL: 100.00% TERRORISM COVERAGE: COMPANY AFFORDING COVERAGES POLICY Lexington Insurance
co. 9406598 ADDITIONAL INTEREST NAME AND ADDRESS Fannie Mae and/or Its Assigns Attn: Francis P.
Rooney, Jr. 3900 Wisconsin Avenue NW Washington, DC 20016 LENDER SERVICING AGENT NAME AND ADDRESS
o MORTGAGEE x ADDITIONAL INSURED o LOSS PAYEE o AUTHORIZED REPRESENTATIVE
Aon Risk Services Inc., of Colorado ACORD 28 (2003/10) © ACORD CORPORATION 2003

M-3

 

	DATE (MM/DD/YYY) ACORDTM CERTIFICATE OF INSURANCE 10/31/2007 PRODUCER Aon Risk Services, Inc.
of Colorado 4100 E. Mississippi Ave., Suite 1500 Denver, CO 80246-3058 303-758-7688 THIS
CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES
BELOW. COMPANIES AFFORDING COVERAGE Company A ACE American Insurance Company Company B Lexington
Insurance Company INSURED UDR, Inc. 400 East Cary Street Richmond, VA 23219 Company C Company D
Company E COVERAGES THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO
THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR
CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR
MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,
EXCLUSIONS, AND CONDITIONS OF SUCH POLICIES. THE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
CO LTR TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE DATE (MM/DD/YYYY) POLICY EXPIRATION DATE
(MM/DD/YYY) LIMITS A GENERAL LIABILITY x COMMERCIAL GENERAL LIABILITY oo CLAIMS
MADE x OCCUR o OWNERS & CONTRACTORS PROTECTIVE x $2,000,000 per Location Agg.
x $500,000 Self-Insured Retention XSLG21735176 Limits: Excess of SIR 03/15/07 06/15/08 Per
Occurrence $ 500,000 General Agg $ 30,000,000 Prod & Comp Opp Agg $ 2,000,000 Personal &
Adv. Injury $ 500,000 Fire Damage $        Excluded Medical Expense $        Excluded A AUTOMOBILE
LIABILITY x ANY AUTO o ALL OWNED AUTOS o SCHEDULED AUTOS o HIRED AUTOS
o NON-OWNED AUTOS o o CALH08230419 03/15/07 06/15/08 Combined Single Limit $
1,000,000 (each accident) Bodily Injury (per person) $ Bodily Injury (per accident) $ Property
Damage (per accident) $ B EXCESS LIABILITY x UMBRELLA FORM o OTHER THAN UMBRELLA FORM
6762818 03/15/07 06/15/08 Per Claim/Occ. $ 25,000,000 Aggregate $ 25,000,000 WORKERS
COMPENSATION AND EMPLOYERS’ LIABILITY THE PROPRIETOR/ o INCL PARTNERS/EXECUTIVE o EXCL
OFFICERS ARE STATUTORY Bodily Injury by Accident $        Ea Acc Bodily Injury by Disease $        Policy
Limit Bodily Injury by Disease $        Ea Employee DESCRIPTION OF
OPERATIONS/LOCATIONS/VEHICLES/RESTRICTIONS/SPECIAL ITEMS SEE ATTACHED FOR LISTING OF LOCATION
Certificate Holder is named as an additional insured on the general liability as respects the
referenced TX locations. CERTIFICATE HOLDER Fannie Mae and/or Its Assigns Attn: Francis P. Rooney,
Jr. 3900 Wisconsin Avenue NW Washington DC 20016 CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED
POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL
30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABIL
ITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES
AUTHORIZED Aon Risk Services, Inc. of Colorado REPRESENTATIVE /s/ John Bolger ACORD 25-S (3/88)

M-4

 

	DATE (MM/DD/YYY) ACORDTM ADDITIONAL INFORMATION 10/31/2007 PRODUCER Aon Risk Services, Inc. of
Colorado 4100 E. Mississippi Ave., Suite 1500 Denver, CO 80246-3058 303-758-7688 THIS CERTIFICATE
IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. COMPANIES
AFFORDING COVERAGE Company A ACE American Insurance Company Company B Lexington Insurance Company
INSURED UDR, Inc. 400 East Cary Street Richmond, VA 23219 Company C Company D Company E
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/RESTRICTIONS/SPECIAL ITEMS LOCATIONS: The Meridian (I
& II) — 3620 Huffines Blvd., Carrolton, TX 75010 The Mandolin — 2525 Highway 360, Euless, TX 76039
The Cliffs — 1635 Jefferson Cliffs Way, Arlington, TX 76006 Lincoln at Towne Square — 8205 Towne
Maine Dr., Plano, TX 75024 Stone Canyon — 10919 West Road, Houston, TX 77064 The Legend at Park Ten
- 15000 Park Row, Houston, TX 77084 The Bradford — 15902 Highway 3, Webster, TX 77598 Red Stone
Ranch — 1600 South Lake Line Blvd., Cedar Park, TX 78613 Lakeline Villas — 2201 South Lakeline
Blvd., Cedar Park, TX 78613 CERTIFICATE HOLDER Fannie Mae and/or Its Assigns Attn: Francis P.
Rooney, Jr. 3900 Wisconsin Avenue NW Washington DC 20016 CANCELLATION SHOULD ANY OF THE ABOVE
DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL
ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO
MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES AUTHORIZED Aon Risk Services, Inc. of Colorado REPRESENTATIVE ACORD 25-S (3/88)

M-5

 

EXHIBIT N

FORM OF ASSIGNMENT

To be agreed upon by the Members.

N-1EXHIBIT
10.1

 

 

TYCO
ELECTRONICS 

 

SEVERANCE
PLAN FOR U.S. OFFICERS AND EXECUTIVES

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  BACKGROUND, PURPOSE AND TERM OF PLAN

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Purpose of the Plan

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.02

  	
  Term of the Plan

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  “Alternative Position”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.02

  	
  “Annual Bonus”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.03

  	
  “Base Salary”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.04

  	
  “Board”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.05

  	
  “Cause”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.06

  	
  “COBRA”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.07

  	
  “Code”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.08

  	
  “Committee”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.09

  	
  “Company”

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.10

  	
  “Effective Date”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.11

  	
  “Eligible Employee”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.12

  	
  “Employee”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.13

  	
  “Employer”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.14

  	
  “ERISA”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.15

  	
  “Exchange Act”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.16

  	
  “Involuntary Termination”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.17

  	
  “Notice Pay”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.18

  	
  “Officer”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.19

  	
  “Participant”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.20

  	
  “Permanent Disability”

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.21

  	
  “Plan”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.22

  	
  “Plan Administrator”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.23

  	
  “Release”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.24

  	
  “Service”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.25

  	
  “Severance Benefit”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.26

  	
  “Severance Period”

  	
  4

  
				

 

i

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 2.27

  	
  “Subsidiary”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.28

  	
  “Termination Date”

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.29

  	
  “Voluntary Termination”

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  PARTICIPATION AND ELIGIBILITY FOR BENEFITS

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Participation

  	
  5

  
	
   

  	
   

  	
   

  
	
  Section 3.02

  	
  Conditions

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  DETERMINATION OF SEVERANCE BENEFITS

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Amount of Severance Benefits Upon Involuntary
  Termination

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 4.02

  	
  Voluntary Termination; Termination for Death or
  Permanent Disability

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 4.03

  	
  Termination for Cause

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 4.04

  	
  Reduction of Severance Benefits

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 4.05

  	
  Modification of
  Severance Benefits

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  METHOD AND DURATION OF SEVERANCE BENEFIT PAYMENTS

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Method of Payment

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 5.02

  	
  Other Arrangements

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 5.03

  	
  Termination of Eligibility for Benefits

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  CONFIDENTIALITY, COVENANT NOT TO COMPETE AND NOT TO
  SOLICIT

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Confidential Information

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 6.02

  	
  Non-Competition

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 6.03

  	
  Non-Solicitation

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 6.04

  	
  Non-Disparagement

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 6.05

  	
  Reasonableness

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 6.06

  	
  Equitable Relief

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 6.07

  	
  Survival of Provisions

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  THE PLAN ADMINISTRATOR

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Authority and Duties

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 7.02

  	
  Compensation of the Plan Administrator

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 7.03

  	
  Records, Reporting and Disclosure

  	
  14

  
					

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  AMENDMENT, TERMINATION AND DURATION

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Amendment, Suspension and Termination

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 8.02

  	
  Duration

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  DUTIES OF THE COMPANY AND THE COMMITTEE

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  Records

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 9.02

  	
  Payment

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 9.03

  	
  Discretion

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  CLAIMS PROCEDURES

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 10.01

  	
  Claim

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 10.02

  	
  Initial Claim

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 10.03

  	
  Appeals of Denied Administrative Claims

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 10.04

  	
  Appointment of the Named Appeals Fiduciary

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 10.05

  	
  Arbitration; Expenses

  	
  18

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  MISCELLANEOUS

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.01

  	
  Nonalienation of Benefits

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.02

  	
  Notices

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.03

  	
  Successors

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.04

  	
  Other Payments

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.05

  	
  No Mitigation

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.06

  	
  No Contract of Employment

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.07

  	
  Severability of Provisions

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 11.08

  	
  Heirs, Assigns, and Personal Representatives

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.09

  	
  Headings and Captions

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.10

  	
  Gender and Number

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.11

  	
  Unfunded Plan

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.12

  	
  Payments to Incompetent Persons

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.13

  	
  Lost Payees

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.14

  	
  Controlling Law

  	
  20

  
	
   

  	
   

  	
   

  
	
  SCHEDULE A SEVERANCE BENEFITS

  	
  A-1

  
				

 

iii

 

ARTICLE I

BACKGROUND, PURPOSE AND TERM OF PLAN

 

Section 1.01         Purpose of the Plan.  The purpose of the Plan is to provide
Eligible Employees with certain compensation and benefits as set forth in the
Plan in the event the Eligible Employee’s employment with the Company or a
Subsidiary is terminated due to an Involuntary Termination.  The Plan is not intended to be an “employee
pension benefit plan” or “pension plan” within the meaning of Section 3(2) of
ERISA.  Rather, this Plan is intended to
be a “welfare benefit plan” within the meaning of Section 3(1) of ERISA and to
meet the descriptive requirements of a plan constituting a “severance pay plan”
within the meaning of regulations published by the Secretary of Labor at Title
29, Code of Federal Regulations, section 2510.3-2(b).  Accordingly, the benefits paid by the Plan
are not deferred compensation and no employee shall have a vested right to such
benefits. 

 

Section 1.02         Term of the Plan.  The Plan shall generally be effective as of
the Effective Date and shall supersede any prior plan, program or policy under
which the Company or any Subsidiary provided severance benefits prior to the
Effective Date of the Plan.  The Plan
shall continue until terminated pursuant to Article VIII of the Plan.

 

 

ARTICLE II

DEFINITIONS

 

Section 2.01         “Alternative
Position” shall mean a position with the Company that:

 

(a)           is not more than 75 miles each way
from the location of the Employee’s current position (for positions that are
essentially mobile, the mileage does not apply); and

 

(b)           provides the Employee with pay and
benefits (not including perquisites or long term incentive compensation) that
are comparable in the aggregate to the Employee’s current position.

 

The Plan
Administrator has the exclusive discretionary authority to determine whether a
position is an Alternative Position.

 

Section 2.02         “Annual Bonus”
shall mean 100% of the Participant’s target annual bonus.

 

Section 2.03         “Base Salary”
shall mean the annual base salary in effect as of the Participant’s Termination
Date.

 

Section 2.04         “Board” shall
mean the Board of Directors of the Company or any successor thereto, or a
committee thereof specifically designated for purposes of making determinations
hereunder.

 

Section 2.05         “Cause” shall
mean an Employee’s (i) substantial failure or refusal to perform duties and
responsibilities of his or her job as required by the Company, (ii) violation
of any fiduciary duty owed to the Company, (iii) conviction of a felony or
misdemeanor, (iv) dishonesty, (v) theft, (vi) violation of Company rules or
policy, or (vii) other egregious conduct, that has or could have a serious and
detrimental impact on the Company and its employees.  The Plan Administrator, in its sole and
absolute discretion, shall determine Cause. 
Examples of “Cause” may include, but are not limited to, excessive
absenteeism, misconduct, insubordination, violation of Company policy,
dishonesty, and deliberate unsatisfactory performance (e.g., Employee refuses
to improve deficient performance).

 

Section 2.06         “COBRA” shall
mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

Section 2.07         “Code” shall
mean the Internal Revenue Code of 1986, as amended.

 

Section 2.08         “Committee”
shall mean the Management Development and Compensation Committee of the Board
or such other committee appointed by the Board to assist the Company in making
determinations required under the Plan in accordance with its terms.  The “Committee” may delegate its authority
under the Plan to an individual or another committee.

 

Section 2.09         “Company”
shall mean Tyco Electronics Ltd.  Unless
it is otherwise clear from the context, Company shall generally include
participating Subsidiaries.

 

2

 

Section 2.10         “Effective Date”
shall mean July 1, 2007.

 

Section 2.11         “Eligible Employee”
shall mean an Employee employed in the United States who is an Officer, or in
career bands 1 and 2, who is not covered under any other severance plan or
program sponsored by the Company or a Subsidiary.  If there is any question as to whether an
Employee is deemed an Eligible Employee for purposes of the Plan, the Senior
Vice President – Human Resources, Tyco Electronics shall make the
determination.

 

Section 2.12         “Employee”
shall mean an individual employed by Tyco Electronics Ltd. or a Subsidiary as a
common law employee on the United States payroll of Tyco Electronics Ltd. or a
Subsidiary, and shall not include any person working for the Company through a
temporary service or on a leased basis or who is hired by the Company as an
independent contractor, consultant, or otherwise as a person who is not an
employee for purposes of withholding federal employment taxes, as evidenced by
payroll records or a written agreement with the individual, regardless of any
contrary governmental or judicial determination or holding relating to such
status or tax withholding.

 

Section 2.13         “Employer”
shall mean the Company or any Subsidiary with respect to which this Plan has
been adopted.

 

Section 2.14         “ERISA” shall
mean the Employee Retirement Income Security Act of 1974, as amended, and
regulations thereunder.

 

Section 2.15         “Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

 

Section 2.16         “Involuntary
Termination” shall mean a termination of the Participant initiated by the
Company or a Subsidiary for any reason other than Cause, Permanent Disability
or death, as provided under and subject to the conditions of Article III.

 

Section 2.17         “Notice Pay”
shall mean the amounts that a Participant is eligible to receive pursuant to
Article IV of the Plan.

 

Section 2.18         “Officer”
shall mean any individual who is an officer, as such term is defined pursuant
to Rule 16a-1(f) as promulgated under the Exchange Act, of the Company.  For purposes of this definition, Officer
shall also mean any officer of any of the Company’s Subsidiaries who perform
policy making functions, within the context of Rule 16a-1(f).

 

Section 2.19         “Participant”
shall mean any Eligible Employee who meets the requirements of Article III and
thereby becomes eligible for salary continuation and other benefits under the
Plan.

 

Section 2.20         “Permanent
Disability” shall mean that an Employee has a permanent and total
incapacity from engaging in any employment for the Employer for physical or
mental reasons.  A “Permanent Disability”
shall be deemed to exist if the Employee meets the requirements for disability
benefits under the Employer’s long-term disability plan or under the
requirements for disability benefits under the Social Security law (or similar
law outside the United States, if the Employee is employed in that
jurisdiction) then in effect, or if the Employee is designated with an inactive
employment status at the end of a disability or medical leave.

 

3

 

Section 2.21         “Plan” means
the Tyco Electronics Severance Plan for U.S. Officers and Executives as set
forth herein, and as the same may from time to time be amended.

 

Section 2.22         “Plan
Administrator” shall mean the individual(s) appointed by the Committee to
administer the terms of the Plan as set forth herein and if no individual is
appointed by the Committee to serve as the Plan Administrator for the Plan, the
Plan Administrator shall be the Senior Vice President – Human Resources, Tyco
Electronics Ltd. (or the equivalent). 
Notwithstanding the preceding sentence, in the event the Plan
Administrator is entitled to Severance Benefits under the Plan, the Committee
or its delegate shall act as the Plan Administrator for purposes of
administering the terms of the Plan with respect to the Plan
Administrator.  The Plan Administrator
may delegate all or any portion of its authority under the Plan to any other
person(s).

 

Section 2.23         “Release”
shall mean the Separation of Employment Agreement and General Release, as
provided by the Company.

 

Section 2.24         “Service”
shall mean the total number of years and completed months the Participant was
an Employee of the Company.  Service with
any predecessor employer or with a Subsidiary prior to the Subsidiary’s
becoming part of the Company shall be recognized only to the extent specified
in the merger or acquisition documentation relating to the Subsidiary.  Periods of authorized leave of absence, such
as military leave, will be included in Service only to the extent required by
applicable law.  Any period of employment
with the Company, a Subsidiary, or a predecessor employer for which an Eligible
Employee previously received severance benefits, shall be excluded from
Service.

 

Section 2.25         “Severance Benefit”
shall mean the salary continuation amounts and other benefits that a
Participant is eligible to receive pursuant to Article IV of the Plan.

 

Section 2.26         “Severance Period”
shall mean the period during which a Participant is receiving Severance
Benefits under this Plan.

 

Section 2.27         “Subsidiary”
shall mean (i) a subsidiary company (wherever incorporated) as defined by
section 86 of the Companies Act 1981 of Bermuda (as amended), (ii) any
separately organized business unit, whether or not incorporated, of the
Company, and (iii) any employer that is required to be aggregated with the
Company pursuant to section 414 of the Internal Revenue Code of 1986, as amended,
and regulations issued thereunder.

 

Section 2.28         “Termination Date”
shall mean the date on which the active employment of the Participant by the
Company or a Subsidiary is severed by reason of an Involuntary Termination.

 

Section 2.29         “Voluntary Termination”
shall mean any retirement or termination of employment that is not initiated by
the Company or any Subsidiary.

 

4

 

ARTICLE III

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

 

Section 3.01         Participation.  Each Eligible Employee in the Plan who incurs
an Involuntary Termination and who satisfies the conditions of Section 3.02
shall be eligible to receive the Severance Benefits described in the Plan.  An Eligible Employee shall not be eligible to
receive any other severance benefits from the Company or Subsidiary on account
of an Involuntary Termination, unless otherwise provided in the Plan.  In addition, any Eligible Employee who is a
party to an employment agreement with the Company pursuant to which such
Eligible Employee is entitled to severance benefits shall be ineligible to
participate in the Plan.

 

Section 3.02         Conditions.

 

(a)           Eligibility for any Severance
Benefits is expressly conditioned on (i) execution by the Participant of a
Release in the form provided by the Company; (ii) compliance by the Participant
with all the terms and conditions of such Release; (iii) the Participant’s
written agreement to the confidentiality, non-solicitation, and
non-disparagement provisions in Article VI during and after the Participant’s
employment with the Company; and (iv) execution of a written agreement that
authorizes the deduction of amounts owed to the Company prior to the payment of
any Severance Benefit (or in accordance with any other schedule as the Committee
may, in its sole discretion, determine to be appropriate).  If the Committee determines, in its sole
discretion, that the Participant has not fully complied with any of the terms
of the Agreement and/or Release, the Committee may deny Severance Benefits not
yet in pay status or discontinue the payment of the Participant’s Severance
Benefit and may require the Participant, by providing written notice of such
repayment obligation to the Participant, to repay any portion of the Severance
Benefit already received under the Plan. 
If the Committee notifies a Participant that repayment of all or any
portion of the Severance Benefit received under the Plan is required, such
amounts shall be repaid within thirty (30) calendar days of the date the
written notice is sent.  Any remedy under
this subsection (a) shall be in addition to, and not in place of, any other
remedy, including injunctive relief, that the Company may have.

 

(b)           An Eligible Employee will not be
eligible to receive severance benefits under any of the following
circumstances:  

 

(i)            The Eligible Employee voluntarily
terminates employment:  

 

(ii)           The Eligible Employee resigns
employment before the job-end date specified by the Employer or while the
Employer still desires the Eligible Employee’s services;  

 

(iii)          The Eligible Employee’s employment is
terminated for Cause;  

 

(iv)          The Eligible Employee voluntarily
retires;  

 

5

 

(v)           The Eligible Employee’s employment is
terminated due to the Eligible Employee’s death or Permanent Disability;  

 

(vi)          The Eligible Employee does not return
to work within six (6) months of the onset of an approved leave of absence,
other than a personal, educational or military leave and/or as otherwise
required by applicable statute;

 

(vii)         The Eligible Employee does not return
to work within three (3) months of the onset of a personal or educational leave
of absence;  

 

(viii)        The Eligible Employee continues in
employment with the Company or a Subsidiary or has the opportunity to continue
in employment in the same or in an Alternative Position with the Company or a
Subsidiary; or 

 

(ix)           The Eligible Employee’s employment
with the Employer terminates as a result of a sale of stock or assets of the
Employer, merger, consolidation, joint venture or a sale or outsourcing of a
business unit or function, or other transaction, and the Eligible Employee
accepts employment, or has the opportunity to continue employment in an
Alternative Position, with the purchaser, joint venture, or other acquiring or
outsourcing entity, or a related entity of either the Company or the acquiring
entity.  The payment of Severance
Benefits in the circumstances described in this subsection (ix) would result in
a windfall to the Eligible Employee, which is not the intention of the Plan.

 

(c)           The Plan Administrator has the sole
discretion to determine an Eligible Employee’s eligibility to receive Severance
Benefits.  

 

(d)           An Eligible Employee returning from
approved military leave will be eligible for Severance Benefits if: (i) he/she
is eligible for reemployment under the provisions of the Uniformed Services
Employment and Reemployment Rights Act (USERRA); (ii) his/her pre-military
leave job is eliminated; and (iii) the Employer’s circumstances are changed so
as to make reemployment in another position impossible or unreasonable, or
re-employment would create an undue hardship for the Employer.  If the Eligible Employee returning from
military leave qualifies for Severance Benefits, his/her severance benefits
will be calculated as if he/she had remained continuously employed from the
date he/she began his/her military leave. 
The Eligible Employee must also satisfy any other relevant conditions
for payment, including execution of a Release.

 

6

 

ARTICLE IV

DETERMINATION OF SEVERANCE BENEFITS

 

Section 4.01         Amount of Severance Benefits Upon
Involuntary Termination. Except as otherwise provided in
Section 4.05,  the Severance Benefits to be
provided to an Eligible Employee who incurs an Involuntary Termination and is
determined to be eligible for Severance Benefits shall be as follows:

 

(a)           Notice Pay.  Except for Officers, each Eligible Employee
who meets the eligibility requirements for a Severance Benefit under Section
3.01 shall receive 30 calendar days notice as a Notice Period.  In the event that the Company determines that
a Participant’s last day of work shall be prior to the end of his or her Notice
Period, such Employee shall be entitled to pay in lieu of notice for the
balance of such Notice Period.  Notice
Pay paid to an Eligible Employee shall be in addition to, and not offset
against, the Severance Benefits the Participant may be entitled to receive
under this Article IV.  An Eligible
Employee who does not sign, or who revokes his or her signature on, a Release
shall only be eligible for Notice Pay. 
Unless otherwise permitted by the applicable plan documents or laws, an
Eligible Employee will not be eligible to apply for short-term disability,
long-term disability and/or workers’ compensation during the Notice Period, or
anytime thereafter.

 

(b)           Salary Continuation Benefits.  Salary Continuation shall be provided during
the Severance Period applicable to the Participant as set forth under the
benefits schedule appended to the Plan. 
During the Severance Period, the Participant shall receive his or her
Base Salary (net of deductions and tax withholdings, as applicable) in equal
installments over the Severance Period, per normal payroll cycles.  The salary continuation payment shall
commence no earlier than the end of the revocation period applicable to the
Release.

 

(c)           Bonus.

 

(i)            Participant may be eligible for a
cash payment equal to his or her pro rated annual bonus for the year in which
Participant’s Termination Date occurs, subject to the discretion of the Company
and pursuant to the terms set forth in the applicable incentive plans. 

 

(ii)           The Participant shall also receive a
cash payment equal to his or her Annual Bonus during the Severance Period applicable
to the Participant as set forth under the benefits schedule appended to the
Plan.  Such bonus payment shall be paid
to the Participant in equal installments over the Severance Period (e.g., 12 month, 18 months or 24 months).  The bonus payment shall be paid at the same
time as the Salary Continuation Benefits.

 

(d)           Medical, Dental and Health Care
Reimbursement Account Benefits.  The
Participant shall continue to be eligible to participate in the medical, dental
and Health Care Reimbursement Account coverage in effect at the date of his or
her termination (or generally comparable coverage) for himself or herself and,
where applicable, his or her spouse and dependents, as the same may be changed
from time to time for employees of the Company generally, as if Participant had
continued in employment during the Severance Period (the “COBRA Continuation
Coverage Period”).  The Participant shall
be responsible for the payment 

 

7

 

of
the employee portion of the medical, dental and Health Care Reimbursement
Account contributions that are required during the Severance Period and such
contributions shall be made within the time period and in the amounts that
other employees are required to pay to the Company for similar coverage.  The Participant’s failure to pay the
applicable contributions shall result in the cessation of the applicable
medical and dental coverage for the Participant and his or her spouse or
domestic partner and dependents. 
Notwithstanding any other provision of this Plan to the contrary, in the
event that a Participant commences employment with another company at any time
during the Severance Period, the Participant may cease receiving coverage under
the Company’s medical and dental plans. 
Within thirty (30) days of Participant’s commencement of employment with
another company, Participant shall provide the Company written notice of such
employment and provide information to the Company regarding the medical and
dental benefits provided to Participant by his or her new employer.  The COBRA Continuation Coverage Period under
section 4980B of the Code shall run concurrently with the Severance Period.

 

(e)           Equity Awards.  The treatment of stock options, restricted
stock, restricted stock units and other outstanding equity awards will be
governed by the applicable equity award agreements and plan documents. 

 

(f)            Outplacement Services.  The Company may, in its sole and absolute
discretion, pay the cost of outplacement services for the Participant at the
outplacement agency that the Company regularly uses for such purpose; provided, however, that the period of outplacement shall not
exceed twelve (12) months from Participant’s Termination Date.  The Company shall pay the cost of
outplacement services for the Participant for a period of up to twelve (12)
months from Participant’s Termination Date at either (i) the outplacement
agency that the Company regularly uses for such purpose, or (ii) provided the
Senior Vice President – Human Resources provides prior approval, at an
outplacement agency selected by the Participant.

 

(g)           In the event that provision of any of
the benefits in (d) above, would adversely affect the tax status of the
applicable plan or benefits, the Company, in its sole discretion, may elect to
pay to the Participant cash in lieu of such coverage in an amount equal to the
Company’s premium or average cost of providing such coverage.

 

8

 

Section 4.02         Voluntary Termination; Termination
for Death or Permanent Disability.  If the Eligible Employee’s employment
terminates on account of (i) the Eligible Employee’s Voluntary Resignation,
(ii) death, or (iii) Permanent Disability, then the Eligible Employee shall not
be entitled to receive Severance Benefits under this Plan and shall be entitled
only to those benefits (if any) as may be available under the Company’s
then-existing benefit plans and policies at the time of such termination.

 

Section 4.03         Termination for Cause.  If any Eligible Employee’s employment
terminates on account of termination by the Company for Cause, the Eligible
Employee shall not be entitled to receive Severance Benefits under this Plan
and shall be entitled only to those benefits that are legally required to be
provided to the Eligible Employee. 
Notwithstanding any other provision of the Plan to the contrary, if the
Committee or the Plan Administrator determines that an Eligible Employee has
engaged in conduct that constitutes Cause at any time prior to the Eligible
Employee’s Termination Date, any Severance Benefit payable to the Eligible
Employee under Section 4.01 of the Plan shall immediately cease, and the
Eligible Employee shall be required to return any Severance Benefits paid to
the Eligible Employee prior to such determination.  The Company may withhold paying Severance
Benefits under the Plan pending resolution of an inquiry that could lead to a
finding resulting in Cause.  If the
Company has offset other payments owed to the Eligible Employee under any other
plan or program, it may, in its sole discretion, waive its repayment right
solely with respect to the amount of the offset so credited.

 

Section 4.04         Reduction of Severance Benefits.  The Plan Administrator reserves the right to
make deductions in accordance with applicable law for any monies owed to the
Company by the Participant or the value of Company property that the
Participant has retained in his/her possession.

 

Section 4.05         Modification of Severance Benefits.  Notwithstanding anything to the contrary
contained herein, the Senior Vice President, Human Resources (or her/his
successor) shall have the discretion to modify the benefits otherwise available
to a Plan Participant under Section 4.01 or the timing of such benefits as
she/he deems appropriate, provided that in no event may the exercise of such
discretion result in an increase in the benefits that would otherwise have been
payable to the Participant under Section 4.01. 

 

9

 

ARTICLE V

METHOD AND DURATION OF SEVERANCE BENEFIT PAYMENTS

 

Section 5.01         Method of Payment.  The Severance Benefit to which a Participant
is entitled, as determined pursuant to Section 4.01, shall be paid in
accordance with normal payroll practices over the Severance Period or from a
supplemental unemployment benefits trust. 
In no event will interest be credited on the unpaid balance for which a
Participant may become eligible.  Payment
shall be made by mailing to the last address provided by the Participant to the
Company or such other reasonable method as determined by the Plan
Administrator.  In general, the initial
payments shall be made as promptly as practicable after the Participant’s
Termination Date, the execution of the Release required under Section 3.02, and
the expiration of the required revocation period specified in the Release.  All payments of Severance Benefits are
subject to applicable federal, state and local taxes and withholdings.  In the event of the Participant’s death prior
to the completion of all payments being made, the remaining payments shall be
paid to the Participant’s estate.

 

Section 5.02         Other Arrangements.  The Severance Benefits under this Plan are
not additive or cumulative to severance or termination benefits that a
Participant might also be entitled to receive under the terms of a written
employment agreement, a severance agreement or any other arrangement with the
Employer.  As a condition of
participating in the Plan, the Eligible Employee must expressly agree that this
Plan supersedes all prior agreements, and sets forth the entire Severance
Benefit the Eligible Employee is entitled to while an Eligible Employee in the
Plan.  The provisions of this Plan may
provide for payments to the Eligible Employee under certain compensation or
bonus plans under circumstances where such plans would not provide for payment
thereof.  It is the specific intention of
the Company that the provisions of this Plan shall supersede any provisions to
the contrary in such plans, to the extent permitted by applicable law, and such
plans shall be deemed to be have been amended to correspond with this Plan
without further action by the Company or the Board.

 

Section 5.03         Termination of Eligibility for
Benefits.  

 

(a)           All Eligible Employees shall cease to
be eligible to participate in the Plan, and all Severance Benefit payments
shall cease upon the occurrence of the earlier of:

 

(i)            Subject to Article VIII, termination
or modification of the Plan; or

 

(ii)           Completion of payment to the
Participant of the Severance Benefit for which the Participant is eligible
under Article IV.

 

(b)           Notwithstanding anything herein to
the contrary, the Company shall have the right to cease all Severance Benefit
payments and to recover payments previously made to the Participant should the
Participant at any time breach the Participant’s undertakings under the terms
of the Plan, the Release the Participant executed to obtain the Severance
Benefits under the Plan or the confidentiality, non-competition,
non-solicitation and non-disparagement provisions of Article VI.

 

10

 

ARTICLE VI

CONFIDENTIALITY, COVENANT NOT TO COMPETE AND NOT TO SOLICIT

 

Section 6.01         Confidential
Information.  The Eligible Employee agrees that he or she
shall not, directly or indirectly, use, make available, sell, disclose or
otherwise communicate to any person, other than in the course of the Eligible
Employee’s assigned duties and for the benefit of the Company, either during
the period of the Eligible Employee’s employment or at any time thereafter, any
nonpublic, proprietary or confidential information, knowledge or data relating
to the Company, any of its Subsidiaries, affiliated companies or businesses,
which shall have been obtained by the Eligible Employee during the Eligible Employee’s
employment by the Company or a Subsidiary. 
The foregoing shall not apply to information that (i) was known to the
public prior to its disclosure to the Eligible Employee; (ii) becomes known to
the public subsequent to disclosure to the Eligible Employee through no
wrongful act of the Eligible Employee or any representative of the Eligible
Employee; or (iii) the Eligible Employee is required to disclose by applicable
law, regulation or legal process (provided that the Eligible Employee provides
the Company with prior notice of the contemplated disclosure and reasonably
cooperates with the Company at its expense in seeking a protective order or
other appropriate protection of such information).  Notwithstanding clauses (i) and (ii) of the
preceding sentence, the Eligible Employee’s obligation to maintain such
disclosed information in confidence shall not terminate where only portions of
the information are in the public domain.

 

Section 6.02         Non-Competition.  The Participant acknowledges that he or she
performs services of a unique nature for the Company that are irreplaceable,
and that his or her performance of such services for a competing business will
result in irreparable harm to the Company. 
Accordingly, during the Participant’s employment with the Company or
Subsidiary and for the one (1) year period thereafter, the Participant agrees
that the Participant will not, directly or indirectly, own, manage, operate,
control, be employed by (whether as an employee, consultant, independent
contractor or otherwise, and whether or not for compensation) or render
services to any person, firm, corporation or other entity, in whatever form,
engaged in any business of the same type as any business in which the Company
or any of its Subsidiaries or affiliates is engaged on the date of termination
or in which they have proposed, on or prior to such date, to be engaged in on
or after such date and in which the Participant has been involved to any extent
(other than de minimis) at any time during the one (1) year period ending with
the date of termination, in any locale of any country in which the Company or
any of its Subsidiaries conducts business. 
This Section 6.02 shall not prevent the Participant from owning not more
than one percent of the total shares of all classes of stock outstanding of any
publicly held entity engaged in such business, nor will it restrict the
Participant from rendering services to charitable organizations, as such term
is defined in section 501(c) of the Code.

 

Section 6.03         Non-Solicitation.  During the Eligible Employee’s employment
with the Company or a Subsidiary and for the two (2) year period thereafter,
the Eligible Employee agrees that he or she will not, directly or indirectly,
individually or on behalf of any other person, firm, corporation or other
entity, knowingly solicit, aid or induce (i) any employee of the Company or any
Subsidiary, as defined by the Company, to leave such employment in order to
accept employment with or render services to or with any other person, firm, corporation
or other entity unaffiliated with the Company or knowingly take any action to
materially assist or aid any other person, firm, corporation or other entity in
identifying or hiring any such employee, or (ii)

 

11

 

any
customer of the Company or any Subsidiary to purchase goods or services then
sold by the Company or any Subsidiary from another person, firm, corporation or
other entity or assist or aid any other persons or entity in identifying or
soliciting any such customer.

 

Section 6.04         Non-Disparagement.  Each of the Eligible Employee and the Company
(for purposes hereof, the Company shall mean only the executive officers and
directors thereof and not any other employees) agrees not to make any statements
that disparage the other party, or in the case of the Company or its
Subsidiaries, their respective affiliates, employees, officers, directors,
products or services.  Notwithstanding
the foregoing, statements made in the course of sworn testimony in
administrative, judicial or arbitral proceedings (including, without
limitation, depositions in connection with such proceedings) shall not be
subject to this Section 6.04.

 

Section 6.05         Reasonableness.  In the event the provisions of this Article
VI shall ever be deemed to exceed the time, scope or geographic limitations
permitted by applicable laws, then such provisions shall be reformed to the
maximum time, scope or geographic limitations, as the case may be, permitted by
applicable laws.

 

Section 6.06         Equitable Relief.

 

(a)           By participating in the Plan, the
Eligible Employee acknowledges that the restrictions contained in this Article
VI are reasonable and necessary to protect the legitimate interests of the
Company, its Subsidiaries and its affiliates, that the Company would not have
established this Plan in the absence of such restrictions, and that any
violation of any provision of this Article will result in irreparable injury to
the Company.  By agreeing to participate
in the Plan, the Eligible Employee represents that his or her experience and
capabilities are such that the restrictions contained in this Article VI will
not prevent the Eligible Employee from obtaining employment or otherwise
earning a living at the same general level of economic benefit as is currently
the case.  The Eligible Employee further
represents and acknowledges that (i) he or she has been advised by the Company
to consult his or her own legal counsel in respect of this Plan, and (ii) that
he or she has had full opportunity, prior to agreeing to participate in this
Plan, to review thoroughly this Plan with his or her counsel.

 

(b)           The Eligible Employee agrees that the
Company shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages, as well as an equitable
accounting of all earnings, profits and other benefits arising from any
violation of this Article VI, which rights shall be cumulative and in addition
to any other rights or remedies to which the Company may be entitled.  In the event that any of the provisions of
this Article VI should ever be adjudicated to exceed the time, geographic,
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, service, or other limitations permitted by applicable
law.

 

(c)           The Eligible Employee irrevocably and
unconditionally (i) agrees that any suit, action or other legal proceeding
arising out of this Article VI, including without limitation, any action
commenced by the Company for preliminary and permanent injunctive relief or
other equitable relief, may be brought in the United States District Court for
the District of New York, or if such court does not have jurisdiction or will
not accept jurisdiction, in any court of general jurisdiction in New York, (ii)
consents to the non-exclusive jurisdiction of any such court in any 

 

12

 

such
suit, action or proceeding, and (iii) waives any objection which Participant
may have to the laying of venue of any such suit, action or proceeding in any
such court.  Participant also irrevocably
and unconditionally consents to the service of any process, pleadings, notices
or other papers in a manner permitted by the notice provisions of Section
11.02.

 

Section 6.07         Survival of Provisions.  The obligations contained in this Article VI
shall survive the termination of Eligible Employee’s employment with the
Company or a Subsidiary and shall be fully enforceable thereafter.

 

13

 

ARTICLE VII

THE PLAN ADMINISTRATOR

 

Section 7.01         Authority and Duties.  It shall be the duty of the Plan
Administrator, on the basis of information supplied to it by the Company and
the Committee, to properly administer the Plan. 
The Plan Administrator shall have the full power, authority and
discretion to construe, interpret and administer the Plan, to make factual
determinations, to correct deficiencies therein, and to supply omissions.  All decisions, actions and interpretations of
the Plan Administrator shall be final, binding and conclusive upon the parties,
subject only to determinations by the Named Appeals Fiduciary (as defined in
Section 10.04), with respect to denied claims for Severance Benefits.  The Plan Administrator may adopt such rules
and regulations and may make such decisions as it deems necessary or desirable
for the proper administration of the Plan.

 

Section 7.02         Compensation of the Plan Administrator.  The Plan Administrator shall receive no
compensation for services as such. 
However, all reasonable expenses of the Plan Administrator shall be paid
or reimbursed by the Company upon proper documentation.  The Plan Administrator shall be indemnified by
the Company against personal liability for actions taken in good faith in the
discharge of the Plan Administrator’s duties.

 

Section 7.03         Records, Reporting and Disclosure.  The Plan Administrator shall keep a copy of
all records relating to the payment of Severance Benefits to Participants and
former Participants and all other records necessary for the proper operation of
the Plan.  All Plan records shall be made
available to the Committee, the Company and to each Participant for examination
during business hours except that a Participant shall examine only such records
as pertain exclusively to the examining Participant and to the Plan.  The Plan Administrator shall prepare and
shall file as required by law or regulation all reports, forms, documents and
other items required by ERISA, the Code, and every other relevant statute, each
as amended, and all regulations thereunder (except that the Company, as payor
of the Severance Benefits, shall prepare and distribute to the proper
recipients all forms relating to withholding of income or wage taxes, Social
Security taxes, and other amounts that may be similarly reportable).

 

14

 

ARTICLE VIII

AMENDMENT, TERMINATION AND DURATION

 

Section 8.01         Amendment, Suspension and
Termination. 
Except as otherwise provided in this Section 8.01, the Board or its
delegee shall have the right, at any time and from time to time, to amend,
suspend or terminate the Plan in whole or in part, for any reason or without
reason, and without either the consent of or the prior notification to any
Participant, by a formal written action. 
No such amendment shall give the Company the right to recover any amount
paid to a Participant prior to the date of such amendment or to cause the
cessation of Severance Benefits already approved for a Participant who has
executed a Release as required under Section 3.02.  

 

Section 8.02         Duration.  Unless terminated sooner by the Board or its
delegee, the Plan shall continue in full force and effect until termination of
the Plan pursuant to Section 8.01; provided, however, that after the
termination of the Plan, if any Participants terminated employment on account
of an Involuntary Termination prior to the termination of the Plan and are
still receiving Severance Benefits under the Plan, the Plan shall remain in
effect until all of the obligations of the Company are satisfied with respect
to such Participants.

 

15

 

ARTICLE IX

DUTIES OF THE COMPANY AND THE COMMITTEE

 

Section 9.01         Records.  The Company or a Subsidiary thereof shall
supply to the Committee all records and information necessary to the
performance of the Committee’s duties.

 

Section 9.02         Payment.
Payments of Severance Benefits to Participants shall be made in such amount as
determined by the Committee under Article IV, from the Company’s general assets
or from a supplemental unemployment benefits trust, in accordance with the
terms of the Plan, as directed by the Committee.

 

Section 9.03         Discretion.  Any decisions, actions or interpretations to
be made under the Plan by the Board, the Committee and the Plan Administrator,
acting on behalf of either, shall be made in each of their respective sole
discretion, not in any fiduciary capacity and need not be uniformly applied to
similarly situated individuals and such decisions, actions or interpretations
shall be final, binding and conclusive upon all parties.  As a condition of participating in the Plan,
the Eligible Employee acknowledges that all decisions and determinations of the
Board, the Committee and the Plan Administrator shall be final and binding on
the Eligible Employee, his or her beneficiaries and any other person having or
claiming an interest under the Plan on his or her behalf.

 

16

 

ARTICLE X

 

CLAIMS PROCEDURES

 

Section 10.01       Claim.  Each Participant under this Plan may contest
only the administration of the Severance Benefits awarded by completing and
filing with the Plan Administrator a written request for review in the manner
specified by the Plan Administrator.  No
appeal is permissible as to a Participant’s eligibility for or amount of the
Severance Benefit, which are decisions made solely within the discretion of the
Company, and the Committee acting on behalf of the Company.  No person may bring an action for any alleged
wrongful denial of Plan benefits in a court of law unless the claims procedures
described in this Article X are exhausted and a final determination is made by
the Plan Administrator and/or the Named Appeals Fiduciary.  If the terminated Participant or interested
person challenges a decision by the Plan Administrator and/or Named Appeals
Fiduciary, a review by the court of law will be limited to the facts, evidence
and issues presented to the Plan Administrator during the claims procedure set
forth in this Article X.  Facts and
evidence that become known to the terminated Participant or other interested
person after having exhausted the claims procedure must be brought to the attention
of the Plan Administrator for reconsideration of the claims administrator.  Issues not raised with the Plan Administrator
and/or Named Appeals Fiduciary will be deemed waived.

 

Section 10.02       Initial Claim.  Before the date on which payment of a Severance
Benefit commences, each such application must be supported by such information
as the Plan Administrator deems relevant and appropriate.  In the event that any claim relating to the
administration of Severance Benefits is denied in whole or in part, the
terminated Participant or his or her beneficiary (“claimant”) whose claim has
been so denied shall be notified of such denial in writing by the Plan
Administrator within ninety (90) days after the receipt of the claim for
benefits.  This period may be extended an
additional ninety (90) days if the Plan Administrator determines such extension
is necessary and the Plan Administrator provides notice of extension to the
claimant prior to the end of the initial ninety (90) day period.  The notice advising of the denial shall
specify the following: (i) the reason or reasons for denial, (ii) make specific
reference to the Plan provisions on which the determination was based, (iii)
describe any additional material or information necessary for the claimant to perfect
the claim (explaining why such material or information is needed), and (iv)
describe the Plan’s review procedures and the time limits applicable to such
procedures, including a statement of the claimant’s right to bring a civil
action under section 502(a) of ERISA following an adverse benefit determination
on review.

 

Section 10.03       Appeals of Denied Administrative
Claims.  All
appeals shall be made by the following procedure:

 

(a)           A claimant whose claim has been
denied shall file with the Plan Administrator a notice of appeal of the
denial.  Such notice shall be filed
within sixty (60) calendar days of notification by the Plan Administrator of
the denial of a claim, shall be made in writing, and shall set forth all of the
facts upon which the appeal is based. 
Appeals not timely filed shall be barred.

 

(b)           The Named Appeals Fiduciary shall
consider the merits of the claimant’s written presentations, the merits of any
facts or evidence in support of the denial of benefits, and such other facts
and circumstances as the Named Appeals Fiduciary shall deem relevant.

 

17

 

(c)           The Named Appeals Fiduciary shall
render a determination upon the appealed claim which determination shall be
accompanied by a written statement as to the reasons therefor.  The determination shall be made to the
claimant within sixty (60) days of the claimant’s request for review, unless
the Names Appeals Fiduciary determines that special circumstances require an
extension of time for processing the claim. 
In such case, the Named Appeals Fiduciary shall notify the claimant of
the need for an extension of time to render its decision prior to the end of
the initial sixty (60) day period, and the Named Appeals Fiduciary shall have
an additional sixty (60) day period to make its determination.  The determination so rendered shall be
binding upon all parties.  If the
determination is adverse to the claimant, the notice shall provide (i) the
reason or reasons for denial, (ii) make specific reference to the Plan
provisions on which the determination was based, (iii) a statement that the
claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records and other information relevant
to a the claimant’s claim for benefits, and (iv) state that the claimant has
the right to bring an action under section 502(a) of ERISA.

 

Section 10.04       Appointment of the Named Appeals
Fiduciary.  The
Named Appeals Fiduciary shall be the person or persons named as such by the
Board or Committee, or, if no such person or persons be named, then the person
or persons named by the Plan Administrator as the Named Appeals Fiduciary.  Named Appeals Fiduciaries may at any time be
removed by the Board or Committee, and any Named Appeals Fiduciary named by the
Plan Administrator may be removed by the Plan Administrator.  All such removals may be with or without
cause and shall be effective on the date stated in the notice of removal.  The Named Appeals Fiduciary shall be a “Named
Fiduciary” within the meaning of ERISA, and unless appointed to other fiduciary
responsibilities, shall have no authority, responsibility, or liability with
respect to any matter other than the proper discharge of the functions of the
Named Appeals Fiduciary as set forth herein.

 

Section 10.05       Arbitration; Expenses.  In the event of any dispute under the
provisions of this Plan, other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall have the
dispute, controversy or claim settled by arbitration in New York, New York (or
such other location as may be mutually agreed upon by the Employer and the
Participant) in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association,
before a panel of three arbitrators, two of whom shall be selected by the
Company and the Participant, respectively, and the third of whom shall be
selected by the other two arbitrators. 
Any award entered by the arbitrators shall be final, binding and
nonappealable and judgment may be entered thereon by either party in accordance
with applicable law in any court of competent jurisdiction.  This arbitration provision shall be
specifically enforceable.  The arbitrators
shall have no authority to modify any provision of this Plan or to award a
remedy for a dispute involving this Plan other than a benefit specifically
provided under or by virtue of the Plan. 
If the Participant substantially prevails on any material issue, which
is the subject of such arbitration or lawsuit, the Company shall be responsible
for all of the fees of the American Arbitration Association and the arbitrators
and any expenses relating to the conduct of the arbitration (including the Company’s
and Participant’s reasonable attorneys’ fees and expenses).  Otherwise, each party shall be responsible
for its own expenses relating to the conduct of the arbitration (including
reasonable attorneys’ fees and expenses) and shall share the fees of the
American Arbitration Association.

 

18

 

ARTICLE XI

MISCELLANEOUS

 

Section 11.01       Nonalienation of Benefits.  None of the payments, benefits or rights of
any Participant shall be subject to any claim of any creditor of any
Participant, and, in particular, to the fullest extent permitted by law, all
such payments, benefits and rights shall be free from attachment, garnishment
(if permitted under applicable law), trustee’s process, or any other legal or
equitable process available to any creditor of such Participant.  No Participant shall have the right to
alienate, anticipate, commute, plead, encumber or assign any of the benefits or
payments that he may expect to receive, continently or otherwise, under this Plan,
except for the designation of a beneficiary as set forth in Section 5.01.

 

Section 11.02       Notices.  All notices and other communications required
hereunder shall be in writing and shall be delivered personally or mailed by
registered or certified mail, return receipt requested, or by overnight express
courier service.  In the case of the
Participant, mailed notices shall be addressed to him or her at the home
address which he or she most recently communicated to the Company in
writing.  In the case of the Company,
mailed notices shall be addressed to the Plan Administrator.

 

Section 11.03       Successors.  Any successor to the Company shall assume the
obligations under this Plan and expressly agree to perform the obligations
under this Plan.

 

Section 11.04       Other Payments.  Except as otherwise provided in this Plan, no
Participant shall be entitled to any cash payments or other severance benefits
under any of the Company’s then current severance pay policies for a
termination that is covered by this Plan for the Participant.

 

Section 11.05       No Mitigation.  Except as otherwise provided in Section
4.01(d) and Section 4.04, Participant shall not be required to mitigate the
amount of any Severance Benefit provided for in this Plan by seeking other
employment or otherwise, nor shall the amount of any Severance Benefit provided
for herein be reduced by any compensation earned by other employment or
otherwise, except if the Participant is re-employed by Company, in which case
Severance Benefits shall cease.

 

Section 11.06       No Contract of Employment.  Neither the establishment of the Plan, nor
any modification thereof, nor the creation of any fund, trust or account, nor
the payment of any benefits shall be construed as giving any Eligible Employee
or any person whosoever, the right to be retained in the service of the
Company, and all Eligible Employees shall remain subject to discharge to the
same extent as if the Plan had never been adopted.

 

Section 11.07       Severability of Provisions.  If any provision of this Plan shall be held
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall not affect any other provisions hereof, and this Plan
shall be construed and enforced as if such provisions had not been included.

 

19

 

Section 11.08       Heirs, Assigns, and Personal
Representatives. 
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each Participant, present and
future.

 

Section 11.09       Headings and Captions.  The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.

 

Section 11.10       Gender and Number.  Where the context admits: words in any gender
shall include any other gender, and, except where otherwise clearly indicated
by context, the singular shall include the plural, and vice-versa.

 

Section 11.11       Unfunded Plan.  The Plan shall not be funded.  No Participant shall have any right to, or
interest in, any assets of the Company that may be applied by the Company to
the payment of Severance Benefits.

 

Section 11.12       Payments to Incompetent Persons.  Any benefit payable to or for the benefit of
a minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person’s guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company, the Committee and all other
parties with respect thereto.

 

Section 11.13       Lost Payees.  A benefit shall be deemed forfeited if the
Committee is unable to locate a Participant to whom a Severance Benefit is
due.  Such Severance Benefit shall be
reinstated if application is made by the Participant for the forfeited
Severance Benefit while this Plan is in operation.

 

Section 11.14       Controlling Law.  This Plan shall be construed and enforced
according to the laws of the State of New York to the extent not superseded by
Federal law.

 

20

 

SCHEDULE
A

 

SEVERANCE
BENEFITS

 

	
  Chief Executive Officer

  	
   

  	
  24 months of pay

  
	
  Other Section 16-b Officers who are CEO Direct Reports

  	
   

  	
  18 months of pay

  
	
  All other Section 16-b Officers and Band 1 and 2 employees

  	
   

  	
  12 months of pay.

  

 

A-1

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